Despite years of bad publicity and some successful prosecutions the property spruiking industry is alive and well. Just 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 got the usual spiel: how superannuation is no good because they keep changing the rules, the share market is a mugs 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 spruikers company. The sales patter was so good that they signed up on the spot.
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. They still owe $200,000 on their home, and the spruikers solution to their financial challenges was to borrow another $500,000, for the entire purchase price of a home near Ipswich.
He is a tradesman, and she 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 him if property was his thing, he would be better off to buy a rundown house in the area where they live and do 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.
Fortunately, there were enough warning bells ringing for even these inexperienced investors to hear.
- The approach came from the spruiker. It always does. It offers a free seminar showing you 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.
- The spruiker tries to convince you that they are the only people who can find the right property for you. This is crazy: any seasoned property investor knows the way to wealth is to search out bargains for yourself.
- 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.
- They offer a one-stop shop the lawyer, mortgage broker, builder and managing agent. This allows them to stay in control throughout the process.
- 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.
- 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 and 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.
And don't hesitate to email me if you have any concerns.
- Noel Whittaker is an Australian expert on personal finance and the author of Making Money Made Simple. Send your money questions to email@example.com.