Best-selling property investment author's WA seminars banned: Department of Commerce

Sydney-based Rick Otton, the investment promoter and author of 'How to buy a house for a dollar' claimed as one of the Top 10 Most Popular Business Titles for 2013 by Money Magazine and Dymocks, is voluntarily foregoing promotion of his rent-to-buy scheme to WA investors.

This is due to WA Consumer Protection's belief that some of his advertising was misleading, requiring clarification based on statements made on a number of his websites.

Commissioner for Consumer Protection Anne Driscoll said that the seminars Otton and his companies run, which provide education and mentoring at a fee, appear to exaggerate the potential gains.

“These types of seminars highlight to potential investors the benefits of securing their financial future by investing in property, while downgrading the risks. They also appear to exaggerate the potential gains from property and other investments by following the promoter’s programs,” Driscoll said.

“We advise those who attend these seminars to resist the pressure to sign any contracts or pay any fees without first getting proper independent advice from financial advisers and property investment professionals. Consumers should be wary about any ‘get rich quick’ claims being made.”

The Department of Commerce notes that "Richard “Rick” Keith Otton, together with his companies Rick Otton.com Pty Ltd and We Buy Houses Pty Ltd, entered into an enforceable undertaking with Consumer Protection in which he undertook to refrain from conducting his seminars in WA."

This also requires him to refrain from sharing promotional material and promoting his real estate business in the state for a two-year period, as well as publishing information clarifying how the promoted arrangements operate.

Otton and his companies have not admitted any wrongdoing under Australian Consumer Law.

Driscoll said that WA consumers are being misled by the marketing of his scheme with statements including ‘buy a house for one dollar’ and ‘profit without initial investment’, the former being part of his book title also.

The way the scheme works is the following. Otton offers a vendor $1 for an option to buy their property at a future agreed price, while paying rent in the meantime with the seller retaining ownership during this time.

The investor then purchases the option on the condition they pay regular instalments at a rate higher than the rent, with an expectation of securing a loan to exercise the option.

Investors may know of this strategy as vendor financing or rent to buy.

As the scheme cannot really be completed with just $1, or without investment, Driscoll said that this constitutes as misleading.

Under their agreement, the Department of Commerce notes that Otton, his companies and his three websites (howtobuyahouseforadollar.com; rickotton.com, massivepassivecash.com.au) must make the following clear to buyers in WA:

- The purchase price for the property must ultimately be paid before they can own the property

- The one dollar payment to buy the option is only the initial step towards owning the property

- They may not necessarily satisfy a bank’s lending requirements to exercise the option to buy. Payment of instalments over time may not be proof of creditworthiness

- Legal advice should be obtained before being involved in a rent-to-buy property scheme

The following is now present on Otton's websites, which Driscoll said overcomes the concerns:

"The Commissioner for Consumer Protection (WA) has requested that the following clarifications be conveyed to our Western Australian customers:

A) In order to become the owner of real estate, the purchase price for the property ultimately must be paid;

B) This system does not enable you to become the owner of a house for $1 - you can only purchase an option for $1. This system may provide you with an initial step towards owning real estate.

C) The making of instalment payments can be seen by banks as a sign of credit worthiness for future lending, but it is not the only factor considered. You may not necessarily satisfy a bank's lending requirements just by pointing to payments of instalments over time as proof of creditworthiness.

D) It may be unlawful in Western Australia to effect transactions of real estate between other people without holding a real estate agent's licence under the Real Estate and Business Agents Act 1978 (WA). You should obtain legal advice relevant to your circumstances before operating a rent-to-buy business in Western Australia."

At present, Otton is allowed to continue with business as usual in other states and territories.

A recent DVD in the mail in Melbourne from RickOtton.com came with testimonials including "I made $37,000 With Only $1 Invested!" "We Made $180,000 With No Money Invested!" and similar.

Rick Otton, in a press release circulated by the Vendor Finance Institute, said: "Anyone who has read my book, 'How to buy a house for A Dollar' or attended one of my property events, knows that you literally can't buy a house for one dollar. In order to avoid any confusion for WA consumers I've agreed to clarify statements they feel are misleading."

The institute notes that the industry is going through a transition period.

The enforceable undertaking is available online here which, signed on 27th August 2013 by Otton and the Commissioner, states the following:

"The Commissioner for Consumer Protection (western Australia) (Commissioner) has raised concerns with the Otton Parties that the Scheme Representations may be capable of misleading Western Australian consumers, in contravention of the Australian Consumer Law (WA) (ACL), because:
G.1 The Otton Scheme provides for the Promoter to pay $1 (or other nominal amount) for an option to purchase a house;
G.2. But in order to acquire title to the house, the Promote must exercise the option;
G.3. And in order to exervise the option, the Promoter must pay the Promoter's Exercise Price;
G.4. hence, the Otton Scheme does not actually enable anyone to become the registered proprietor of a house for $1 (or other nominal amount); and
G.5. A buyer may not necessarily satisfy banks' lending requirements merely by pointing to the Buyer Payment over time as a proof of creditworthiness."

Property Observer notes that there are also currently other companies using sales pitches surrounding little to no money down required to promote their products in Western Australia.  It remains to be seen whether the Department of Commerce will treat these in a similar manner.

[email protected]

Jennifer Duke

Jennifer Duke

Jennifer Duke is an economics correspondent for The Sydney Morning Herald and The Age, based at Parliament House in Canberra.

Comments

Be the first one to comment on this article
What would you like to say about this project?