Those who know me, know that I am very vocal about “hidden commissions” or “Kick backs” in the property investment world. Being in the game, I am offered these HUGE incentives to sell developer’s products, either from the developer themselves or through a marketing company, selling these properties on behalf of the developer. And every time I refuse…
Have a good read of the flyer (Click here for a large version) and you will see exactly what I am talking about… I have taken off the developments name but have left everything else identical to how the flyer was emailed to me. A quick Google and you will easily find this development… there are that many inaccuracies in this advert and their website, that I have enough material for an entire Blog… WOW!!! To spell this out, I could offer these Brisbane apartments to my clients and receive a Kickback of a minimum of 6%. Now I am sure if I were aggressive in ripping clients off from their life savings, then I am sure I could get 8% plus GST if I pushed and sold a bunch of them.
It goes further than this, as it also falsely increases the Median unit price of the suburb as the kick back is included in the sale price in which the median is calculated upon. So when these developments leave an area, the median consequently drops for no apparent reason. But let’s look at this differently – Investors can purchase investment properties with a 5% deposit. The purchase price on these 2 bedroom apartments are from $309k, so the 5% deposit required would be $15,450. So your deposit amount plus some more goes straight back to the referrer… But only if you buy from a third party referrer like an accountant, financial planner, buyers agent, mortgage broker etc… if you jump onto their website, you can buy the unit for much less. Yes, it’s that blatantly obvious… they simply don’t care!!! In fact they have two prices for the same units even on their own website… $299,000 if you buy from them or $289,000 if you invest your cash deposit with them. But you pay $309,000 plus if you go through a third party!!! So what is the true value of these apartments? Far less than they are selling for, that’s for sure… The advert then makes some more weird comparisons:
So cash flow is made up of many numbers, so I had a look at their website to check out their numbers. They assume these 2 bedroom units will rent for $340 per week. The median for this suburb is $290 per week. In fact, the only units available that lease as high as $340 per week, are these units. Now I can’t be 100% sure but I am 99.9% sure, the same units are being offered as NRAS units as well. The true numbers suggest these will rent for $300- $310 per week and therefore they will not be cash flow positive. Factor into this that there will be 74 units all settling in the same week and with the vast majority of those being investment properties, this means owners will see far less rent per week actually being achieved. Trying to sort out their VERY vague math calculations, it looks as though they have worked this number out by working out the cash flow positive on a 80% lend. They don’t factor in the 20% cash deposit required to put this development together. That is deceptive… It states the property is cash flow positive by $24 per week and they will show you the math, yet there is no math there at all. I can bet they didn’t factor in council rates, water rates and strata fees into their calculations. The property would be more like $140 per week negative. They also state that your ROI (Return On Investment) is 26.6% on your money… again this is quite deceptive and not clear on the advert that the 26.6% is on your 20% deposit compounded over 10 years on a rate just over 5% (I did the calculation)… So this number is a little over $16,500 on your $24 per week compounded over 10 years. But given you have paid $20,000 more for the property than if you purchased the property from their own website, you are actually $3,500 behind after ten years and that’s if the property is $24 per week cash flow positive – which it won’t be.