Have you ever been invited to attend a free wealth creation seminar? There is no shortage of them, especially those that promise to disclose the secrets of success in the Australian property market.
Typically, these seminars feature compelling motivational spruikers who claim to have made personal fortunes out of property investing and are now willing to freely offer you, a complete stranger, the strategies and techniques that have made them rich.
Common messages from the spruikers in these seminars are that property investments (at least the ones they support) are pretty much risk free, are sure to make you a millionaire in a few short years and will achieve above average returns.
So why would anyone offer these services for nothing? Could it really be out of the “goodness of their heart”? Could it be that they respect and value the service of ADF members and are now willing to give back something to the Defence community free of charge? That’s always a possibility, but it’s highly unlikely.
What’s more likely is that the motivational rhetoric is a softening up process. After that, serious money can be made out of selling (sometimes) over-priced properties on behalf of developers who are commercially connected to the spruikers, arranging mortgages for potential buyers, and marketing expensive so-called “property education” programs to seminar attendees.
In order to sweeten the deals, the properties mentioned at the seminars will often include “rental guarantees” and apparently generous discounts for buying “off-the-plan” during the seminar program. For example, if a “rental guarantee” of five years is offered, ask yourself who is paying for the guarantee. It’s most unlikely that the seller will be paying. Could it be that the buyer is actually paying for the guarantee through an excessive price on the property? The same point applies in the case of discounts for buying “off-the-plan”. It’s most unlikely that the discounts will be generous and may not even be genuine discounts at all.
The key messages here are: 1) Never make a significant financial decision in the heat of the moment, especially at a seminar where the atmosphere is designed to be exciting and motivating and does not encourage rational thinking.
2) Before making a commitment from which you can’t backdown, ask for a detailed written outline of the deal that’s being proposed, especially its income and expenses, both now and down the track for, say, at least 5 years (or the term of your loan, whichever is the greater). This should include all commissions and incentives to the promoter.
3) Seek a second opinion, perhaps from a licensed financial adviser whose values and principles align with the ADF Financial Advice Referral Program. This will cost you money, but it’s likely to give you some assurance that you’re on the right (or wrong) track with your investment.
4) Check the on-line reviews of other consumers. This is by no means a definitive basis on which to form an opinion, but it can be a factor in your “due diligence” of the deal.
5) Check if the promoter’s name (or a company associated with the promoter) appears in:
the Australian Securities and Investments Commission’s Connect professional registers (under “banned and disqualified”);
the Australian Competition and Consumer Commission’s undertakings register; and/or
the website of your state’s or territory’s consumer affairs and protection agency.
6) Remember the golden rule of investing….if something looks too good to be true, it probably is. Be sceptical. Do not be hurried into making a decision that you may live to regret. Do not be a victim of FOMO (Fear of Missing Out). One thing that can be absolutely guaranteed is that there will always be another property available (many others, in fact) when you’re ready to make a commitment.
It’s also worth noting that in addition to the Australia-wide network of commission-based local real estate agents, there are many “boutique” specialist property consultants and mortgage brokers who don’t offer seminar programs, but nevertheless promote the merits of buying and financing property through them. We’re certainly not suggesting that these consultants are unethical or dishonest, however, we are saying that potential clients should understand how their consultants are remunerated and how that might impact on the advice that is being offered. So, for example, where a “boutique” property specialist is paid a commission by a property developer (and not a fee for service by the client), it could reasonably be concluded that the objectivity of the advice may be impacted by the existence of a conflict of interest. This does not mean that the advice is necessarily wrong or inappropriate, however, when assessing the merits of the advice they have been offered, potential clients should always assess whether it is offered in their best interests.
Check out our other articles on a range of helpful topics