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Property spruiker found guilty of fraud

A Western Australian property investment spruiker has been found guilty in a WA court after it was found he had taken $1.2 billion dollars from his clients and used the money to pay off debts and credit card bills.

It was alleged the man ran a property investment scheme between August 2007 and March 2009 which lured potential investors in by promising returns of 20% or more.

Although in some cases he made regular payments back to the investors it was just part of a ponzi style investment scheme and ultimately led to his bankruptcy in 2009.

When partnering with an advisor to assist with investing your hard earned money it is essential that you have a thorough knowledge of the process and trust the credentials of your advisor.

If it appears that someone is offering you something that appears too good to be true then it probably is.?

If we use Warren Buffet one of the worlds richest men as an example he has managed to get a return of just over 20% per over the last 40 years and this has resulted in being one of the richest men on the planet.

If you are offered excessively large returns it must be understood that there may be risks associated with those returns.

My suggestion would be when choosing an investment advisor is to make sure they have the qualifications and experience to back up their claims and deal.

Also i have found that you are much more likely to develop a strong and fruitful relationship when you deal with a local rather than someone who doesn't understand your requirements or the local market.

Property development - the numbers

Regardless of your situation the most important factor when considering whether to develop your property is the numbers. If the numbers don't show that the project results in a positive outcome for you then there isn't a lot a point in pursuing the development further.

There are many items to consider when calculating the financial costs and benefits of the project however it is useful to analyse your project it 2 ways

1.Cashflow (Money in & Money out)

2.Equity (The value of the project)

Cashflow considers the actual money going into and out of your pocket associated with the project. Where you already own the property there will not be any cost associated with purchasing the property, however if you are yet to purchase the property then this amount and any associated purchase costs must also be included.

If we assume you already own the property? and wish to demolish the existing house, subdivide one into two, sell one block and build on the remaining then the following items will result in Money out

Subdivision Costs

Demolition Costs

Building Designs

Consulting Fees

Holding Costs

Construction Costs

Marketing Costs

The main source of Money in obviously comes from the sale of the vacant block.

If we compare the Money in & Money out overtime this will also highlight where shortfalls of cash may require some additional funding to ensure that the project doesn't run out of money before completion.

The financial outcomes resulting from the development may be viewed differently if we consider the effect the project will have on the value of the property.

Using the same example as above to determine the increase in value as a result of the development we must first consider the current market value of the property and then add this to the costs associated with the development. We then compare this to the future market value of the vacant block for sale and the newly constructed home to determine whether there has been an increase in value as a result of the development.

It is common for there to be only a marginal difference between Money in and Money out of the project however there may be a considerable increase in the value of the property after it has been developed. This may be because the newly constructed home may be worth considerably more than the costs associated with building it.

Preparatory work prior to construction

Once the plans for your house have been drawn up for the block you have bought, you can enter into a contract with your preferred builder to undertake preparatory work only.

This agreement is generally not a contract to build but you should check that this is the case.

The purpose of undertaking preparatory work is to give you a good idea about the basic costs of building your house. However, it is not a final cost, as some actual costs may only become apparent once the surveys are completed and engineering details are known. You should discuss this matter with your builder.

The written agreement should also set out the type of preparatory work that will be done for you. This may include general inspection of the block to note any special requirements that need to be taken into consideration or consideration of the site conditions and the likely costs of preparing the foundation. Other factors that should be considered include preparation of any special structural engineering details and preparation of detailed drawings and specifications.

The fee for undertaking the preparatory work should be included in the agreement, but there may be provision for this fee to be varied for difficult or unusual sites. The fee for undertaking the preparatory work for a Preparation of Plans Agreement is normally not refundable. However, some builders may agree to deduct the fee you have paid them for the deposit payable, if you later agree to sign a building contract with that builder.

Make sure you read the Preparation of Plans Agreement carefully and get independent legal advice before you sign.

It should be noted that the Preparation of Plans Agreement does not generally give you copyright over the plans.

It should also be noted that some Preparation of Plans Agreements allow the builder to make applications for a local authority building license and for Water Corporation approval. Consider before signing whether you want to incur the expense of such approvals at this stage, or delete this clause and check that these tasks form part of the building contract.

Beware of any forms that commit you to signing a building contract with the builder at a later stage.

Planning and development approval

Planning approval involves a general overview of the proposed development to determine whether it meets the requirements of the council as laid out in the Development Act. Items to consider when lodging an application for Planning Approval include:

Site Coverage & Floor Areas - this limits how much the block can be covered by buildings

Private Open Space - an area of open yard which is private and useable should be provided

Car Parking & Driveways - areas must be provided for cars to park off the street

Building Appearance - the new home should meet the desired character of the area

Energy Efficiency - all new houses must have a 6 star energy rating to minimise energy use

Site Frontage Widths - ensure the new house has a desirable visual appeal from the street

Front Setbacks - this is the distance from the front boundary to the closest part of the house

Side Setbacks - are important to ensure adequate daylight to side windows

Rear Setbacks - ensure the new dwelling has a useable outdoor area in the backyard.

Other items that may also have to be considered include:

Building Height

Stormwater Drainage

Easements and Encumbrances

Significant Trees

Once planning consent is received, full working drawings and construction information can then be prepared and submitted for Building Rules Consent and full Development Approval.

As the information required to submit an application can be quite extensive it is advisable that an appropriate professional assist to ensure that the information supplied is comprehensive and complete. This will ensure that the application process occurs smoothly and approval can occur in the least possible amount of time.

Applications to planning are often made by either the builder or by using a Development Consultant. During the initial stages of the development application process the builder may not have been chosen. In this case the Development Consultant may assist with processing the application and provide guidance with evaluating and negotiating with the builder once approval has been given.

Not all builders are the same

Believe it or not but i often spend my weekends out looking around at building sites to see the quality of workmanship from various builders.

As you can see from the above picture it is pretty obvious there is a problem here. Yet it never ceases to surprise me how the site supervisor can miss things such as this.

Obviously this is not a builder that i would refer my clients to however it does concern me when i am talking to clients that their sole focus is on getting the best price which may result in builders taking short cuts on the quality of the home they are building.

I believe that it is fine to negotiate with builders to ensure that we are getting the best possible price but it is essential that we do not compromise on quality