S2E15 - The Dark Side Of Investing: How A One-Stop Property Shop Lost Our Client $350,000 Of Equity (Part 1)

Imti: [00:00:00] Today's episode is a bit different. I found out about this one through a really high-stress phone call from Pete early on a Saturday morning about a mutual client of ours who was in a massive panic. And by that stage, although the client didn't realise, the situation was serious. And when I say serious, they're potentially gonna lose 350 grand type of serious.

And this was someone who'd worked extremely hard, migrated from overseas, bought extremely well, and built wealth. They were someone who'd been through this process before, and now they're in a situation where the real risk is that they'll lose it all. This is gonna be part one, where we break down Julia's story and give you the end-to-end of what her journey felt like.

Part two, we'll break it down into all the individual things that could've stopped it from going wrong and how you can avoid them. But let's start at the start. Pete, tell me a little bit about Julia.

Pete: Yeah, sure. [00:01:00] So Julia moved to Adelaide probably eight years ago or maybe even 10 years ago, with the family. So she actually came over with her husband, worked away to build up some form of savings to eventually buy their own home-

Imti: Mm-hmm

Pete: bring the rest of their family over as well into Adelaide. And yeah, effectively started to work full time and built up an income, built up savings, and finally bought their own home. So they bought their own home 4 - 5 years ago eventually they built up enough equity in that home to then leverage into an investment property, which was great. They made a lot of money on that one. And yeah, essentially now a lot of that hard work somewhat disappeared.

Imti: Mm-hmm. And before we dive into the disappearing, the thing that I really wanna dive into is Julia's story is very, very inspirational, right? She came from nothing.

Pete: Mm. They had no money in the bank, basically, so they spent everything they could back home to get to Australia.

Imti: Yeah.

Pete: And that even meant leaving their kids behind and eventually bringing them over.

Imti: Mm-hmm. And then they came over and they basically built the Australian dream, right?

Yep. They just worked damn [00:02:00] hard and scraped together every single dollar and cent to-

Pete: Mm ...

Imti: buy their first property, and then subsequently did pretty well, and then you helped them with the second purchase, right? Yeah. That's how you met them.

Pete: Yeah, that's exactly right. Yep.

Imti: And Before they ended up in this scenario, they were cruising pretty well. Debt was manageable. They were up about 350 grand across their portfolio, and they were feeling really, really set up. So what happened? Take us back to, obviously the Saturday morning me and you spoke about it. We were like, " Oh, shit, all this stuff's about to go wrong." But where did it all start?

Pete: Yeah.

So for them, it started probably about four to six weeks ago now. They got introduced to an accountant-

Imti: Mm-hmm ...

Pete: within their network of the community, as we know, when people move over here, they form communities with people from home. Mm-hmm. And yeah, so spoke to the accountant, and the accountant recommended that they essentially buy more properties.

Now, I've been working with these guys for a while, and I know that them buying properties is definitely not in their best interest at all. Mm. They're at a stable point now where they can sit pretty, essentially. They don't need to do anything else. But [00:03:00] yeah, so the accountant pretty much recommended to go out and buy properties, SMSF, house and land as well in a trust structure, and then also referred them to a developer but also a real estate agent.

A bit of a crossover, right? A real estate agent-

Imti: Mm

Pete: ... but also a developer. Yeah.

Imti: Yeah. A lot of moving parts, right?

Pete: Yeah.

Imti: And someone listening to this would be like, " Wouldn't that be a red flag straightaway if that was the whole scenario?" But let's step through it from the client's perspective, because all of those things didn't happen at once, and it felt like they were just getting helped along the journey, right? When they were speaking to you, they didn't even really realise the consequence of the situation that they'd ended up in because the help, quote-unquote, they were getting was so good,

Pete: Yeah. They had no clue 'cause essentially, getting connected with the accountant, then all of a sudden they're going to a seminar with the accountant to get introduced to the real estate developer. They're kinda spruiking their way of investing and how good it is to buy house and land packages in [00:04:00] what I call these dead zones.

And yeah, a week after that, they'd pretty much signed a contract, two contracts with them, actually.

Imti: Mm. Skye's tilting her head.

Pete: Yeah.

Skye: Mm.

Pete: Two.

Skye: What do you mean two? Yeah. For two properties?

Pete: Yeah, yeah. So one SMSF-

Skye: Right ... and

Imti: then-

Skye: One in their personal funds ...

Pete: well, one in a trust, yeah.

Imti: Yeah. And let's take it back to the accountant and then the handover to the seminar that you just talked about, because this was the big transfer of trust. They'd been introduced to the accountant by someone in their community. Obviously, when you've got community ties, whether they be ethnic, geographical, sporting club, whatever it is, there's a bunch of trust there 'cause you expect people in your circle to look after you.

She's been referred to this accountant, and this accountant's gone, "Hey, there's this awesome seminar about property investment that you need to go to." How did that come about? And then what happened from the accountant suggesting it to the end of the seminar? What did that period look like?

Pete: look, I don't think there was a very long [00:05:00] period at all.

I think there was such an element of trust there with the accountant 'cause it came from a referral within the community, and word is the word kind of thing within these communities, like, if someone refers somebody, then that's it. They don't ask any further questions. Mm. So essentially, the seminar happens really, really quickly.

And what's funny is, though, The only way for the accountant to get into the seminar with potential clients is to actually have bought from these people themselves as well. So she's already gone through the process and bought from this group, not that long ago either.

So there's no time to see what the performance of the property's been or anything like that. Mm-hmm. But essentially, if I just wrap it all up, they had the meeting, and then they were at the seminar literally a week later. It happened that quickly, without the clients really knowing what's going on. It just happened so quickly.

Imti: Just to clarify, so you're saying that the accountant had to have bought a property from the people hosting the seminar before being able to introduce people to come to the seminar?

Pete: Yes. This is through a line of questioning that Saturday morning to try and understand where the best interests are.

Imti: [00:06:00] Mm-hmm.

Pete: Yeah, that's the scenario there. And essentially, the accountant is also getting some form of a referral as well, so a referral payment from the developer, and that referral payment will get more and more as time goes on as she refers more and more people. So it's crazy that this all was explained to the client as well.

Imti: Hmm.

Pete: But in a way where I had to pull it out of them. I asked them, "Was there any referral fees going between the accountant and developer?" At first it was a no, because I think there was just so much information being thrown at them.

Skye: Mm.

Pete: But as I kept asking the questions, it was like, "Oh, actually no, they, did mention this and they did mention that," and it started to resurface again.

But I think they just would've got overloaded with information in that week from both the accountant and the seminar, and just completely forgot about what seems like obvious red flags.

Imti: Mm-hmm. So it's almost like two minds, right?

Pete: Mm.

Imti: When Julia was at the seminar, she was feeling empowered. She was with someone who she trusted in the accountant, and trusted everything that was being presented in front of her.

[00:07:00] And then on the other side, six weeks later, she could look at it with a bit of hindsight and go, "Oh, wait a second"

Pete: Surely. Yeah.

Imti: "... this, might be a problem," right?

Pete: Only because I stepped it out though. Mm. when we sat down, the concern was that they couldn't get a building and pest inspection done.

Skye: That's why they called you?

Pete: That's why they called me.

Imti: Yeah, that's where it started.

Pete: Yeah ... none of this had come up.

Skye: It was just we're carrying on and-

Pete: Yeah ... and- It was literally, "Do you know a good building and pest inspector?

What do you think about this area?" And I said, " Do not invest in that area. It's a dead zone. You'll lose all your money."

Skye: God, I wanna know what the area is now.

Pete: Yeah. little did I know though, when I got to the meeting, and we'll get to that part-

Imti: Mm ...

Pete: contracts had already been signed, and we were too far gone.

Imti: Yeah, and we'll definitely get to that point-

Pete: Mm

Imti: ... because it's definitely a red flag part of the journey. I think the educational space in particular when it comes to property and investing, it's a very fine line between it being education and you being sold to. Because property and finance, and I understand the irony of this because we run a property podcast, is such a close-to-home topic, if someone helps [00:08:00] you understand it, they transform your life, right? And so you put a lot of that trust then in them around their decision making. So if someone's shown you, " This is how inflation works, this is how property works, this is how you can leverage debt to build wealth", and then that same person very closely between goes, " And this is something that you could buy to help you do that"- You don't sit there questioning it because they've built so much goodwill with you, right?

So at that stage, she's gone to the seminar, she's feeling really, really good, and then at the end of the seminar she was introduced to the agent, guru, whatever we wanna call him.

Skye: Can we just touch on that?

Imti: Mm.

Skye: Yeah. Because I haven't heard this story. I'm hearing it for the first time.

Pete: Yeah.

Skye: without revealing names, can we expand on the real estate agent/developer? /

Pete: Business development manager- Yeah .../ there's a few titles there.

Imti: Great point. Let me ... I'm gonna pull up their website.

Pete: Yeah.

Imti: All right?

Pete: Go for it.

Imti: I'm not gonna name who they are 'cause I don't have the money [00:09:00] to get sued, but-

Skye: That's not what we're about

Imti: I'm gonna walk you through what's on their website, and if the client was in a position where they did some additional Googling and just diving into the business, they would've seen their website. And honestly, to people who are in the industry, we would see the red flags. To an everyday first time investor, they would potentially not see any issues with it.

Skye: Mm.

Imti: So pretty website, looks great. Go over to the services tab, and Skye, I'll get your reactions on these once I read out all the services. There's property advisory, mortgage solutions, project marketing, project management, and building and construction. Same website, all of those services. Skye, what does that say to you?

Skye: Hmm. Yeah, a little concerning.

Imti: Why's that? '

Skye: Cause they're all very different industries.

Imti: Mm-hmm.

Skye: They're all very different roles.

Imti: Yeah.

Skye: So this one company does all of that, do they?

Imti: Yes. And as we found out [00:10:00] later in the story, they also have a conveyancing arm-

Pete: Mm.

Imti: -which is great. But-

Skye: What?

Imti: Yeah.

Pete: We'll get to that part.

Imti: Yeah, yeah, yeah.

Skye: What?

Imti: In plain English, those services, for example, project marketing when you're looking at real estate is marketing and selling a development. It's the person who's in charge of selling a massive house and land development.

Pete: Mm.

Imti: Their role is called project marketing.

So if we go through this list of services, property advisory, okay, they're telling you what's a great investment. Mortgage solutions, they're helping you get the finance. Project marketing, oh, they have a division that markets and sells house and land packages. Project management, oh, they have a division that helps execute the building and the coordination of trades.

And then building and construction, oh, they have a department that actually builds the thing.

Skye: It's a finger in every pie.

Imti: It's an end-to-end journey, right?

Pete: Mm.

Skye: Mm.

Imti: And for us [00:11:00] reading that, we can look at it and go, "Okay, yeah, that's an issue." For anyone else reading that potentially, they go, "Oh yeah, property advisory makes sense."

Skye: One-stop shop.

Imti: Why wouldn't a property advisory place have home loans?

Skye: Mm.

Imti: Oh, yeah, they do building and construction. Maybe that's just building and construction loans. They don't dive into the tab in more detail. And so those red flags inherently just aren't present, right?

Moving back to the story. So client's been introduced to the accountant, gone to the seminar. Is feeling really, really great. Gets introduced to this agent, educator person. What happened after that, Pete?

Pete: So essentially, they started negotiating on property a week later, which is crazy. They had gone under contract literally a week later.

They had the conversations in between over a few days on properties that they currently had for sale. 'Cause what you normally find with these types of groups is, yes, they do house and land, but they also sell property, and normally the properties they're selling are the dead stock that their previous clients bought and are trying to sell, and I think that's a really good tell.

But yeah, they pretty much went under contract for [00:12:00] a property they'd built two or three years ago in their SMSF. So for context, SMSF not set up, no financial advice, nothing. They'd just signed the contract and/or nominee SMSF, and then they'd signed the house and land as well in a trust structure.

And again, trust not set up, no proper advice around that or anything like that. So within a week, they literally had... Or maybe two weeks, but within a week or two, they had signed for two properties that I know they cannot afford.

Skye: So but this is what the accountant was telling them to do?

Pete: Yeah. Essentially, yeah. There would've been an element there that the accountant had said, "Yep, that's fine."

Skye: "I've done it."

Pete: "Go. I've done it." Yeah, pretty much and that was exactly what they'd said. She said, "Oh, the accountant's done it." But the accountant had only done it a couple of months ago, so there's no real long-term performance to assess anything against.

But yeah, within a week or two, two contracts signed One SMSF, one trust

Imti: Mm-hmm

Pete: And these are PAYG people as well, so they don't own businesses or anything like that. And their incomes aren't massive. Mm.

Skye: Yeah.

Pete: The fact that they've gone and bought in a trust and a SMSF structure is just crazy to me.

Skye: Mm.

Imti: Well, the thing [00:13:00] is before diving into that, for anyone listening to this for the first time, SMSF, buying a property in super, complex structure. We'll unpack it in a different episode. The point of it all is that these people knew how to tell Julia how to get these properties under contract, right?

Skye: Yeah.

Imti: So they knew that they didn't have the cash to buy the brand-new property in their personal names, and so they went, " Oh, how much money have you got in super?"

Pete: Yeah.

Imti: And the accountant, who is receiving a referral fee, then goes, " Yeah, it's a great idea. We can help you with that."

Pete: Yeah.

Imti: And- So it looked like, from Julia's perspective, everyone involved is just trying to help her get the result, right?

Pete: Yes, but they went one step further.

Imti: Mm-hmm.

Pete: Essentially because, they then referred them to their mortgage broker and their conveyancer. So all of a sudden, let's say she met with the accountant four weeks, and then four weeks later she's got the property. So within that four weeks, she's somehow built this team, all within the same group of an accountant, I guess what you'd call a, an advisory [00:14:00] agent-

Imti: Mm-hmm

Pete: a conveyancer, and a mortgage broker, all working for the same people, essentially

Skye: I'm just waiting for more Yeah.

Imti: Not done yet, really.

Pete: It's just ...

Skye: Yeah

Pete: Yeah, should we dive into the contract side of it?

Imti: Oh, look, let's give a helicopter view of the contract- Yeah ... 'cause we will unpack it in part two. But Pete, what was the key issue or key two issues with the contract?

Pete: So when they messaged me Saturday at 7:00 AM I was like, "Oh, we can get out of this." I kind of assumed they'd signed the contract that Friday, and then they were trying to arrange building and pest and everything like that.

Skye: Mm.

Pete: But little did I know they'd signed it, like, three weeks prior.

No finance clause, and literally it had been-

Skye: What?

Pete: ... crossed off. Both contracts had pretty much said under auction conditions, which they didn't buy it under auction conditions, but anyway, there was no finance.

Skye: They had waived all their-

Pete: They had waived everything ...

Skye: conditions.

Pete: Yep. So they'd waived that.

No subject to building and pest either, so I was like, "Why are we bothering with the building and pest now?"

So yeah, they pretty much signed two unconditional contracts.

And there was-

Imti: Skye, you look like you're about to implode.

Skye: I'm raging.

Pete: Yeah.

Skye: Because I literally had this [00:15:00] conversation with an investor this week for a property that I was selling.

He hadn't put subject to finance, but when I'd had the conversation, he's like, "Oh yeah, I've got pre-approval."

Imti: Mm.

Skye: Hang on, do you actually understand that that doesn't mean that you've got finance? Mm. Now, I could've been a dodgy real estate agent and shut the heck up. But no, I was like, "You need a finance condition, mate, because you haven't got a valuation yet." And then had to explain all of that. So the fact that I-

Pete: Yeah, so they- ...

Skye: have some values and ethics.

Pete: Mm.

Skye: Like, I could have been a jerk and just let it ride, let alone actively talking a client out of having any kind of conditions. I don't want my contract to fall over, so it's in my interest for them to have their condition met because otherwise it ends in tears, which-

Pete: Yep

Skye: Oh, I'm just mad

Pete: Well, the agent had put it in front of them and literally crossed all that stuff off.

Imti: Mm.

Pete: So they'd actively gone to the effort-

Skye: Actively deceptive

... Yeah

Pete: ... of crossing all that off, saying, "Sign here. The conveyancer you're gonna use is XYZ. It's in the contract."

Skye: Mm.

Pete: "Your broker is gonna be this person, and we'll just make it work."

Now he wouldn't have known all that had the accountant not said it's possible. But even then, as we know, an accountant is not a mortgage broker.

Skye: [00:16:00] No.

Pete: So-

Skye: Accountants aren't a real estate agent either.

Pete: Yeah.

Imti: But here's the thing, right? Skye, you said as someone who does sell property, you wouldn't encourage someone to go under an unconditional contract

even-

Skye: Unless they could.

Imti: Yeah.

Skye: Like ... No.

Imti: But for them to prove to you that they could do that, you would need proof of bank balance. You wouldn't just accept it willy-nilly, right?

Skye: No. Like, I wanna understand why they're offering that.

Imti: Mm.

Skye: Are you actually okay? 'Cause most people don't understand what they're signing.

Imti: Yeah. Yes.

Pete: Mm.

Imti: And so in this situation, because everyone is so integrated, right, the agent already has a fair idea, " Oh, they've got money in their super. They'll be okay." Mm. "We can put an unconditional contract in front of them, and they'll have to figure it out."

Pete: Doesn't matter

Imti: right?

Pete: If valuation falls short.

Imti: Yeah, doesn't matter.

Skye: Mm.

Imti: Because the money's there.

Pete: Yeah.

Imti: It'll be okay. Oh, they've got equity in existing properties already? Cool. We can put another contract in front of them because they can figure it out. Which I do wanna unpack in a little bit because the lending side of it is very interesting, and we'll get towards it, towards [00:17:00] the back end and, in part two of this episode.

But bringing us back to Julia's journey, we're three weeks in. She's had an amazing seminar, seen, an accountant that she trusts, is feeling really great about this scenario, and everyone around her is helping her get the job done. So when you put yourself in her shoes, You don't really see the red flags at all, right?

Pete: It's great service, yeah.

Imti: Because it's terrific service.

Pete: Mm.

Imti: Everyone around you is going above and beyond, dealing with problems that aren't their problems. They all happen to know everyone who can work together, and the thing is, is that this is what's championed as industry best practice. We talk about it all the time, that the investors who do the best have a functioning team around them.

And so from Julia's perspective, she would've gone, " This is it."

Skye: "This is my team."

Imti: Like, "This is my team. This is gonna be an incredible opportunity." And, it's not a slight at the terrific work Pete did with their second property, right?

Skye: I know, yeah.

We [00:18:00] don't need Pete. We found our own opportunity.

Pete: Yeah

Imti: ... Pete did amazing with our second property, and now we've met this accountant who has invested in property as well, so we can trust them as well.

Pete: I think it's also just assuming all property goes up, just to quickly jump in.

Imti: Mm.

Pete: Their first property went up, but again, stopped them from buying a really poor first property as well.

Imti: Mm-hmm.

Pete: But it's just that assumption that all property's gonna go up no matter what, and that I can do it myself, which some people can, which is fine, but that assumption there also played into their mind, too.

Imti: Mm-hmm. It's the most common myth that we bust, right?

Pete: Yeah.

Imti: Is early conversations with early property investors around, well, property always goes up, doesn't it?

Pete: Yeah, yeah.

Imti: And it's like, " Mm, not quite."

Pete: Yep. Now- And that would've been this spiel as well-

Imti: Yeah

Pete: ... from the accountant and the real estate company.

Imti: Now, I know we'll unpack this in a little bit more detail in part two of this, but it's important to touch on now.

Pete, can you talk me through the property that they were purchasing in super and why to Julia it would've looked like a really good investment, but why [00:19:00] it's actually a really-

Pete: Uh-

Imti: ... poor choice?

Pete: Yeah. So it looked good, 'cause it was only built a couple of years ago. Low maintenance, all that kind of stuff that you'd want in an SMSF.

It also looked good, again, this is a red flag, where they guaranteed the rent. So you don't guarantee a rent unless you don't think it's gonna be rented, essentially. But from what other people's- perspective, they see that as a risk mitigation. So in her mind, she's like, "Oh, but the rent's guaranteed at X amount for a year."

So because they're the tenant, the current tenant's moving out, because why would you wanna live around there? I just really don't like the area. But that's the thing. So it looked good on paper. It was new home, guaranteed rent, and all of that.

Imti: How much did it go under contract for?

Pete: Oh, I think it was 680.

Imti: So it went under contract 680. We're on the phone, 7:00 AM on a Saturday morning-

Pete: Yeah

Imti: ... trying to pull apart, how do we fix this?

Pete: Yeah.

Imti: How do we help this person out, because they're being taken advantage of. I did a valuation on the call, and it came back as 625.

Pete: Yes, yes. Mm.

So we're going into this kind of detail.

All right, yeah, 625. Yeah. And comparable sales were-

Skye: We're taking it there

Pete: ... we looked at the comps as well on that call, and we couldn't find anything [00:20:00] at 680.

Imti: Mm-hmm.

Pete: Nowhere near 680.

Imti: Now, someone listening to this would be like, why would they then sign up for a property that was obviously too expensive? The thing that I really wanna emphasise here is that there was so much transference of trust during this journey that Julia had no reason to doubt anyone in-

Skye: With what they were saying ...

Imti: the entire ecosystem, right?

Pete: Yeah. Correct.

Imti: Even down to the point when she was putting in an offer on the property, right, Pete?

Pete: Yeah.

Imti: What did the agent say? "Oh, we're not going a dollar under 680 or something

Pete: yep.

Imti: stupid like that."

Pete: Yep, that's exactly right. And then as we dived into it, though, they tried to sell the property for, like, three months, and the guide was 600 to 640, which hurt even more. When

Skye: I- So the agent was selling it before-

Pete: Yeah, they tried to sell

Skye: getting to Julia.

Pete: Yeah. Yeah, yeah, 90 days it was on market. A- and this isn't available to the public, so people can't see this information in the back end.

Imti: Mm.

Pete: But it was withdrawn, and the guide was six to 640, and in Melbourne it's not as competitive, particularly in this market, where you often buy properties under the guide.

So the fact that he was able to get 680 out [00:21:00] of them is obviously great for his vendor.

But, yeah.

Skye: ...

Laughing all the way to the bank.

Pete: Yeah. Yep. And she felt like she negotiated too, 'cause she said to me, "Oh, I negotiated as hard as I could." But again, the transfer of trust, it all just worked really seamlessly for 'em. The rental guarantee I think was a big one. They mentioned that a lot while I was meeting with them, that that seemed to be the thing that got them over the line.

But yeah, probably paid 80 grand too much.

Skye: Hmm.

Imti: And that's just signing on the dotted line, right?

Pete: 80 grand of their super is gone.

Imti: Hmm.

Pete: Literally. Just by signing that piece of paper, 'cause it was unconditional, ' cause they've overpaid. Well, that doesn't even include stamp duty too.

Yeah.

Skye: Mm.

Pete: So we're looking at 140 grand.

Skye: Mm.

Pete: Which I don't even know if they've got that in their super, but anyway, I don't know how they're doing this deal.

Imti: And that's the thing, right? If they wanted to terminate the contract now and walk away from it, they're still 140 grand in the hole.

Pete: Yeah.

Skye: Yeah.

Imti: Yeah. They're up for the deposit. So then it's do we move forward with the property anyway and ride it out and hope that it grows, or do we forfeit all of the super that we put together-

Skye: Mm ...

Imti: from blood, sweat and [00:22:00] tears, migrating overseas, working overtime nonstop, and we've lost it all in an instant, right?

Pete: Mm. Yep. Gone, just by signing the paper. Mm.

Imti: The reason why we wanted to share this story, and I'll bring us to the closing part of it

Pete: well, there was the second purchase, too, don't forget.

Imti: The second purchase?

Pete: That's just purchase number one. Do you want me to quickly run through purchase number two?

Skye: Yes.

Pete: Yeah. Yeah. Look, it's pretty similar. Again, in another part of Melbourne. Again, a dead zone, and somewhere we wouldn't have-

Skye: Was it the same situation, though, that it was a-

Pete: Same. Yep. Unconditional.

Imti: Same people ...

Skye: a property that couldn't sell?

Pete: Uh, no, this is a house and land.

Skye: Okay.

Pete: So.

Skye: So the first one was an established property?

Just ...

Pete: Yeah. Yeah. But, it just got worse and when I was meeting with him, I'm like, "Okay." We'd worked through that property, and she's like, "I also bought another one."

Imti: Yeah, yeah, yeah. Yeah, and I was like-

Skye: Oh, she didn't even tell you ...

Imti: 'cause that's, that's how it got revealed, is that- Yeah ... Pete had been told about it.

We'd been on the phone on and off for probably about 45 minutes.

Pete: Yeah.

Imti: And then-

Pete: On the one property ...

Imti: on the one property.

Pete: Yeah.

Imti: And then-

Skye: You're already freaking out at that point.

Pete: Yeah.

Imti: Yeah, yeah. '

Pete: Cause I was trying to get em out of it, and Imti knows a bit more about contracts than me from a [00:23:00] lending point of view.

I'm like, "Is there anything we can do here?" And there was nothing.

Imti: Yeah.

Pete: But yeah, the second purchase was probably-

Skye: And keeping in mind, you have a legal background, right?

Pete: Yeah. Yeah,

Skye: You couldn't find-

Pete: Oh, I was just trying to find something, right?

Imti: Yeah, yeah.

Pete: Like, I had plans to try and get him out of it, but then I had no idea, so I called Imti.

Imti: Mm.

Pete: But again-

Skye: Mm

Pete: ... we couldn't do much. But the house and land was the other one. And again, house and land, especially in these areas-

Skye: Mm

Pete: ... they're just poor performing. They're just not great.

Skye: Because of the surplus issue?

Pete: Yeah.

Imti: Mm.

Pete: There's just too much going on in Melbourne at the moment, in particular these pockets, but we'll go into that in part two, won't we?

Imti: Yeah.

Pete: Around the suburb itself.

Imti: We'll unpack it.

Pete: But it's just, there's nothing going on in these areas. But essentially, again, signing that contract, Look, they would've lost a lot of the equity we built up in that investment purchase, 'cause this is now moving into their personal trust, well, personal lending space, but buying inside a trust, they've gotta use their personal income or personal assets to do that.

So yeah, essentially a lot of the equity we built up over the last two years, gone into this, purchase now, which is going to also-

Skye: Negative equity ...

Pete: underperform. Yeah, yeah. Again, looking at comps and stuff like that, I just ... It's crazy. When you're looking at things like this, it's brand new, which is [00:24:00] great, but houses that are, like, a year or two old are selling for, like, 100 grand cheaper.

Imti: Mm.

Pete: And that's just gonna continue to go for quite some time, because the building approvals and all that in these areas are just-

Skye: Mm

Pete: ... astronomical.

Imti: Mm-hmm. And-

Just wanna jump off the negative equity point that you just made, Skye

Skye: Mm.

Imti: We did find a way for them to settle on these contracts. So we found a way for them to move forward

Skye: Mm.

Imti: There isn't a way for them to back out. But the thing that we were worried about was, what if there's actually just no way for them to move forward?

Skye: Mm.

Imti: Right?

Pete: Yep. '

Imti: Cause then they've gotta forfeit the deposit-

Skye: Then they lose their house

Imti: ... because they can't get the lending. They're just stuck.

Skye: Mm.

Imti: Right?

Pete: Yep.

Imti: The way forward for them was to sell the property that they built 300k equity in.

Skye: Yeah.

Pete: Which is the one we bought with them, yeah.

Imti: That's how it works.

Skye: Mm.

Imti: So even though they were unconditional on the contracts, and they've got no borrowing power right now, they can't borrow anything extra.

Skye: Mm.

Imti: The way for them to actually satisfy that contract is they need to sell the asset that's performing well.

Skye: Mm.

Imti: And then use that cash [00:25:00] to purchase a property that we already know is

Skye: 100 grand down the hole.

Imti: 100 grand down the hole from day one.

Skye: Mm.

Imti: Yeah,

Pete: 200 combined.

Imti: Yep.

Pete: Before I forget too, when you're getting a contract given to you with experts on there to sign, so the conveyancer, they had not heard from the conveyancer. So they'd signed the contract, and three, four weeks later, they still had no word from the conveyancer. No phone call, no communication, no nothing. So I just wanted to put that out there as well-

Skye: Mm

Pete: ... that be mindful when you're signing these contracts, you're the one picking the people,

Skye: Mm

Pete: ... not the agent.

Imti: Mm.

Skye: Oh, yeah. '

Pete: Cause that's a big one.

Imti: Yeah.

Pete: It's a big flag, yeah.

Imti: But again, it's ...

Pete: Trust

Imti: It's trust.

Pete: Yeah, yeah, yeah.

Imti: That's why we wanted to share this story, right? From Julia's perspective, everyone in this situation was trustworthy, and was helping her, was treating her well, probably too well, because the agent flew from Melbourne to Adelaide. But the impression that she would've gotten is that in an industry where service and support are notoriously horrible, and people get treated like [00:26:00] shit the whole way through-

Skye: Mm

Imti: everyone on this side of the fence is actually taking care of me.

Pete: Mm.

Imti: And for her-

Skye: Wow. So because the bar's so low-

Pete: Yeah.

Imti: Yeah ...

Skye: this stood out.

Imti: Mm-hmm. And it stood out in a good way Julia did all the right things. Migrated from overseas, worked her ass off, had to leave her kids behind, built equity, blood, sweat, and tears.

And we're talking, their household income is probably less than 200 grand, right? They're on normal people jobs. Raising kids, putting money away, scrounged to build up this wealth. And now, because of one person that they were connected to from someone in their community who they should have been able to trust, they're now in a situation where they could have to forfeit the $350,000 worth of equity that they've built to settle on two properties that are gonna be behind from day one.

Pete: Mm.

Imti: And on that note, I'm gonna wrap us up on part one. Part two of this, what we're gonna do is we're gonna isolate all the red flags that happened during [00:27:00] Julia's journey and give you the summarised version of what to look out for and how you can poke around and make sure that you don't fall into the same issue.

Because again, this is someone who invested in property successfully and did very, very well and still got caught up in all of this. And to me, that shows that it can happen to anyone. So thank you for making it to the end of part one, and we look forward to unpacking it with you in part two.