Buying investment property in USA: Is it a property scam?

If the buying investment property deals sound too good to be true, they might be US home scams.

The number of property spruikers promising to enrich Australians by cashing in on the distressed US housing market has soared in the past six months. However, the Australian Securities and Investments Commission continues to warn investors about “exclusive” get-rich-quick invitations to “buying investment property in USA” seminars and “investing in USA property” events.

The corporate watchdog said such events with motivational speakers, who describe how “their financial secrets have the power to turn them into a millionaire within a few years”, were almost always “over-hyped or misleading” as “the recommended investments can be expensive, highly risky and lose you money”.

One website says investors can make “cashflow-positive returns of up to 28 per cent net” through the purchase of US homes.

The Current USA Property Scam

One website says it has assisted hundreds of people to invest and that it has experts in US property. It promotes itself as a one-stop shop for buying US property, offering extensive services to be “able to source the right property for you” and find the right property manager.

It also offers the services of a US lawyer to review contracts, to arrange building and pest inspections, set up a US bank account, engage US tax accountants and assist with finding US finance.

However, the website has no details about fees and asks those interested to email for a free educational package.

A private investigator, who did not want to be named, says the latest websites should sound loud warning bells to consumers about a practice commonly known as “flipping”.

Typically, property promoters would buy US homes, usually from banks, at fire-sale prices as low as $30,000, then sell the assets to Australians for an inflated price of about $50,000, he said.

“They deny they are doing it, but they are.

“They claim to have done renovations and in some cases they have, but it certainly doesn’t add that sort of value to the property.”

The investigator said that although US property promotions had started three years ago, the practice had become more prevalent in the past six months. The high Australian dollar had made US buys increasingly attactive.

“If the same people hopped on the aeroplane and flew over there, they would be in a far better position to purchase a cheap property,” he said.

“Some people have discovered their houses are in the middle of the slums, and they get broken into before they can even get a tenant into them. The previous inhabitants rip all the pipes out of the walls — it’s just a nightmare.”

He said such get-rich-quick promoters were making money on every step of the process, from the cost of the tickets to the educational seminars.

Some scams use high-pressure selling tactics had involved not just the spruikers but their lawyers and accountants, who pressured clients into signing contracts after the educational seminars where they often offered the first seminar free.

The Past Australia Property Scam

Home-sale scams operated in Australia during the 1990s, when thousands of home-unit and townhouse investors lost their money in two-tier marketing schemes on Queensland’s Gold Coast. In the scams, a wide network of developers, solicitors and marketing agents offered residential developments at vastly inflated prices.

The main targets were interstate buyers. High-pressure tactics were used to push through sales before buyers could reconsider, and the Queensland Department of Fair Trading estimated investors had lost more than $100 million in the schemes.

The Current USA Property Market

The Wall Street Journal reported in April 2011 that the recovery for the US housing market was likely to be slow and painful, with the housing bust dragging into its fifth year.

February’s annualised sales return of 250,000 for new US homes was the lowest monthly figure on record, dating back to January 1963.

Sales were down 82 per cent from the July 2005 peak.

Only 323,000 homes were sold last year, the worst annual total on record, down more than 13 per cent from 2009, which was the second-worst year.

Wells Fargo Securities projected only modest rises over the next two years, with 330,000 new-home sales likely this year and 440,000 next year.