Property Investors Beware

Posted in Wealth
01/11/2012 Level One

There have been several alarming newspaper articles recently and we thought it was high time to bring the central issue to your attention – property investment.

Property investment can be a tax effective strategy as part of a well-balanced and diversified portfolio; however this type of investment can be high risk, highly illiquid and can bring people financially to their knees if all the facts are not known.

The article titled Property Racket Burns Battlers: Investors Lose Millions, seen on the front page of the Sun Herald dated 28 October 2012, tells of a property marketeering racket, disguised as ‘independent financial advice’ that has cost investors millions of dollars. The scheme targeted naïve investors to which predatory lending tactics were adopted, resulting in loans people could not service. This coupled with the investors paying a premium for more than 400 poor quality Queensland properties has seen people bankrupt or being left with debts of more than $150,000.

The mastermind behind this scheme is Faye Kotsis, a discharged bankrupt who first plied her trade with a discredited property marketeer, who was later found to have breached the Trade Practices Act. Upon investigation by the Sun Herald, it was discovered that the ‘financial adviser’, the property vendor, the financier, the property caretaker and the letting agent of the scheme are all linked. This reeks of conflict of interest and can be blamed as the primary reason investors were led astray.

It’s not only listed property that has been a hot topic of conversation; unlisted property fund managers like LM Investment Management have also let their investors down.

The Sydney Morning Herald article dated 28 October 2012 and titled Investors See Red Over Frozen Funds, reports that of the eight investment funds LM manages, four are frozen and distributions have not been paid for years.

The article reports that a retired Queensland cane farmer, who requires an operation on his knee, has his life savings of $220,000 locked up in the LM First Mortgage Income Fund and is unable to pay the medical gap. This investor can’t access Centrelink income support either as Centrelink assess his investment in LM as an “asset”. He does not receive distributions from his investment and has been unable to access any of the capital since 2009. This is a prime example of the heartache LM’s ‘frozen funds’ has caused investors.

In present times, it is reported that one of LM’s open investment funds, the LM Managed Performance Fund, has 60% of the Fund (approximately $217 million of the $370 million of investors monies) being a single loan to a Queensland property development named Maddison Estate. Maddison Estate is owned by Coomera Ridge Pty Ltd and has a sole director, Mr Peter Charles Drake. Interestingly Mr Peter Drake is also the sole director and shareholder of LM Investment Management.

It gets worse. The second mortgagee of Maddison Estate is a company called Coomera Pty Ltd (renamed Maddison Estate Pty Ltd) which also has one director – Peter Drake – and one shareholder – LMIM Asset Management Pty Ltd. LMIM Asset Management Pty Ltd has a sole director also…Peter Drake. Quoted from the article “With this labyrinthine arrangement, Peter Drake the lender must talk to Peter Drake the borrower to establish if the loan is performing, or in default – and agree on terms.” Again the conflict of interest here is astounding.

The resounding warning here is CHECK YOUR FACTS. Ask who is involved in your investment and don’t get caught up in the hype – that’s what they want. Read the documents they ask you to sign and issue to you. Research if there are any conflicts of interest that could be detrimental to you.

And as always – if it seems too good to be true, it probably is.

Remember we are here to help you make wise decisions. Don’t hesitate to call.


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