Beware prom­ises of find­ing gold in bricks and mor­tar

The Weekend Australian - Review - - Prime Space -

IT’S at times like th­ese when the mar­kets are at their hottest and awash with cash that in­vestors need to have their wits about them.

Three crashes in two years and the for­mula has been pretty sim­i­lar — ‘‘ deben­ture- style’’ re­turns backed by ‘‘ se­cure’’ prop­erty as­sets.

But in­stead what West­point, Fin­corp and Aus­tralian Cap­i­tal Re­serve of­fered was a note pay­ing a low re­turn for high- risk prop­erty de­vel­op­ment.

ACR’s of­fer of a 9 per cent re­turn looked pretty staid and solid on the face of it.

But what re­tirees and other small in­vestors didn’t re­alise is that in­vest­ment banks or pro­fes­sional in­vestors de­mand twice that rate of re­turn be­cause of the much higher risks res­i­den­tial prop­erty de­vel­op­ment.

The three com­pa­nies have soured the lives of around 18,000 in­vestors who poured more than $ 800 mil­lion into their cof­fers. ACR col­lapsed only late last month. The Aus­tralian Se­cu­ri­ties and In­vest­ments Com­mis­sion, which reg­u­lates th­ese schemes, has so far been in­ef­fec­tive.

It re­mains to be seen if its new chair­man, for­mer Aus­tralian stock ex­change boss Tony D’Aloisio, will make any im­pact with prom­ises of a ‘‘ fly­ing squad’’ to crack down on high- risk schemes and of in­vestor ed­u­ca­tion.

But in a strong econ­omy where peo­ple are look­ing for places to in­vest, there will al­ways be sharp play­ers.

In the end, it’s buyer beware. The Aus­tralian Di­rect Prop­erty In­vest­ment As­so­ci­a­tion has listed a few things to look for be­fore putting money in in­vest­ment schemes.

Look at the man­agers be­hind the fund. What is their track record? Who owns the in­vest­ment com­pany? Also

in ex­am­ine to whom the man­ager may be lend­ing money. Are the two par­ties re­lated?

Make sure you know what you are in­vest­ing in and where you sit in the re­pay­ment or­der if things do go sour.

Ex­am­ine the struc­ture of the in­vest­ment. You don’t need a high level of in­vest­ment know- how to do this. Just make sure you know whether you are in­vest­ing in prop­erty as­sets, or sim­ply lend­ing money.

Read the prod­uct dis­clo­sure state­ment. If you don’t fully un­der­stand it don’t in­vest! Is it too sim­ple and not backed by strong fi­nan­cial in­for­ma­tion?

Al­ways get the opin­ion of an in­de­pen­dent and trusted third party.

This could be an in­vest­ment re­port from a cred­i­ble re­search house, or a dis­cus­sion with a li­censed fi­nan­cial ad­viser. A small fee to a pro­fes­sional is never wasted when you want to pro­tect your in­vest­ment.

Di­ver­sify, di­ver­sify, di­ver­sify. Don’t put all your funds in one in­vest­ment ve­hi­cle, no mat­ter what it prom­ises.

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