Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 319

Six warning bells against property spruikers

Despite years of bad publicity — and some successful prosecutions — the property spruiking industry is alive and well. This week, I was contacted by a couple in their mid-50s who had completed a survey which asked them to tick the box most relevant to their financial challenges. They chose superannuation.

Within two days they had received a phone call from a person who claimed to know all about superannuation, and who made an appointment to see them at their home. They received the usual spiel: how superannuation is no good because they keep changing the rules, the share market is a mug’s game, and the only way to provide for the future is to buy a brand-new property, which of course would be built by the spruiker's company. The sales patter was so good that they signed up on the spot.

A better way to buy property

Luckily, they contacted me within the seven-day cooling off period.

They are an unsophisticated couple who live in a lovely coastal town in northern New South Wales and they still owe $200,000 on their home. The spruiker’s solution to their financial challenges was to borrow another $500,000 for the entire purchase price of a home near Ipswich.

The man in the couple is a tradesman and the woman works in aged care. I pointed out that the key to making money in real estate is to find an undervalued property with potential and buy it at a good price from a vendor who is keen to sell. Obviously, a brand-new house in a low socioeconomic area sold by a spruiker ticks none of those boxes. I told them if property was their thing, they would be better off buying a rundown house in the area where they live and doing it up. I also strongly agreed with their gut feeling that a debt of $700,000 was probably not a great thing to have in their situation.

Six warning bells

Fortunately, there were enough warning bells ringing for even these inexperienced investors to hear, and here are six things to look for:

  1. The approach came from the spruiker. It always does. It offers a ‘free’ seminar showing how to become a millionaire, entry in a contest to win something flashy, or an interview to learn how to save tax while paying off your home faster.
  2. The spruiker tries to convince you that they are the only people who can find the right property for you. Any seasoned property investor knows the way to wealth is to search out bargains for yourself.
  3. A building contract is involved, with the rationale that you will save stamp duty, get a new home, and enjoy bigger tax breaks. The real reason? It gives the spruiker a better chance to load the price.
  4. They offer a one-stop shop: the lawyer, mortgage broker, builder and managing agent. This allows them to stay in control throughout the process.
  5. The properties are usually in outlying suburbs in lower socioeconomic areas. And it is no accident that properties offered are usually in a different state to where you live.
  6. There will invariably be a mortgage required over your own home. The last thing the spruiker wants is for you to order a valuation on the overpriced property they are trying to force on you.

As interest rates continue to fall, and people live longer and longer, more over-50s will be worrying about how to provide for their retirement. It is fertile ground for con men. Keep in mind that once you reach 50 it is hard to recover from any serious financial mistake. The biggest warning sign of all is being contacted by anybody attempting to sell you on any kind of investment. You're welcome to email me if you have concerns.

 

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. Email noel@noelwhittaker.com.au or visit the website.

 

RELATED ARTICLES

Tax reform favours apartments and owner-occupiers

The meaning of life and real estate portfolio construction

Negative gearing doubts and ATO watches home purchasers

banner

Most viewed in recent weeks

Where Baby Boomer wealth will end up

By 2028, all Baby Boomers will be eligible for retirement and the Baby Boomer bubble will have all but deflated. Where will this generation's money end up, and what are the implications for the wealth management industry?

Meg on SMSFs: $3 million super tax coming whether we’re ready or not

A Senate Committee reported back last week with a majority recommendation to pass the $3 million super tax unaltered. It seems that the tax is coming, and this is what those affected should be doing now to prepare for it.

How much do you need to retire comfortably?

Two commonly asked questions are: 'How much do I need to retire' and 'How much can I afford to spend in retirement'? This is a guide to help you come up with your own numbers to suit your goals and needs.

Meg on SMSFs: Clearing up confusion on the $3 million super tax

There seems to be more confusion than clarity about the mechanics of how the new $3 million super tax is supposed to work. Here is an attempt to answer some of the questions from my previous work on the issue. 

The secrets of Australia’s Berkshire Hathaway

Washington H. Soul Pattinson is an ASX top 50 stock with one of the best investment track records this country has seen. Yet, most Australians haven’t heard of it, and the company seems to prefer it that way.

How long will you live?

We are often quoted life expectancy at birth but what matters most is how long we should live as we grow older. It is surprising how short this can be for people born last century, so make the most of it.

Latest Updates

Property

Australian housing is twice as expensive as the US

A new report suggests Australian housing is twice as expensive as that of the US and UK on a price-to-income basis. It also reveals that it’s cheaper to live in New York than most of our capital cities.

Exchange traded products

The catalyst for a LICs rebound

The discounts on listed investment vehicles are at historically wide levels. There are lots of reasons given, including size and liquidity, yet there's a better explanation for the discounts, and why a rebound may be near.

Retirement

The new retirement challenges facing Australians

A new report from Vanguard has found an increasing number of Australians expect to be paying off a mortgage in retirement, or forced to rent. A financially secure retirement is no longer considered a given.

Strategy

Why aren’t there more Warren Buffetts?

Warren Buffett is widely regarded as the most successful investor ever. Rather than keep his secret sauce hidden, he's shared his knowledge for decades, so why aren't more investors able to replicate his methods and success?

Retirement

Finding joy in retirement

Retirement can last more than 30 years, necessitating thoughtful planning. Many miss workplace friendships, identity, status, expertise, and routine, but these can be replaced with renewed activities and purpose.

Shares

Bull and bear case for Australian equities for FY25

ASX market bulls point to corporate balance sheets and earnings, while bears highlight company valuations and persistently higher inflation. It's best to ignore short-term noise and focus on investing in quality companies.

Gold

How gold can help diversify your portfolio

As inflation is likely to remain stubbornly elevated, the correlation between bonds and equities could remain high, reducing diversification within portfolios. A gold allocation may help to better protect your investments.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.