No sign of a property bubble, but dodgy spruikers are taking advantage of investors: Margaret Lomas

For the past four years we’ve been waiting for the property bubble to burst. To be honest, it’s been a little like waiting for the end of the world.

When I was a kid, there was a slated date for the end of the world to occur. We knew what it would look like – black thunder clouds, strong winds and then judgement day would be upon us. Depending upon your religious persuasion, a couple of things would happen on that day – you’d either be saved while non-believers everywhere perished, or the entire world would disappear in a fireball. There was also the threat of the nuclear bomb giving us incurable cancer, turning the earth to fallow pasture and causing slow and painful deaths always foreshadowing our everyday existence.

More recently, another end of the world date came and went, but the real one, sometime this December, is still before us, scaring our children and creating lively debate.

For property investors, though, we haven’t given the imminent destruction of the world a second thought, given the more dire situation surrounding the property bubble and its impending bursting. It’s consumed us and dictated our every investing move, and it seems like we are finally sick of it. Property investors have decided that enough is enough, and that if something was ever going to happen, it should have happened by now.

I’m somewhat cheered that there seems to be a renewed confidence in the market, but extremely worried, too. You see, the dodgy spruiker is back, in fine form, and investors, many with memories too short to recall the bad old days of rip-offs and questionable deals, are just begging for their money to be taken.

A recent Sun-Herald investigation established that “aggressive marketing by Heritage Financial Solutions of often overpriced and second-rate Queensland properties has left a trail of burned investors, bankruptcies and broken hearts”. This is by no means a one-off situation, and I am seeing more and more people being taken advantage of, and a return to a situation we saw in the early 90s.

The problem is this – there is no regulation to protect property investors, and therefore literally anyone can call themselves a property investment adviser and get away with it. In doing so they create around them an illusion of expertise and qualification, and usually their websites are so professionally created that this illusion appears real and legitimate.

So what is happening here? Well, it’s quite simple – the spruikers are once again convincing a whole new generation of property investors that they have only their best interests at heart and selling them deals with exceptionally poor underlying assets. And the investors, often time poor and looking for the solution to their retirement income woes, are lapping it up, neglecting due diligence and choosing to place their trust in those who have a big financial incentives to tell them what they want to hear.

• If there is a middleman between you and the supplier (excluding standard real estate sales), then there is going to be big commissions built in. While the property may be OK, the commissions usually run from around $15,000 up to $40,000. You won’t know about it, as it’s often provided as an after-sales “kick-back” and it doesn’t have to be disclosed – there is no law around property investment advice, and so no disclosure requirement. Such a big commission will, in this subdued environment, take years to recoup and put a dampener on leveraging ability.
• If the property exists in a state other than where it is being marketed, there has to be a reason why the locals haven’t snapped up the deal.
• If the person advising you to buy the property is also representing the seller then it is not possible for their advice to be independent – it is biased, and the deal is likely better for the marketer than it is for you.
• If the company selling the property waxes lyrically about how you are their first concern, it’s likely to be dodgy. It’s fine to sell property as a middleman but not fine to claim that your interests are with the buyer.
• If there is any kind of incentive scheme, such as a rent guarantee or bonus, something is likely to be up. Property that makes a viable investment can sell itself.

Now is the time to take extra care. If you’d like to invest in property, you can do so safely, but you have to have your eyes open and take responsibility for your own successes and failures. Protect yourself with the following guidelines:

• Beware of property being marketed by a seminar or telemarketer – such campaigns are expensive, and these people are paid big commissions that are hard to recoup through capital appreciation. Don’t believe claims that commissions aren’t built into the price – this is simply not possible.
• Never sign a deal on the day you see it. If an extra incentive is offered to do so, be doubly wary!
• Always confirm the value of a property through recent sales. Only recent sales can determine the actual value.
• Be aware that forecasts on income are based on historical figures and do not consider future supply.
• Be extra careful of off-the-plan – especially tax advantaged ones. They are often part of a huge development which will affect future supply and impact on your yields.

Most importantly, become educated before you become an investor. Too many people decide to invest and then go looking for a property, and this is why they are so vulnerable. Get that education under your belt first and then you will know how to spot a dodgy deal at 10 paces.

Margaret Lomas is a best-selling author and writes and hosts the popular Property Success With Margaret Lomas and heads up the panel onYour Money, Your Call, both on Sky News. She is the founder of Destiny.