Developers have a deal for you

 

Bruce Brammall, The West Australian, 14 October, 2019

 

“Do you want to know how to create $300,000 in 14 months?”

This is the opening line in an email I have received, roughly, twice a week for a year.

It sure sounds good. Who am I kidding? It sounds TOTALLY AWESOME!

It’s not a Nigerian scam. Nor a Russian one. It doesn’t involve selling your children to slavery to become a bitcoin trader.

It’s 100 per cent “home grown”. An Australian operation, offering Australian assets.

“So, what is it?” you ask. Just hold your horses. Let me make my point, you impatient buggers.

Now, as a financial adviser, if I had sent this email to thousands of people, weekly for a year, good chance I’d already be eating porridge in prison. ASIC would have taken away my licence, if my own licensee (Perth-based Sentry) hadn’t snatched it first.

(Incidentally, I’ll tell you exactly how you can create $300,000 in 14 months. You won’t like it. And you won’t be able to do it. Let me come back to that.)

But some industries, it would seem, are allowed to claim virtually anyone could make for themselves nearly four times the national average salary, in just over a year, in profit.

There is no suggestion of any risk. It states $300,000 can simply be “created” in 14 months. You can just manufacture it, like you can make dinner, build a cubby house, or pull together an outfit for your next 1980s trivia night.

Who can make these claims and not go to prison? Who always seems to have been able to say almost any ludicrous or ridiculous thing they want and never be held to account?

I’ll tell you.

Property developers.

It seems they are able to say and/or do whatever they want. Make outlandish promises. No repercussions.

They seem to be acting with government protection? “Diplomatic immunity!” for all you Lethal Weapon 2 fans. (Except it didn’t end well for that South African character.)

They certainly don’t have the same licensing conditions/restrictions that apply to most other industries that help people invest.

If their claims are just flat-out bat-shit crazy, so what! ASIC turns a blind eye. They don’t hunt them down.

So what do property developers making this sort of claim offer?

Often, it starts with some of their “education courses”, which are usually just expensive (tens of thousands of dollars), long sales pitches to indoctrinate you for the type of property the developer will eventually hit you with.

In my example, the website points to a couple who (allegedly) “made” $300,000 in 14 months. Back in 2015. When property markets were still strong.

Examples from the last two years? When Sydney, Melbourne and Perth’s property markets have been in reverse thrust?

None.

When making claims, property developers don’t even have to use the “past performance is not an indicator of future performance”. They can make the same claim, it would seem, even if markets are spiralling towards Hades.

They own the Magic Pudding! They can help an infinite number of people create $300,000 in 14 months. As many suckers as will bite.

What will happen to most of the lambs? Sadly, they will be slaughtered. If not upfront, by the stumbling value of their properties in a couple of years when they get it revalued.

It’s highly likely that three years after they purchase, they will still be, on average, underwater by 20-30 per cent of the purchase price (not including stamp duty and negative gearing costs).

ASIC knows their claims are complete bollocks. So why don’t they act?

Anyhoo, in the meantime, I promised you I’d show you how you could make $300,000 in 14 months.

There is only one fairly safe way. Start with $18-20 million in cash and get yourself some term deposits, averaging about 1.7 per cent. If you can.

Don’t forget the government only guarantees accounts up to $250,000. So you will have to spread that over about 60 accounts.

There’ll be tax to pay on that $300,000. Probably at 47 per cent.

Anything other than cash – fixed interest, property or shares – incrementally increases the risk.

See what I’ve done? In a few short paragraphs, I’ve made a claim and put in some rules and disclaimers. Which developers never, ever, do.

Why? Well, I’ve got a theory there too. For another day.

Bruce Brammall is the author of Mortgages Made Easy and is both a financial advisor and mortgage broker. E: bruce@brucebrammallfinancial.com.au.