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There’s plenty of hype out there surrounding investment schemes and making easy, fast money – but how can you tell what’s legitimate from what’s dodgy? Here’s how you can sort through the noise and spot a property spruiker.
‘Property spruiker’ is a term often bandied around by the media – typically with negative connotations.
The term generally refers to someone who promotes a particular investment scheme or strategy to the public. Another commonly applied disparaging term is ‘property shark’.
Promoting – or ‘spruiking’ – the benefit of a property investment strategy, scheme or development isn’t overly problematic. The property industry, similar to so many others, is heavily sales-based and while every property promoter will want to make a profit from their activities, a majority will do so in a transparent manner.
Unfortunately though, the legality of some schemes is not always clear cut, and it’s easy to be duped by bold claims without assessing how they apply to your personal circumstances. Investors need to be methodical in their analysis of spruiker claims to avoid being ripped off.
Some tell-tale signs and hallmarks of property spruikers are highly publicised investment seminars and training materials – usually targeting new property investors, promising quick gains and easy forms of wealth creation. Property spruikers rely on bold claims and hype around the power of the property market.
Examples of dodgy spruikers
Commonly promoted schemes that may pose a high risk to investors include rent-to-buy promotions, land banking, or schemes that involve establishing a self-managed superannuation fund through which to purchase property.
Rent-to-buy involves making regular payments to a landlord/owner, some of which covers the standard rental costs of the property – the rest contributes towards the purchase price of the property.
These payments are made until the home is paid off or until the ‘renter’ can obtain a traditional mortgage to purchase the property.
These schemes have helped many people jump onto the property ladder, and can be conducted in perfectly ethical circumstances – but it is also possible for rent-to-buy options to contain hidden clauses buried deep within contracts that may catch investors unaware.
For example, during the rent-to-buy process the landlord remains the deed holder to the property – meaning the ‘renter’ has no legal claim to the property.
If the existing owner defaults on the property, then the ‘renter’ has no right to make a claim on that property, nor see their funds returned.
Rent-to-buy schemes can target those with a lower-than-average income, who may be unable to obtain traditional financing, preying on their vulnerability.
The potential pitfalls of rent-to-buy schemes were highlighted by a recent case in Victoria.
A number of high-profile examples of property spruiking have involved land banking schemes, which have had negative consequences for investors.
Land banking schemes involve the speculative purchase of parcels of land with the intention of capitalising on future development approval. Investor funds are used to purchase the land, typically with the promise that there will be a certain return on investment in the future, once the land has been rezoned.
Issues with land banking schemes can involve the amount of time between the initial investment and the land’s rezoning – with investors potentially waiting indefinitely for a return on investment.
Other issues are more nuanced and may be harder to spot – examples include whether the promoter is licensed to provide financial advice, the transparency of funds management or breaches of corporate regulation.
ASIC recently launched proceedings against a high-profile Australian property spruiker citing concerns over the way a group of companies had promoted and structured their land banking scheme. ASIC also alleged the companies had provided “misleading and deceptive” documents related to a “no money down” property investment scheme.
Schemes that involve investors establishing self-managed super funds to purchase investment property typically fall into issue when the promoter is not qualified to provide financial advice, or recommends SMSF structures that are ill-suited to an investor’s financial situation.
These schemes have been the subject of parliamentary scrutiny, as well as monitoring by ASIC.
How to spot property spruikers
It might be a term that garners negative press – but the legality and morality of spruiker schemes vary on a case-by-case basis, meaning you need to assess each scheme individually.
Although some cases of property spruiking generate widespread coverage, in an industry with limited regulation (and plenty of slick advertising) spotting a dodgy property spruiker can sometimes be easier said than done.
Identifying whether a property spruiker’s advice is unsuitable, or even a scam, requires diligent research. It is important to wade through any marketing hype and identify whether the investment opportunity you are presented with aligns with your financial goals and means.
Use online tools to investigate any legal proceedings against a company, media reports or anecdotal stories from other investors.
Google can be an investor’s best friend here, although you need to ensure you’re using the tool properly. Spruikers can manipulate search engines to bury negative results well beyond page one – so it pays to be patient and thoroughly analyse the results of your web search.
Searching via government agencies, such as ASIC, is also a good place to start.
Avoiding bad property advice
Here’s how to protect yourself from being duped by dodgy advice:
• Seek independent financial advice that takes into consideration your individual circumstances
• Take any claims of ‘getting rich overnight’ with a grain of salt – real property investment success takes research and hard work
• Verify any data provided in support of an investment with external sources
• Verify the credentials of the company, or individual, promoting any scheme, making sure that they are appropriately licensed
• Take your time to consider a deal, don’t be pressured into agreeing to anything on the spot
• Make sure any financial strategies suggested to you are within the law and do not put your existing assets at risk
• Be wary of complex schemes, particularly those that involve self-managed super funds
Another way to suss out a spruiker is to ask questions upfront, before agreeing to participate in their schemes.
Below are some suggested questions:
• “Do you sell property?”
While there is nothing wrong with someone who develops or sells property, someone who is promoting an investment strategy and selling property as part of that strategy should be upfront about this fact.
• “Do you earn income anywhere else?”
Property promoters need to be upfront about where their income is coming from, including any commissions associated with the property they have advised you to buy or fees associated with advice or training material.
• “Are you independent?”
Any associations a property promoter has with builders, developers or financiers should be disclosed.
More advice on avoiding a bad property spruiker can be found on each state and territory’s consumer affairs website. For example, the Consumer Affairs Victoria website contains detailed advice on identifying risky property investment advice.
Details of current proceedings against companies can also be found on the ASIC website. ASIC and state-based fair trading authorities should be your first port of call for flagging property spruikers, by lodging an official complaint.
By taking your time and checking the facts you can avoid being fooled by a bad investment scheme. If you do choose to invest in a scheme suggested by a property spruiker, make sure you’ve done all the necessary research to ensure you are not compromising your future investment success.