Australians looking to buy property with their superannuation should beware, with the recent experience of one financial planner indicating the threat of property spruikers and “one-stop shops” looms large.
The possibility of leveraging in a superannuation fund is an attractive investment opportunity for many, but in seeking out these option, investors are still falling victim to some sinister “one-stop shops” - such as advice firms which have a range i.e. financial planners who also deal in property and other advice.
Verante Financial Planning co-founder Liam Shorte says he continues to see many trustees fall victim to property spruikers who charge hidden fees and exorbitant commissions.
“They’ve been told that they’re getting a free financial plan, and then the accountant and/or financial planner will recommend a property and they’ll not realise that they’re paying $36,000 in commissions on that property,” Mr Shorte said.
Trustees who are encouraged to buy in unfamiliar areas, such as mining towns, later discover they’ve paid an inflated price for an underperforming asset.
“These one-stop shops do a very hard sell to convince you and your SMSF to invest. By the time you pay the fees and the commissions involved, it becomes very hard to break even over the first five years. It really is just targeting those people who want to invest in property that may not have enough equity themselves so they turn to their superannuation instead,” Mr Shorte said.
“There’s nothing wrong with property in a super fund as long as everything is disclosed. However, what we see in some cases is 8 and 10 per cent commissions being paid and the client’s not told about it at all, and then when the property market turns against them, they’re doubly hit.”
Consulting with just one business providing different services may sound appealing, but investors should seek independent advice if they find themselves under pressure to use a variety of in-house products and services.
“The reason I don’t like these one-stop shops is that there’s no independent view. It’s the reason I deliberately don’t give property advice so that if a client comes to me I can actually have a look at the structure for them. If a financial planner is selling property as well then there’s very little structure for independent viewpoints,” Mr Shorte said.
Mr Shorte stressed the importance of prospective property owners doing their own research and ensuring they have all the information needed to make the right decision.
“A lot of people don’t even visit the areas they’re buying off-the-plan ... and when they do go to visit they look around [and see] local real estate agents selling properties much cheaper than the ones they bought,” Mr Shorte said.
“Investors have to ask more and more questions. If you’re looking to buy a property out of the area, get on a plane and actually go and see the area, talk to local real estate agents to make sure the property you’re buying is in the right price bracket for the area.
“Get some independent advice from people who aren’t selling the property to you. Reports are about $50 or $60. If you’re spending $500,000 on a property I don’t think it’s too much to ask. Call three local real estate agents and give them the details of the type of property and ask what’s on the market for what kind of price,” Mr Shorte said.
However, while there has been increased regulation in recent years, with bodies like ASIC targeting one-stop shops, the problem is likely to persist.
“I think the regulators are actually clamping down on them which is good. There’s less advertising that is going on, although there’s certainly still some property seminars out there.”
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