There’s good news everywhere about property and its forecast growth for 2013. In the last quarter of 2012, property in almost every state showed a small but definitely upward trend. There’s a renewed confidence in the market which is making investors once again turn their thoughts to starting or adding to their portfolio, and self-managed superannuation fund investors are no different.

Time to be careful

This good news and confidence has a decided downside, and it’s in times like these that I worry. You see, people are careless enough when they buy property, somehow thinking that having been born and raised in property is experience and skill enough to make smart decisions about where and when to buy it as an investment. When we see the light at the end of the tunnel which seems to signify recovery, everyone becomes a little too eager to jump in quickly.

While that might seem like a good thing (as in, at least people are buying and investing for their future), it’s like throwing burley into the shark tank at the aquarium! When you do that, of course the sharks come!

One of the investors in the new series of Property Success with Margaret Lomas (Skynews Business Channel 602, Saturdays), has an awful tale to tell about being swindled by a ‘property expert’. These guys were true pros. Setting up as a husband and wife team (not too many ‘con-women’ about, so the female idea was a great one) they visited him at home and convinced him how important he was to them. They told him they had done really well for themselves and wanted to share their experiences with a motivated young man like him. In fact, all they wanted to do was help him (out of the goodness of their hearts)!

Pretty soon they had him stitched up in a two-bedroom unit for which he paid $230,000. It was only a few weeks after settlement that the first shock was delivered –  finding out that not only did the on-site ‘caretaker’ have an irreversible, 20-year contract to manage the building (which they did abominably) but that the company behind that contract was one owned by the lovely couple selling him the property!

It was then just months later, after this manager ran the entire complex into the ground through neglect, poor management and pilfering of the common funds, that they had the property valued by a registered valuer, to find out it had a current value of around $90,000.

The warning bells

It’s a familiar story and we will be hearing so many more of them, as unqualified opportunists springboard off investor confidence and put together schemes and scams with the only upside being to the schemer. It’s easy to think that you may be too smart to be caught up in such a scam, but trust me, it happens! I still own the very first property which I bought 14 years ago for $161,000 and its value today is $165,000! Some would say I’m not stupid but looking at the reasons why I even bought that property, you’d have to question that!

The schemes will number in their dozens, but amongst the more common will be:

• Investment seminars which purport to be providing investor education, only to offer a purchase of an actual property at the end.
• Property investment advisers, who claim to be assisting you to put together a portfolio of properties, who just happen to have the perfect property for you.
• Any kind of tax scheme, loan scheme or special structure for setting up property which seems unusual or out of the norm.  In these cases often they are marketed as having a ‘tax ruling’ on them – but be careful, often this may be someone else’s personal ruling.

The only true protection method is to never buy property from the person giving you the investing advice. Take advice from one person and buy the property from a completely unrelated party. Don’t allow your adviser to provide any kind of referral as they are bound to be in some kind of arrangement with the seller, even if it’s not actual cash changing hands. And most importantly of all, get educated before you start so that you can smell a rat at 50 paces!

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.