Collapse of Inside Track … and the gifted deposit scam
The collapse of Inside Track, which has been running property seminars around the UK for the past few years, promising attendees the ability to ‘get rich quick’ should come as no surprise given the current state of the credit, mortgage and housing markets. The scandal is that so many of these companies are allowed to trade on the gullibility of the public. I personally don’t buy the line that ‘if people are greedy they deserve to get ripped off’. Yes, people are responsible for their actions and if they lose money trying to make money, then hard luck. But investment companies making misleading claims should be taken to task, and prosecuted if necessary. The Inside Track model was largely predicated on new build. Putting down a deposit off-plan in the sure knowledge that the property value would have risen before completion.
The even ’sexier’ version of this was ‘flipping’. Here’s how it works - though as you’ll see, it often doesn’t. A new block of apartments is being built off-plan at £200,000. In February enter the sales suite, a nicely white painted prefab amid the mud and rubble and slap down your 10% deposit of £20,000, and are told that your apartment will be ‘delivered’ in a ‘turnkey’ condition in November. I apologise for all the ‘quotes’ but enter the world of estate agents and property investment and you start to drown in the jargon. Hey, the market’s flying. You put your property back on the market in July and sell it for £220,000. 100% profit! You’ve done nothing! In fact it gets even better. You didn’t have to put the deposit down because it was a ‘gifted deposit’ from the developer. His way of saying thankyou, free money.
Er no. When a developer offers to give you something for nothing, check who’s paying for it. The apartment is likely to be selling at a premium to absorb his gift. In simple terms, it would have been £180,000 otherwise. The other beauty for the sellers of seminars is that this gifted deposit enables you to get a 90% buy to let mortgage, because 100% BTL mortgages are very hard to get. And there’s a good reason for that - prudence, safety, not overstretching yourself. And of course, you DON’T have a 90% mortgage, you effectively have a 100% one because all they did was diddle the figures.
Now in a rising market all this is disguised. The flat goes up to £220,000 (and comfortably masks the fact that had you saved a deposit, or just bought a Victorian flat or something that needed a bit of work you could have avoided paying a premium). But when things are flat or falling, as they are now, you’ve lost big time.
But … they’re still out there. Win, Russ Whitney, Win Property Investing and the rest. Whitney, to its slight credit, advises buyers to purchase distressed properties and do them up, though that too is a much tighter market than it was. And, certainly in the past, Whitney were suggesting people buy using Credit Card debt, which, call me a scaredy cat, strikes me as a terrifyingly foolhardy plan.
But again … I use Wordtracker to find what the great British public are actually searching for, typing into Google, MSN and Yahoo, and I find lots of results for ‘property investment seminars’, ‘make money through property’ and, oh dear, ‘get rick quick through property’. This is spring 2008, credit crunch, property crash, bad news being shouted from the rooftops. Some people, it seems, are their own worst enemies.
Not all property advisors are equally bad, but you should ask yourself some careful questions before you invest. In my next property investment post, I’ll be giving some pointers. In the meantime, check out our ‘House prices in my street’ post for some observations on what’s really happening to our property market … or should that be markets!
April 29th, 2008 at 9:14 pm
Its easy for anyone to write articles like this now IAP is off line, but few dared to write this while they were operating and the ones that did (that I was made aware of) were silenced by court orders.
April 30th, 2008 at 9:08 am
Fair comment David, but you can hardly suggest that there was no criticism of what Inside Track were doing, and the shakiness and unsustainability of the model while they were still trading. I’d also point out that the others I’ve mentioned here are NOT ‘offline’. There was lots of information out there, including a piece in the Guardian criticising what it delivered for the £2000+ fees, and the Daily Telegraph asking of Inside Track, ‘Is it all just a house of cards waiting for the joker of high interest rates to be played, with the whole thing tumbling down around our ears?’ These comments in spring/summer 2007. Merryn Somerset Webb, editor of the excellent Money Week, attended an Inside Track seminar and wrote an amusing piece on thisismoney.co.uk advising caution. As for being ’silenced by court orders’, all this stuff is fair comment, not libellous, so there’s no way a journalist would be gagged from writing this stuff.
I take your point about bravery after the event, but I’d point out that Whitney and Win ARE still trading as far as I know, yet we’ve mentioned them. The principle is the same - what these guys are doing is legal and, one might argue, simply good, aggressive selling and yes, of course, it CAN work. Our point here isn’t to see businesses fail and people lose their money (I’m a property investor myself), it’s merely to urge caution. The warnings ARE out there if people choose to look before they buy.
May 2nd, 2008 at 11:13 am
COMMENT IN RESPONSE TO JOHN RENNIE’S ARTICLE ON INSIDE TRACK AND THE GIFTED DEPOSIT SCHEME: FROM IAIN EDWARDS, MANAGING DIRECTOR, WHITNEY UK:
“Whitney UK has provided responsible education and professional training to its 100,000+ students in the area of property investment since 2001. We teach a range of courses: from Buy-To-Let, HMO and Lease Options to Commercial Investing, Self-Build, Creative Finance and Asset Protection. We look at covering many strategies in relation to the rise of ‘New Build’: in fact we have proactively discouraged students from this strategy unless they specifically understand their exit route. Looking at the current position of many novice investors, you can see that the education provided by Whitney UK was, and is, in fact, invaluable. And could have prevented some unfortunate consequences for many novice investors.
“Our course figures continue to rise and projections show no signs of slowing down, in spite of the author’s reference to ‘credit crunches, property crashes etc’. Our student testimonials and genuine success stories bear testament to the ethical and practical nature of the varied courses on
offer, regardless of the marketplace.
“The ‘gullibility of the public’ referred to by the author does not produce results, it simply leads to disillusionment and failure: the collapse of
Inside Track is surely evidence of this - offering dependency rather than teaching students how to be financially intelligent and independent. In the
case of Whitney UK and associated partners, we pride ourselves on continued successes with those students who follow training and mentorship programmes over time. Promises of get rich quick are not suggested or sold. Moreover, get rich wise.”.
May 2nd, 2008 at 11:32 am
Of course, whatever you think of property investment seminars - there ARE significant differences between Whitney and the late lamented Inside Track. One thing to be said in the Whitney organisation’s favour is that it’s about improving distressed property (therefore adding capital value) and then maintaining it as rental property, which to my eyes is much more sustainable than simply surfing a market rise or flipping. My question would be ‘do you need to attend expensive property seminars to learn how to do this’. To which I guess you could look at the many thousands in Britain who HAVEN’T educated themselves and thought BTL was a no-lose, no-effort game and say - they could have done with a bit of education first. And Whitney has some staunch defenders, who will argue that their lives were changed not just by the strategy it promotes, but by the positive mindset and ‘can do, can change my life’ attitude.
So, proof of the pudding. I’ll be attending one of Whitney’s seminars at some point in May and I’ll be reporting back here on it - good, bad or indifferent. Watch this space. And for those commentators dancing on the grave of buy to let (some of whom have been waiting for a market crash for the last ten years and can’t believe their luck) I’d advise caution. Now is the time when many of the really canny investors, with a handy war chest of cash, are entering the market for bargains. In any financial story there is NEVER unalloyed bad news.