How To Know If An Investment Opportunity Is Too Good To Be True

Investment scams are one of the most common ways Australians are being conned. In fact, last year alone over $29.5million of financial losses were reported as a result of people falling victim to dodgy investment schemes[1].

From the almost 12,000 reports that were submitted in 2016, it’s clear that fraudulent investments affect both males and females. Last year, while males lost a higher amount of money in total, more females were victim to these types of deals[2].

Zaki Ameer, Real Estate Expert and Founder of Dream Design Property (DDP) says, “Unfortunately thousands of Australians are being scammed by dodgy get-rich quick schemes, often after investing a significant amount of money. The internet has made it extremely easy for criminals essentially to pose as Property or Real Estate experts.  It’s now more important than ever to do your due diligence before proceeding with any investment opportunity, especially if it seems slightly too enticing.”

To help determine if a property investment deal is too good to be true, Zaki shares his expert advice on red flags to watch out for:

  • When rental yield is too high. Rental yield is a common indicator used to assess a property’s investment potential. It is calculated by the yearly rent / the purchase price x 100. Often scammers use a fake rental yield figure to dupe investors into believing the property will generate significantly higher revenue. As a general rule, be wary of any rental yield that is over 8%.
  • Being ‘free of charge’. All investments have an element of risk, and any scheme that promotes receiving a return from zero charges is suspicious. It’s also important to remember that professionals make a living from their expertise, and therefore anyone offering their skills or services for free is likely not as credible as they appear. If a professional does persist that their service is free, ask the question of how they are getting paid. Don’t be afraid to request disclosure.
  • Investment schemes based overseas. International schemes can be quite risky, because often the investor doesn’t have any knowledge of that landscape, making them more susceptible to being taken advantage of. Before committing to an overseas investment scheme it’s crucial to research and familiarise yourself with that specific market to ensure the information you have been given is credible.
  • Unregistered schemes. No matter how legitimate an investment scheme may seem, checking that it’s registered with ASIC is essential. Unfortunately, many situations for investors losing money to fake initiatives could have been avoided simply by verifying its registration.
  • When they are offering a property that’s more than 15% cheaper than the market rate. Scammers regularly provide fake market value quotes, making properties seem significantly cheaper than they actually are. They do this not only to increase the appeal of the property, but so they can make it seem like they are offering a significant discount. Be cautious of any schemes that are selling more than 15% cheaper than the market rate.

Mr. Ameer adds, “Although technology is making investment scams more common, it is also making it easier to determine the scheme’s legitimacy. When it comes to investing money into any industry or scheme, always do your research, and remember that if something seems too good to be true, it probably is.”

[1] https://www.scamwatch.gov.au/about-scamwatch/scam-statistics?scamid=24&date=2016

[2] https://www.scamwatch.gov.au/about-scamwatch/scam-statistics?scamid=24&date=2016

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