We have noticed an increase in enquiries from stressed home buyers and property investors who are having difficulty getting their loans approved even though they’ve gotten a pre-approval.
In many cases, this is because these property buyers have bought an off-the-plan land and house, or apartment package from a property marketer or property spruiker, where the value of the property has come up short – meaning the purchaser can’t get the funding for their loan. This leaves them out of pocket by a considerable amount of money!
How is this possible? Many property spruikers will market a property investment based on overly optimistic numbers. However in many cases, these properties underperform by not achieving their promised rental yield or capital growth, with the only “consolation” being tax deductions from depreciation or negative gearing on investment losses.
What is a property spruikers or high-risk property investment marketer?
According to Consumer Affairs Victoria, property spruikers are property investment promoters who often run ‘wealth creation seminars’ and training targeted at inexperienced investors.
They will promise potential investors easy and quick wealth creation through property investment, for little cost. The reality is however that these operators often mislead investors with inaccurate information about the investment or will charge you enormous fees for their advice – causing you to lose thousands or even tens of thousands of $$ and pushing you further back from achieving your goals.
Property spruikers can catch anyone off-guard
More and more home buyers and property investors have got caught out by property spruikers – we’ve been around long enough to have some mixed experiences with some who called themselves “investment experts” or “wealth builders”. In the earlier days, when those “investment experts” just started and approached us, we were even convinced to recommend them to a few of our own clients because we thought they were reputable companies, only for our clients to end up with construction issues, time blow-outs, extra costs, valuation shortfalls and issues in getting tenants. In those cases, we decided to give our clients all the commissions we received from those property marketers to make sure our clients were more than compensated.
We now know the tricks and processes used to market to unsuspecting investment clients and we’ve also decided not to use or recommend any property marketers ever again. This ensures we always have our clients’ best interest at heart. We recommend clients deal direct with the property developer or owners.
How to identify a property spruiker
Property investment promotors or spruikers will promise fantastic investment opportunities, usually to unsuspecting mum and dad investors. They will offer ‘free’ investment advice or invite you to a seminar and recommend a property, with one of the most common being off-the-plan house and land packages, often through a self-managed superannuation fund.
However what they often don’t tell you is: they’re receiving massive commissions to sell a particular property. Often they recommend an investment with claims of capital growth and rental yield that may not be independently verified or are wildly fantastic. They will always spin an investment to be a great one – even if the facts don’t back it up.
Developers rely on property spruikers to get a certain number of sales in order to get funding from lenders for a development. Property spruikers will try to approach even trusted advisors such as financial planners, mortgage brokers and accountants offering large commissions – sometimes even more than what a real estate agent would make! It’s important to make sure that your advisors remain independent so that you receive accurate advice that’s in your best interests.
Tricks and traps used by property spruikers – and how to avoid them
- Don’t take their claims at face value – if it sounds too good to be true, it probably is! Property spruikers are notorious for only highlighting the good parts of an investment and downplaying the risks.
For example, they might claim that you can rent out your property on settlement and be cash flow positive immediately. But remember, if you have bought into a new development you’re probably not the only one needing tenants. With all the properties coming out into the market at the same time, this may result in your property being vacant with so much choice available to tenants. Be realistic – can you afford to pay your mortgage if your property is vacant for a few months?
- Be wary of any discounts they offer. This can take the form of cash rebates in contracts and side agreements, offering the First Home Owners Grant (FHOG) in advance and special settlement offers. In many cases, the banks and their valuers will more than likely pick these ‘rebates’ up in your property valuation, so there is no benefit – the price of the property was simply overquoted in the first place! For example we had a client once show us a contract which offered a $3,000 rebate if settled within 14 days of title issuance. However this turned out to be a ‘sham’ rebate. Because firstly, 14 days is normal for almost all contracts and secondly, the bank simply took $3,000 off the land value.
- Do your own research. Look at other properties in the same area or even contact the developer directly if you can find out who they are. Developers also have their own sales teams and you can often get a lower price or more inclusions when dealing with them directly. Some of our clients have gone out to visit a property being marketed for themselves and seen other land and house packages being offered at a much cheaper price, or with more reputable builders.
- Sometimes a property spruiker might actually be onto a winner. However it’s important to validate their claims and ensure you’ve factored in all of the risks before signing on the dotted line. We have some clients who have had a successful outcome but only after good research, due diligence and seeking appropriate independent advice before committing.
At Mortgage Corp, our aim is always to find you the right finance solution rather than making money selling your properties. We believe in analysing your goals and your current situation to find you the most suitable loan solution to help you achieve your financial goals sooner. And our loan strategy consultation and service is free.
To discuss how we can work with you on building and growing a solid property portfolio, book a Free Loan Strategy Session today!
About Mortgage Corp
Based in Mount Waverley, Mortgage Corp is the most loved mortgage broking firm in Melbourne with consistent 5 star customer reviews. Mortgage Corp specialises in helping successful professionals and property investors maximise their return and strategically structure your loan for long term investment success.
While most banks and brokers focus on merely getting you a loan, Mortgage Corp is committed to getting you a comprehensive investment result. Request a Free Loan Strategy Session with our senior mortgage strategist Neil Carstairs today!
Mortgage Broker’s service is free, why not get a good one ? Mortgage Corp consistently receives 5 star customer reviews!
About Neil Carstairs
Neil is the founder of Mortgage Corp, an active property investor and awarding winning MFAA accredited finance broker with more than 10 years’ mortgage broking experience. Currently, Neil is one of only 19 MFAA Certified Mentors in VIC/TAS region.
He is known for his strategic approach to investing and ability to reach fast, successful outcomes for clients where his industry peers could not. Connect with Neil on LinkedIn.