how many more investors like this poor sod, page-3

http://www.news.com.au/business/money/story/0,25479,24015636-5013951,00.html

Do your own research, don't just rely on 'experts'
* Don't just hand over money to companies promising riches

THE rental market is apparently the tightest it has been for years. This is a landlords' market with tenants bidding to rent properties and open for inspections crowded with potential applicants.

As share markets have become more volatile, affecting super savings as well, property investment is increasing as an alternative place to park your money.

However, there are dangers and traps for the unwary and plenty of sharks ready to take a big bite out of the new investor.

The dream

Australians love putting their money into the bricks and mortar of property. Along with superannuation, investing in a residential property is the favoured path to a comfortable retirement for many people.

There are plenty of property investment advisers urging us to unlock the equity in our homes and build wealth through property investing but this industry also has a bad side.

During the past decade or so, property investment spruikers have become a boom industry devoted to building their own wealth by selling the dream of becoming a landlord to ordinary people.

In books, seminars and on the web the spruikers are telling people how it's done and often organising everything from finding the property, getting the finance and even securing a tenant for people who know little or nothing about property investment.

There is no doubt that demand for rental property is historically high but this does not translate to all properties being a good investment asset.

While investment in residential property is weathering the interest rate storm slightly better than lending for owner occupied housing, it still does not meet demand.

The latest statistics show the trend in lending for investment housing is down, due to high interest rates and an uncertain economy.

The nightmare

Concreter Graham James from Preston is about 10 years off retirement and was sold on property as an investment by now discredited property spruiker Henry Kaye.

"Kaye got me for $20,000 and in the end all I got from him was five DVDs,'' Mr James said.

Then about a year ago Mr James received a phone call out of the blue from a property investment marketing company who told him he could retire earlier if he invested in building a new home for investment purposes.

That company is now also out of business but not before Mr James signed up, along with another two thousand other Victorians, to become a property investor again.

"They called me, came around and took me to a block of land in Pakenham,'' he said.

"I went back to their office and signed all the papers.

"The time between first phone contact and signing the papers was all of about two weeks. Once they knew that I was interested in doing it, they really rushed it through, I reckon they got me for twenty grand as well,'' he said.

Mr James now reckons he paid $20,000 too much for his $340,000 house and land package in Pakenham.

Truck driver John Harris from Werribee is a cautious, careful 62 year old investor who wants to retire in two years. He is much more cautious and careful after getting involved in a property investment deal three years ago.

"If I work bit extra over age 65 and the (real estate) market goes up 5 per cent per year for the next three years I might just get my money back,'' Mr Harris said.

Unfortunately, he was cold-called on his home phone by a `tax advisor' who offered to reduce his tax bill.

"It was all about tax, we'll come and help you reduce your tax.

"They took me out and showed me some properties way out over in Roxburgh Park. I liked a two-storey place and asked what the price was. The answer was $300,000 and they had a valuation for the house at $299,000.

"It all looked good and the market was going up but then the similar houses in the neighbourhood began to sell for a lot less than mine.

"I rang a local real estate agent and he told me I had paid $80,000 too much.''

Mr Harris borrowed heavily to buy the investment property.

"On Roxburgh Park I now owe $315,000 on a property that I hope has gone up to $255,000 in value.''

"I don't know how they get valuations to suit themselves and how the banks lend on them either.''

True value

Real Estate Agent Robert Fabretto from Hoppers Crossing said he's contacted weekly by property investment marketers and home builders looking to sign up potential property investors to finance the construction of new homes in Melbourne's rapidly growing outer western suburbs.

Mr Fabretto said the deals can often involve the investor being shown valuations that are "$20,000 to $40,000 above what I think are the market value of similar properties in the same area''.

"The worst example of this I have seen is a lady who paid $264,000 for a property in Hoppers Crossing 12 months ago for herself.

"I valued it at $210,000 earlier this year.

"She had two options open to her -- go bankrupt or rent out the property and move in with her parents and wait 10 or 15 years for the market to shift.

"Generally what happens is a builder says to a marketing company, I want, say, $250,000 for this property, whatever you can get on top of that you keep.

"Investors from interstate are often the prime targets of these type of spruiking deals. The only real advice I can give people is get your own independent valuations,'' Mr Fabretto said.

Reining in the rogues

Over the years there have been many inquiries into the property investment industry but very little action to protect investors.

The Victorian Government held an inquiry last year chaired by upper house MP Johan Schlepp.

"We really struggled to get quality information on this area,'' Mr Sclepp said.

Without that information it is hard to make recommendations to government.''

However, a new national approach may hold the key, with the Commonwealth to investigate national regulation of property investment spruiking.

The Federal Government recently released the Financial Services and Credit Reform Green paper which highlighted the promoters of property investment schemes for possible future regulation.

"At present this industry is unregulated and this has resulted in an unprecedented number of unqualified participants providing financial advice to unsuspecting investors,'' Property Investment Professionals of Australia (PIPA) chairman Margaret Lomas said.

"We believe that disclosure, professional ethics and a complete understanding of investor needs is crucial for all property investment advisers and we strongly support any move toward regulation.

"Spruikers dont break any laws but they seem to act without a conscience,'' she said.

However, Ms Lomas warns that the problems in this industry are more widespread than a few rogue operators.

"A bigger problem than those fringe players is the people setting themselves up as property investment advisers with no education or qualifications whatsoever.

"Because property investment is unregulated, people go along to see these people and make major financial decisions based on advice they receive that may not be suitable for their own personal needs,'' Ms Lomas said.