One of the best ways to become rich, it turns out, is not by making great investments but by avoiding terrible ones.  

If you lead a life where you completely avoid all the charlatans and frauds, you’ll be very sound financially. Probably more than sound.  

However, in practice, this is much more difficult to do. Why? Because unfortunately, charlatans are baked into Australia’s investment ecosystem.  

They are everywhere. Can you avoid them? Absolutely, and I want to teach you how. 

Is investing in housing the safest option? 

Australians love investing in housing. The most common refrain from an average Australian might be, “if I invest in houses, I know I won’t get ripped off”… Ah, no!  

The Australian housing market is one of the most sophisticated and ruthless markets on the planet. It’s a system with such bad incentives that it is genuinely wall to wall charlatan.  

Many clients have come to me after being a victim of unscrupulous mortgage brokers who pressured them into buying an investment property—an investment that wasn’t quite as advertised. 

Here’s how they screw you out of your hard-earned dollars.

The broker knows the current equity in your home (how much your house is worth minus the amount you owe the bank). After all, he lent you the money in the first place.  

He gives you a courtesy call after a couple of years. 

“How is it going?” Says the broker with what appears to be genuine concern. “You know what, I’ve got an interesting investment that’s just come past my desk.”  

This is lie number one, or perhaps lies one and two, because it didn’t ‘just come past his desk’ and the investment ISN’T interesting. 

The lie does two things. 

It builds a feeling of scarcity—it’s at my desk now but not for long! (Yep, that’s FOMO marketing.) Also, the fact that he calls you personally makes it feel like a genuine personal offer because he is thinking of you! 

The investment is this: with just an extra $50 a week, so the pitch goes, you can own an investment property in some suburb or city, usually in another state, well away from the victim (sorry, client) to be able to verify anything.

And it’s not just any property. This is a property that could be worth millions in a decade, and you could retire from it. Or so he says. 

This is the pitch, of course; for just $50 per week, you could be worth millions. Very tempting.  

The trick here is getting the victim (you) to focus on the small $50 a week, not the massive loan they want you to take.  

And of course, he’s never going to mention the other people in the background salivating about getting their hands on your money. Tens of thousands of dollars of your money.  

Wait, what other people? 

Who’s really winning with this tempting investment opportunity?  

First, there’s the property developer; they need to move all their unsold inventory.  

The developer is sitting on hundreds or thousands of poorly built matchbox houses that look exactly the same using the cheapest equipment, labour and resources that could humanly be combined to create what can barely be called a house.  

It is, in a word, absolute garbage. Locals know it. That’s why they aren’t buying. 

Interstate, however, what do they know? Hint: nothing. 

Enter the next charlatan into the equation—the real estate agent.  

I know this will shock many of you, but real estate agents are not always honest. 

Ok, I’m lying. They are NEVER honest. 

The real estate agent wants to get the best price for the property developer and themself (not you). So, they take the property that, at best, is worth $350k and pretend it’s worth $450k.  

The developer, the estate agent, and the broker tell the investor (victim) that the property is worth $450k, but they might be able to give you (personal, again) a better price. Wouldn’t that be great? 

The broker runs the numbers, and the best they can lend their client with the current equity in their home is up to $425k. 

With a bit of bargaining, wouldn’t you know it? Miraculously, the bank will lend up to $425k, and the estate agent accepts on behalf of the developer $425k. 

Everyone wins, right?  

Well, no. They have just stolen $75k from the investor with the help of the bank. 

Now you might assume, which most people do, that the bank wouldn’t let this happen because the bank is also at risk should you not make payments on the loan. Well, to a degree, you would be correct.  

But only to a vanishingly small degree.  

That’s the problem.  

The bank thinks the chance of you defaulting on that loan is so tiny that they don’t worry about it. 

After all, you signed up for the loan. The bank has the collateral of both of your houses, and they have already assessed you are a reasonable credit risk.  

In other words, the bank bets that you would rather take a $75k loss than be kicked out onto the street, declare bankruptcy, and become homeless. 

It’s a good bet. 

Everyone wins—except the investor/victim. 

Because you’ve just transferred $75k to the aforementioned financial experts.  

On top of that, there is stamp duty, estate agent fees, and a hefty broker commission. 

How do you avoid being victimised when investing in property? 

Now, you might think that I am against investment property. 

But you would be wrong. I think that a solid investment property is an excellent addition to many people’s portfolios. I don’t do it, but that’s because I have other tricks up my sleeve.  

The good news is that, after reading this, you’re already less likely to become a victim of greedy brokers. 

Why? 

Because you understand that this process is aligned against you, you can push back against anything untoward.

But that’s not the most crucial part.  

The way to make money out of an investment property is to make sure you pay the best price at the beginning.  

So, how do you do that?  

Get a professional appraiser.  

The above example does not work when you have an independent, professional appraiser.  

Their job is to tell you what a property is worth. That’s it. You pay the appraiser for that information, no matter what they come back with, good or bad. The appraiser, unlike everyone else, is on your side; they don’t care whether or not you buy the property (or any other one), after all. 

Don’t buy out of state (or any properties you can’t physically view).  

Try, if possible, to buy in an area that you are very familiar with. Local knowledge is just massive. 

Just have a think about some of your local suburbs. There’s probably at least one where you’d think, “there’s no way I’d buy a house there”. 

I’ve said it before. Knowing the area you’re buying into is important, and it can save you a lot of money and heartache down the line. There’s a reason they say “location, location, location”. 

Focus on the size of the loan.  

Remember when I said part of the trick is getting you to focus on that “only $50 extra a week”? 

Luckily, this is an easy one to overcome. 

Really think about the size of the whole loan, not just the amount you will be paying every week. And remember, that house they want you to invest in may not be worth as much as they’re telling you.