Trying to make a square peg fit all shaped holes

The Investors Club, renamed as Property Club, sued by couple claiming they were misled into taking out $1 million in loans


Great article. Just click on the headline above to get my drift below…..


There are many promoters who out there running around telling people to buy houses utilising the equity in their own home to fund the deposits for those purchases.

Part of the problem is they offer rental guarantees that are at times subsidised by the promoter or the developer for the first couple of years. They do this so that the property will be easier for the purchaser to finance. As you might have already guessed, at the end of the rental guarantee period, in many cases the rent will drop. This leaves the owner and a negative cash flow position greater than they thought they were going to be in.

Another problem is that these promoters push the upside of investment so strong that the people believe that they are investing in something that is equal to ‘a sure thing’. So people are convinced that nothing can go wrong and they end up investing in too many properties to quickly. What they are not told is the downside of being a landlord. They are not told that they need to maintain 3 to 6 months of loan payments in a separate bank account just in case they get a problem tenant.

Many of these property promoters convince the purchasers to open a company and trust structure to purchase these houses in, which for a liability reason is a good idea. For distribution of funds earned by the properties it is also a good idea but lets look at it further down the track.
If the property does make money, goes up in  value significantly, the promoter will either tell you to pull that equity out of the property to purchase more property or as the end goal is lifestyle they will tell you that you can draw the money out of the property and spend it on lifestyle completely tax free. So for argument’s sake you buy for properties and those projected they do rise in value over time and utility equity out of those properties and use it for lifestyle choices. You pay no tax is all you are doing is drawing the equity out of an existing property using the bank loan. (Yes you are continually increasing the debt on the property). 40 years ago passed and you have been drawing equity out of these homes all that time. The properties that you pay $1 million for are now worth about $8 million. Over time you have increased the debt on the property portfolio to about $7million. Unfortunately and tragically you die, your children are looking at a massive windfall on your properties so they decide to liquidate the company and sell off the assets. Remember all that money that you drew out by extending the loan’s without paying any tax on, well, the tax now becomes due. Unfortunately instead of getting $1 million to share between your children at this point your children end up with a massive tax bill that will probably send one or two of them to the wall.

There are quite a few other pitfalls like tenancy legislation that is so biased against the landlord/property owner that if the tenant decides not to pay usually worked with not only the loss of rent but also with a massive cleanup or refurbishment bill on a property. Property investment is no bit of roses in this country, the system is so consumer driven that it fails to notice that landlords are consumers and are not rich fat cats as portrayed. Without that weekly rent they cannot make that monthly buying payment and must suffer greatly when the rent is not paid.

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