The Storm Financial story is now history, but other equally dodgy investment schemes have replaced it, one of them being property investment schemes run by unscrupulous opportunists who, just like Storm Financial was, are out to feather their nest at others peoples expense by selling/promoting highly risky investment schemes.
I came across one such mob of opportunists a few years back at the height of the coal mining boom. They had an information stand set up at a home and leisure show, showing people how to create wealth-building returns through positively gearing into property.
The strategy involved using existing homes or other assets as security for investment loans to cover 100% of the purchase price of various properties which this company had on its books. The rental return and tax deductions of these properties was more than sufficient to cover loan interest and repayments, council rates and letting agents fees etc, with income left over.
I told them I’d invested in property for some years but had never found any that offered this sort of positive gearing, to which they responded by naming half a dozen Queensland coal mining towns including Moranbah in Central Queensland, in which houses could be bought that would indeed be positively geared even if 100% of the purchase price was borrowed.
I suggested that sooner or later there would be a serious downturn in coal prices, and these houses that were selling for 600k to 800k and bringing in rents of $1500 to $2000 per week would collapse to their real value of 150 to 200k, with a corresponding fall in rental returns, .
Their response was to tell me that China was in a boom that would last for at least another four or five decades, ensuring buoyant prices for Australian coal.
Some of you may have watched ‘60 Minutes’ a few weeks ago in which they ran a story about a couple of property investors who’d been caught out by the current slump in house values in QLD coal mining towns. One was a woman in her 20’s who’d bought a swag of houses in Moranbah, and had run up debt of 5 or 6 million dollars in the process. And another couple who had borrowed heavily to build a large block of townhouses, also in a coal mining town. In both cases their investments had become virtually unsalable unless they were willing to accept prices 70 to 80% lower than they’d paid. And virtually un-rentable as well, due to a massive population exodus from mining towns due to mine closures.
Someone who knows some of these mining towns well told me one of them has ‘for rent’ signs on more than 600 houses, with no tenants to be found.
A couple of years back we had some spirited discussions on this thread about how to prevent dodgy investment schemes from fleecing people. In particular there was much debate between those who thought the solution was in tougher legislation to make it harder for rogue investment advisors to operate, and those who thought that dodgy advisors would always find a way to operate regardless of legislation.
I was firmly in the latter camp and I still am.
How do you stop some investment mob, for example, from telling people quite truthfully that property investment in coal mining towns is generating 10% rental returns, which is more than sufficient to finance the commitments on 7% loans for the full purchase price of the property?
How do you stop banks from financing this sort of investment, and would it make any sense to do so even if it was possible? Mining towns and all sorts of other investments are financed by bank loans, in the full knowledge of both borrower and lender that every investment carries an element of risk.
How do you force someone running an investment scheme to disclose that their strategy relies on the completely unrealistic expectation that coal prices won’t suffer a serious downturn?
How can you stop someone from expressing an opinion (genuine or not) that a continuing boom in China will keep coal prices buoyant for another half a century or more? These are the things I was told by that mob at the home and leisure show, and unscrupulous as I believe they were, the information they gave me at the time was largely correct, except for their view about the coming 50 year boom in coal prices.
Fortunately they didn’t succeed in catching me, but no doubt there were many people who did get caught because they failed to fully evaluate the risks in the strategy.
http://www.macrobusiness.com.au/201...vestor-of-the-year-slams-banks-on-60-minutes/
http://www.9jumpin.com.au/show/60minutes/stories/2016/home-groans/
I came across one such mob of opportunists a few years back at the height of the coal mining boom. They had an information stand set up at a home and leisure show, showing people how to create wealth-building returns through positively gearing into property.
The strategy involved using existing homes or other assets as security for investment loans to cover 100% of the purchase price of various properties which this company had on its books. The rental return and tax deductions of these properties was more than sufficient to cover loan interest and repayments, council rates and letting agents fees etc, with income left over.
I told them I’d invested in property for some years but had never found any that offered this sort of positive gearing, to which they responded by naming half a dozen Queensland coal mining towns including Moranbah in Central Queensland, in which houses could be bought that would indeed be positively geared even if 100% of the purchase price was borrowed.
I suggested that sooner or later there would be a serious downturn in coal prices, and these houses that were selling for 600k to 800k and bringing in rents of $1500 to $2000 per week would collapse to their real value of 150 to 200k, with a corresponding fall in rental returns, .
Their response was to tell me that China was in a boom that would last for at least another four or five decades, ensuring buoyant prices for Australian coal.
Some of you may have watched ‘60 Minutes’ a few weeks ago in which they ran a story about a couple of property investors who’d been caught out by the current slump in house values in QLD coal mining towns. One was a woman in her 20’s who’d bought a swag of houses in Moranbah, and had run up debt of 5 or 6 million dollars in the process. And another couple who had borrowed heavily to build a large block of townhouses, also in a coal mining town. In both cases their investments had become virtually unsalable unless they were willing to accept prices 70 to 80% lower than they’d paid. And virtually un-rentable as well, due to a massive population exodus from mining towns due to mine closures.
Someone who knows some of these mining towns well told me one of them has ‘for rent’ signs on more than 600 houses, with no tenants to be found.
A couple of years back we had some spirited discussions on this thread about how to prevent dodgy investment schemes from fleecing people. In particular there was much debate between those who thought the solution was in tougher legislation to make it harder for rogue investment advisors to operate, and those who thought that dodgy advisors would always find a way to operate regardless of legislation.
I was firmly in the latter camp and I still am.
How do you stop some investment mob, for example, from telling people quite truthfully that property investment in coal mining towns is generating 10% rental returns, which is more than sufficient to finance the commitments on 7% loans for the full purchase price of the property?
How do you stop banks from financing this sort of investment, and would it make any sense to do so even if it was possible? Mining towns and all sorts of other investments are financed by bank loans, in the full knowledge of both borrower and lender that every investment carries an element of risk.
How do you force someone running an investment scheme to disclose that their strategy relies on the completely unrealistic expectation that coal prices won’t suffer a serious downturn?
How can you stop someone from expressing an opinion (genuine or not) that a continuing boom in China will keep coal prices buoyant for another half a century or more? These are the things I was told by that mob at the home and leisure show, and unscrupulous as I believe they were, the information they gave me at the time was largely correct, except for their view about the coming 50 year boom in coal prices.
Fortunately they didn’t succeed in catching me, but no doubt there were many people who did get caught because they failed to fully evaluate the risks in the strategy.
http://www.macrobusiness.com.au/201...vestor-of-the-year-slams-banks-on-60-minutes/
http://www.9jumpin.com.au/show/60minutes/stories/2016/home-groans/
