Beware promises of finding gold in bricks and mortar
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.