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

The meaning of life and real estate portfolio construction

Negative gearing doubts and ATO watches home purchasers

Real estate outlook: positive returns expected in challenging year

banner

Most viewed in recent weeks

A hard dose reality check on vaccines

With 160 programmes underway and billions of dollars spent on COVID-19 vaccines, investors are drawn to optimistic news. However, the company that has developed most new vaccines has a sober view.

After 30 years of investing, I prefer to skip this party

Eventually, prices become so extreme they bear no relationship to reality, and a bubble forms. I believe we are there today, not for all stocks but for many in the technology space.

How we have invested during COVID-19

With signs that the economic recession will not be as deep as first feared, many companies will emerge strongly with robust business models. Here are the sectors with the best opportunities.

Welcome to Firstlinks Edition 367

There is a similarity between the current health crisis and economic crises of the past. For COVID-19, record amounts of biotech funding from government agencies and private companies are looking for a vaccine. Likewise, central banks once struggled treating recessions but the 'vaccine' now is record amounts of financial stimulus to ensure liquidity. While the world awaits a COVID treatment, markets are purring along, at least until side effects hit.

  • 22 July 2020

Is the '4% rule' for retirement broken?

The traditional 4% rule was designed to ensure retirees do not run out of money, but low interest rates and expensive equity markets question the sustainability of the level. What are the alternatives?

Two great examples of why company management matters

It’s not only products and business models that create wealth. Management teams make decisions on how to deploy capital and such actions drive vastly different outcomes over time.

Latest Updates

Shares

How to handle the riskiest company results in history

It is better to miss a results bounce and buy after the company has delivered than it is to step on a landmine. With such uncertainty, avoid FOMO by following these result season investing tips.

Shares

The rise of Afterpay and emergence of a new business model

Sometimes the simplest ideas are the best. The founders of Afterpay stumbled on the attraction for consumers of paying by instalments, and now retailers must offer the facility or lose business.

Property

WFH and its impact on Australian offices and tenants

Although most office workers are currently WFH, an energy and a buzz comes from working in the same physical space. Other benefits include team building, relationships, talent mentoring and creative collaboration.

Fixed interest

Why 2020 has been the year of the bond market

Going back to June 2019, investors would have questioned the logic of diversifying away from outperforming growth assets. But when markets feel at their best, it is paramount to keep a perspective on long-term goals.

Investment strategies

Is 5G all hype or real investable opportunities?

While its impact will take time to unfold, 5G will meaningfully change the world. Once adoption takes hold, there is huge potential for its application across a wide range of industries.

Property

Australian house prices: Part 1, how worried should we be?

Three key indicators are useful for predicting the short-term outlook for house prices, although tighter lockdowns make the outlook gloomier. There is enough doubt to create cause for concern.

Property

Australian house prices: Part 2, the bigger picture

There is good reason to believe the negatives will continue to outweigh the positives over the next 12 to 18 months. There is more concern about house prices than the short-term indicators suggest.

Sponsors

Alliances

© 2020 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.
Any general advice or class service prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, has been prepared by without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information. 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.