Investor Beware

We draw your attention to an article in The Telegraph "Investor beware: Collette Lord had a costly encounter with an investment agency" by Janie Lawrence

"There is a plethora of courses now on offer, purporting to tell you how to get rich quick by investing in property. Pocket calculator in hand, Janie Lawrence goes along to one of the good ones and learns some scary home truths about the baddies

We have been warned that this is going to be an “intensive day”. I fear that it is also going to be an exceedingly long one. At nine o’clock on a Saturday morning, I, along with 20 others, am sitting in the Victory Services Club in London, clutching my calculator (circa Noah) and about to calculate my first ever “discounted cash- flow” table.

Capitalising on the popularity of television property programmes, investment courses such as this (www.bewarethesharks.com) have mushroomed in the past three years. Indeed, the merit of investing in a buy-to-let or an off-plan property, whether in Leeds or Latvia, has become an interminable point of discussion among my friends.

Some of them did very well buying in the 1980s and want to release some of the equity from their own homes to buy further properties; others, such as myself, self-employed and with no pension, lie awake at night fretting that, come 65, we’ll be featured in a Channel 4 documentary, nibbling on a digestive and shivering in threadbare blankets. Since I inherited a small sum of money a year ago, I’ve decided to investigate my options.

But establishing the best course to take is easier said than done. Search on the internet and you’re bombarded with marketing hyperbole – “property secrets” that are apparently so “simple” there’s absolutely nothing to stand between you acquiring a “million-pound” portfolio. And all by a week on Tuesday.

I’m not susceptible to promises that are too good to be true but, sadly, many people are. Recently a property investment company, the Spencer Michael Consultancy, was featured on Watchdog after complaints by people who felt let down by its promises. According to the programme, some had paid anything between £3,000 and £7,000 for courses to teach them how they could acquire a property portfolio of more than £1 million within three months. Needless to say, they didn’t, although Mr Michael said he had always acted in his clients’ best interests.

But if we don’t get everything we’re hoping for, haven’t we only ourselves to blame? Richard Bowser, editor of Property Investor News, says: “People want to hear ‘I’m going to make you an overnight millionaire’. But, if you look at the statistics, it’s a getrich- slow business. A decent course can be a good short-cut to learn the basics.”

Retired Army major Dominic Farrell, 41, a professional investor and the founder of bewarethe sharks.com, says that he set up his one-day course (£395) in 2003 on the premise that it would be credible and not prohibitively expensive. "I wanted to establish something ethical and drive a truck of TNT through what was then available. We don't make claims that you can be a millionaire in a week and, as a high percentage of people who attend are graduates, I'd be laughed out of the room if I did."

The problem, as Maj Farrell sees it, is that property courses are entirely unregulated and there appears to be nothing to stop anybody, no matter how ill-qualified, offering one.

Mark Hurst, of the Independent Surveyors Association and a member of the Royal Institute of Chartered Surveyors (RICS), who offers individual tuition for £800 (www.1stassociated.co.uk), agrees. "It's amazing that completely untrained people have set up courses. As a qualified surveyor, I have a range of experience. I can look at everything from yields to structure and, because I have public indemnity insurance, if I get it wrong, you can sue me."

Currently, the Financial Services Authority has no power to regulate residential property investment advisers and the RICS is acknowledging that these courses should come under scrutiny, with a view to offering an RICS endorsement to guide bewildered punters.

"I have been voicing concerns for a while," says Graham Chase of the RICS. "It's a good thing if more people learn about property, but it's a complex business and there are lots of pitfalls for the uninitiated."

The fundamental problem lies not so much in the education courses per se, but that in many cases, education may not be the main motive. Those who have an affiliated company may get you through the door with the inducement of education but, in reality, they are hoping to persuade you to invest with their sister company; which is where they stand to make the big bucks.

Inside Track is the largest and sleekest operator. It offers free, nationwide tasters of its two-day course and once you've accepted you receive a text-message reminder. Should you still miss it, there will be a phone call the following day asking why. Sign up for its two-day seminar (£2,495) and you will be offered membership (£6,000) and an opportunity to buy "discounted property" with its sister company, Instant Access Properties.

"Our course takes people through the whole journey," explains John Pickles, Inside Track's sales and marketing director. "On the face of it, it is quite a lot of money, but we believe strongly we are the best. We secure genuine discounts with developers so we are offering people the opportunity to make their money straight back. There has been some scepticism from people who don't understand what we do, but we don't take money off people and then disappear."

It all sounds quite tempting but be warned, not all companies can be trusted. In the past ten days the DTI has taken high court action to close down a string of companies offering property investment courses and associated investment schemes and there are rumours that the Office of Fair Trading is investigating the sector as a whole.

Gary Needham, of due diligence firm, Blenheim Bond, who is employed by clients to provide an 80-page report covering everything from the price of a property to its location is unequivocal. "The public are gullible and lazy," he says. "Most of what they're told is twaddle. I've come across people who spent £17,000 on courses and they haven't bought a property yet."

Peter Bill, editor of Gazettes Weekly, is convinced that there is a crisis brewing. "You will only make money if you can sell your property later," he sighs. "Putting money into a property that hasn't been built, in a city you haven't visited, seems to me very silly."

The photograph on Sunil Jaiswal's website (www.propertymentor.co.uk), shows a smiling, well-nourished chap. A former IT consultant, he says that it wasn't always so: in 1996 he was skinny and broke, with only £20 in his pocket after some deals went "pear-shaped". Five years later, he says, he was a property millionaire.

"It's about attitude and belief and my two-day course is the most practical on the market." It also costs a whopping £3,597.

What are the "no money and minus money down" purchasing techniques he advertises? "You'll have to come on the course to find out," he chortles, and tells me that I will also learn a sure-fire, seven-second formula to decide whether a property is worth buying.

Back in the Victory Services Club, it has taken me longer than that to find the percentage button on my calculator. After a lively, straightforward and useful presentation for novices we have moved on to the tricky bit: gross yields divided by net gains, multiplied or possibly divided, by the gross return on investment. Although the numbers people are smugly whizzing ahead and, despite Maj Farrell's assertion that he has tested the maths on his nine-year-old niece, I am lost.

Nor I am heartened by the results of the psychological profile I have completed. Believing that a one-size investment policy doesn't suit all, Maj Farrell says this reveals a potential investor's strengths and weaknesses and to gauge their best strategy. It transpires that I'm not just risk-averse, but the type of person who'd cart a Pac-A-Mac across the Sahara in high summer. "With that profile, I think you'd be better off buying three houses on a Monopoly board," he observes.

So did I learn anything ? Yes more than I expected. Will I, as a result, be investing in property anytime soon? You've got to be kidding. Remedial maths beckons. As one wise and wealthy professional tells me later: "If you can't do the sums, you shouldn't go into property investment. It's still possible to make a lot of money here and abroad, but you can also lose the shirt off your back.

Case study

Collette Lord, 53, attended a course two years ago after she inherited her mother's house. "A friend told me about a free seminar being held at that time, which promised to show me how I could become a property millionaire - I went and signed up for a two-day course [which, at that time, cost about £900]. During the first day and a half, I learnt a lot about planning law and tenant agreements, but the last half-day was devoted to persuading us to join a sister company. Because they promised that members would make a fantastic amount of money and have exclusive access to discounted properties, I paid almost £4,000 for membership.

"My understanding was that these properties were only available to a small group of people, but then I discovered that they were advertised on the internet. Once I read the paperwork thoroughly, I also realised that the fee covered only a month's data and thereafter it would cost a further £99 a month. And I had not taken on board that once you bought a property with this company, it wanted extra money for professional advice and finders' fees.

"I agreed to buy a flat and was referred to a financial adviser, who persuaded me that I should buy two off-plan properties, one to rent for monthly income and one to sell. It sounded plausible, but then I received an invoice through the post for £30,000. The company had told us that it was offering no-deposit deals, but this included deposits for both properties along with mortgage broker's fees and introduction and reservation fees, which they said I wouldn't get back until the property was built in two years. That was not what I understood to be a no-money-down deal.

"I decided I didn't want to work with a company that had so blatantly misled me so I pulled out of both deals and didn't pay. I still think that they should return the £1,000 reservation fee for a flat I never bought and reimburse the membership fee because the deals they promised did not materialise. I have not taken them to court, but I have been tempted.

"I can't explain why I was so naive - I'm an intelligent woman, but their sales techniques were so pressurised that I succumbed. Somebody subsequently recommended the bewarethesharks.com course, and that was worthwhile because it gave me a greater understanding of how to calculate deals.

"Despite my bad experience with the first company, I persevered and now own eight houses in Lancashire, so I feel confident that I will have a very good pension.

"I've come to the conclusion that the courses that charge thousands will give you no more relevant information than cheaper ones." "

Source: https://www.telegraph.co.uk/finance/property/3341041/Promises-promises.html