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6 tips to avoid a bad property deal

·7-min read
Sad pregnant woman and husband in their kitchen, looking very concerned about a property scam.
It can be easy to fall victim to property scams but they can also be easily avoided. (Source: Getty)

Have you heard the horror stories about unsuspecting property buyers falling victim to redirection scams?

They buy a property and secure the deal by transferring their entire hard-earned house deposit to what they think is a conveyancer or real estate agent.

By the time they realise it’s in fact a scammer hacking email accounts, it’s too late. The funds are gone.

Also by Michael Yardney:

And these property-settlement scams are becoming more and more common now that house prices are at record highs.

The Australian Competition and Consumer Commission's (ACCC) Scamwatch receives, on average, about two reports per week of payment-redirection scams in real estate, ABC News reported.

March 2022 saw 14 reports alone — the highest figure in 15 months.

"Twenty-five reports were made this year, which is an increase of 25 per cent on the same period in 2021," an ACCC spokesperson said.

“Losses this year are up 186 per cent, to $1.8 million.”

NSW, which has the nation's most expensive property market, accounts for three-quarters of the $4.3 million lost through this scam around the country, from January 2021 to the end of March 2022, according to news providers.

And Chris Tyler, chief executive officer of the NSW division of the Australian Institute of Conveyancers (AICNSW) also told ABC News that buyers weren’t the only ones being targeted with the scams.

Fraudsters had even used payment redirection to scam the stamp duty a conveyancer had intended to transfer to state revenue.

"Because property transactions are so high in value, all the parties in the transaction are being targeted: the real estate agents, the mortgage brokers, the conveyancer,” Tyler said.

"Half the time the deposit could be a couple-hundred-thousand dollars."

Scams also happen with rental properties

Consumer Affairs Victoria warned of a rental swindle where scammers advertise rental properties on well-known property websites.

When you express interest, they say they are overseas or interstate and that you must conduct the transaction online.

Also, scammers may show you through a property, when they have no right to rent it to you.

The scammers may try to appear genuine by providing photos, real addresses of properties, land title deeds and even scans of stolen passports.

They scam you by asking for a month’s bond and rent to secure the property. If you pay by money transfer, there is very little chance of recovering your money.

Scammers may also ask for personal details such as bank and credit card numbers and driver’s licence details, which they use for credit card and identity fraud.

But there are other types of tricks that catch out unwary investors.

Here are 6 common property scams to keep an eye out for.

1. Adviser or property marketeer?

Often novice investors are keen to get into property because they believe it is a good investment, but they’re daunted by the whole process.

It all seems too complicated.

But then someone comes along and offers to “take care of everything”, giving our beginning investor a feeling of relief.

A one-stop shop sounds convenient, but be wary.

Photo of a young couple counseling with financial adviser at home.
Be wary of the property marketer offering to 'take care of everything'. (Source: Getty)

Many so-called advisers are really property marketers representing developers so they can't really be on your side, can they?

Now, while this isn’t really a scam, I’ve seen many unsuspecting beginning investors commit to overpriced, underperforming properties, meaning they miss out on the profits they could have made.

Protect yourself by getting advice from an independent property strategist.

And if you do buy from a property developer, ensure you get an advice lawyer who has no connection to the company selling the property, a finance broker who represents you, and either a valuer or independent confirmation of the property's value.

2. Marketing pamphlets

Watch out for those pamphlets in your mailbox or those unsolicited emails that promise the world.

“Guaranteed income,” it assures you. “Risk-free investment.”

Or even: “Become a millionaire in 3 years.”

If it sounds too good to be true, it probably is.

3. Seminars and webinars

For many years prior to COVID, I used to present seminars and I regularly conduct webinars to educate property investors.

But we don’t sell properties at the back of the room – in fact, we don’t sell properties at all and never have.

But that’s not how everyone operates.

I’m sure you have received an invitation like this in the past:

Come to our ‘free’ seminar or attend our free webinar and hear about how we can deliver you financial freedom in six easy steps.

They’re often highly sophisticated sales operations, with everything conveniently available to tempt inexperienced investors to buy on the spot.

You may even find they have mortgage brokers ready and waiting, in house, to assess your financial situation and approve your loan.

You’re pressured to make decisions instantly or risk losing out.

Composite image of laptop and phone headset next to a city skline.
It's often best to avoid invitations to seminars and webinars promising financial freedom. (Source: Getty)

My advice would be to give these schemes a wide berth.

Often these seminars or webinars on residential property are fronts for developers wishing to offload stock to investors.

Sure, they may promise huge rental returns and great properties, but you have to ask yourself the question: if the properties are so great, why are they not brought to market where more people can fight over them and potentially up the sale price?

The truth is, many properties sold this way are often priced well above their worth.

4. Off-the-plan property

Buying a property off the plan means signing a contract to purchase before the property has been built.

You’ll usually be offered incentives such as reduced stamp duty, tax and depreciation benefits, rental guarantees, and below-market prices.

The problem with a lot of off-the-plan stock is that you are investing in an unknown stock and all of the risk is yours.

You put a deposit down on a property at a value that has been determined by the developers, even though that property may not be ready for a few years.

As we all know, a lot can happen in the residential property market in that time.

The contracts lock you in, you have very little room to get out of the contract, and yet often the developer can back out at any time.

There are many unknowns: what will the market be like when the development is completed? What will the standard of finish be? Will there be other competing developments?

With all these uncertainties, you should be paying a discount for “off-the-plan” properties, however you usually pay a hefty premium, which includes the developer’s margin and marketing costs

A word of warning, too, about rental guarantees.

If a developer has to offer this kind of inducement to sell their new development, then ask why?

5. House-and-land packages

Entire new suburbs are mushrooming all around Australia, with house-and-land packages being offered to first home buyers.

But there is also a whole industry of property marketers built around selling these properties to unsuspecting investors.

A sweeping drone view of a housing estate under development.
House and land packages are not always what they seem. (Source: Getty)

The lack of scarcity in these estates, the demographics of young families who are very interest-rate and jobs sensitive, and the lack of tenants for these locations often means you've been sold a dud.

Unfortunately, you may not realise you’ve been taken advantage of until years later when the value of your property is still below your original purchase price,

6. Overseas investment

Australia is one of the more expensive residential property markets in the world and as people are priced out of capital cities, some are beginning to look overseas.

But the internet is littered with stories of people who have lost a fortune investing overseas following various property spruikers.

It is hard enough to get your due diligence right in a familiar culture, let alone in a foreign country with a foreign residential property market.

You may be tempted to buy that run-down home in Sicily, which is worth a car space in Sydney, but if something seems too good to be true, it generally is.

In summary…

Sure, knowledge is power and while it’s often said that experience is the best teacher, in my mind you have too much to lose getting it wrong in property investment.

Before making any significant investment, make sure you get independent advice from someone who takes a holistic approach and who has nothing to sell other than advice.

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