In these straightened times, people, especially retirees, are looking for investments which provide a good income.
With interest rates at rock bottom levels, income from investments in safe banks and building societies does little to support the average lifestyle; no wonder more and more of us have to continue working into old age!
So, many people now look elsewhere for investments that can provide a good income, and what better and safer way to achieve that than putting your savings into bricks and mortar. Property ticks all the boxes: a tangible asset you can see and touch, very reassuring and a lot less risky than the stock market, you’ll get a good rental income, long term capital growth protecting you from future inflation, the list goes on.
That is until the unwary, the naive and the ever hopeful come up against the power of the slick salespeople of a certain class of property investment company, that peddle their wares through the most glossy advertising brochures and exceedingly slick high class HD websites.
A case in point is one company specialising in luxury hotel resort developments in the Caribbean, others have developments or investments in Detroit USA, and Brazil.
What investors must realise though is that any fully managed investment which promises higher than average returns carries more risk: don’t let anyone tell you otherwise. The higher the promised return, the higher the risk; look to Bernie Madoff’s consistent 15% return as an example of this.
In the Caribbean case it has been estimated that around 3,000 UK investors put in 250m-£300m in deposits to secure off-plan luxury properties, which the company was developing throughout the Caribbean and other resort locations; that is until the company recently went into administration.
It is thought that many of these investors have remortgaged homes, taken out personal loans or used their retirement savings for deposits on these properties, on the promise they would provide a steady rental income for years to come, once they are built.
The lawyers who are acting for investor groups in this company are now claiming that only around 300 of the 6,000 off-plan resort properties sold have actually been built.
Although many of these investors are asking for their deposits back, the company is urging them to still complete on their obligations, pending restructuring of the company, against lawyers advice that this would be throwing good money after bad – a real nasty financial mess for those who got involved.
Subscribers and regular readers of the LandlordZONE® publications will be aware that we often advertise on behalf of property investment companies. We are well aware of this shadier element in the business and we do our utmost to avoid promoting these types of investment.
We do our own due diligence and from the results of this we have turned away several companies wishing to advertise with us over the last 12 months.
We urge anyone contemplating any sort of marketed property investment to do their own thorough due diligence before handing over any money, here’s a ten point checklist:
1 – Visit the property or development yourself, wherever it may be.
2– Speak to local agents and residents to get a feel for the situation and the rental demand.
3 – Ask the company to put you in touch with other investors and get their story.
4 – Large developments and apartments will have service charges. Make sure these are reasonable that that you will not be held to ransom in the years to come.
5 – Do some searching on the Internet for comments on the investments, the company, the senior managers and directors – five minutes on Google will often be very revealing in this respect.
6 – Check out the company or parent company very thoroughly. Find them on the Companies House Web Search facility and run a company check on them using a reputable credit reference agency.
7 – Especially beware of buying off-plan. It may be very tempting to try to achieve high earnings returns by buying off-plan and reselling the property at a higher capital gain, but you are in risky territory.
8 – Buying abroad is obviously more risky than in the UK. Laws are often very different and the language barrier can be a nightmare. Always use a reputable and independent local agent and legal firm.
9 – Make sure you get full title to the land the property stands on before you hand over any money: if the property title is with the investment company, you lose the lot if the company goes bust.
10 – Take out insurance for hurricane and earthquake damage when investing in countries susceptible to these events.
Not every property investment company, whether home or abroad, is a fraud. Many of the more reputable ones will have your interests at heart and will produce excellent results for you. But you must sort the wheat from the chaff.
By Tom Entwistle