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  • Landlords in Distress

    Guru and lease options crash - Rick Otton

    I am surprised to learn the below about Rick Otton as I have seen him being promoted in the U.K. earlier this year, around the same time as the below was announced.

    In fact the below was announced in March 2015, and on the 11th March, Rick Otton was speaking at an event about lease options in London! The other speakers included Simon Zutchi, Glenn Armstrong, David Lee, and Reena Malra.

    ACCC announcement:

    Following a coordinated investigation with the New South Wales Fair Trading (NSW Fair Trading), the Australian Competition and Consumer Commission has instituted proceedings in the Federal Court against We Buy Houses Pty Ltd and Rick Otton for alleged contraventions of the Australian Consumer Law.

    The alleged conduct includes several representations made to consumers that, by attending seminars and boot camps, consumers will be taught strategies to enable them to, for example:

    >buy a house for $1
    >buy a house using little or none of their own money
    >build property portfolios without their own money invested and without new bank loans.

    The ACCC alleges that the strategies do not enable consumers to buy a house for $1 but rather involve consumers acting as middlemen to facilitate property transactions between third party sellers and third party buyers. For example, in the context of the ‘rent to buy’ strategy, the ACCC alleges that this strategy only allows a consumer to secure an option for $1 to purchase a house at a later date, subject to payment of the full purchase price in order to exercise the option.

    “The ACCC is concerned that the strategies promoted by We Buy Houses and Mr Otton target vulnerable consumers who don’t qualify for bank loans or who are having difficulties meeting their mortgage repayments,” ACCC Chairman Rod Sims said.

    The alleged representations were made in a number of mediums since at least 1 January 2011 including in published materials, on websites and during various events such as seminars and “boot camps”.

    The ACCC has obtained a delegation from ASIC to also institute proceedings under the ASIC Act as some of the matters may fall within the financial consumer protection jurisdiction of ASIC.

    The ACCC has been assisted by other Australian Consumer Law regulators particularly NSW Fair Trading and Consumer Protection WA.

    The ACCC is seeking declarations, pecuniary penalties, permanent injunctions, corrective advertising and costs against We Buy Houses and Rick Otton. The ACCC is also seeking a disqualification order against Mr Otton.

    The matter is listed for a directions hearing in Sydney on 1 April 2015 before Justice Gleeson.

    Source/full story

    I am not sure of the outcome of this case.

    However, when searching for it, I came across a website that lists how some of Rick Otton's students have been prosecuted for following his strategies.

    I also found this forum discussion where victims of Rick Otton and his students are discussing their financial losses.

    It is claimed that Rick Otton used some of his students to "front" his deals.

    *Speechless*

    Rick Otton was the mentor of Ben Rogers and also cited by many people as a leading property expert.

    Rick Otton also spoke at PIN meetings.
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    Ben Chisett referred to was fined $70,000! And must compensate his 'victims'.

    The only thing that's stopped the same crackdown here is is low interest rates as not many have been harmed yet.

    When rates rise and/or the tax changes kick in we will see similar horror stories and regulation and prosecutions will follow.

    I'm already hearing about 'sellers' refusing to allow options to be exercised as they now have equity they didn't have when they agreed to the option, lenders taking action when they're discovered and get contacted regularly by tenant buyers or investors seeking a mortgage using the top ups or equity as a deposit which isn't possible contrary to what they were told at the outset. This is potentially miselling at best! And of course like in Phil Martin's case I'm seeing the original owners mortgages going unpaid and credit files being trashed.

    'Walking away from your headache' couldn't be further from the truth.

    I'm not a naysayer; I was doing these, teaching others (properly - no buy a house for a pound stuff!) long before Rick and others came to the UK.

    But I recognised others didn't have the same morals as I did and combined with the introduction of Home Purchase Plan regulation I stopped doing them.

    Lisa
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    Lisa All comments are for education and information purposes only and do not construe as advice or a financial promotion. No liability is accepted for comments made. If you wish to receive information in an advisory capacity then please contact me about becoming a client. www.keys-mortgages.com


    'Lisa Orme' pid='243273' datel Wrote: get contacted regularly by tenant buyers or investors seeking a mortgage using the top ups or equity as a deposit which isn't possible contrary to what they were told at the outset.

    Hi Lisa, Sorry if I've got the wrong idea, or taken the above quote out of context - I just isolated this as it's what concerns me. I have seven tenant buyers with Ewemove (formerly the National Property Group) ie: I own the properties and have tenant buyers paying top-ups to NPG to save for deposits to buy.

    After using NPG several times, I got brave and arranged a Tenant Buyer contract myself: the TB pays me £100 pcm which I keep in a separate bank account for them. Are these types of Rent to Buy arrangements safe in terms of the TB being able to use their top-ups as a deposit, as I have innocently assumed?

    To give my view of lease options, I have to say that I think a little lack of confidence can go a long way in saving ourselves from being sucked into things that we're not comfortable with. That's how I felt about lease options, even after meeting Rick Otton and being taken in to some extent by him and his 'dynamic students'. I just felt I would never have [i]the cheek to take over someone else's property - especially with the aim of making indecent sums of money for absurdly little effort! It's just instinctively wrong!

    Angela

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    Author of The Complete Guide to Property Strategies and The Complete Guide to Property Investing Success
    Learn more at http://www.completepropertysuccess.co.uk

    I also post property updates on my Facebook Page

    "It is the small decisions you and I make every day that shape our destiny" Anthony Robbins


    Thanks Lisa.

    I am just surprised that I have only found out about this, and quite by chance.

    How has it stayed under the radar?! People closing ranks?

    I am sure the issues applied to RO's strategies and advertising in Australia are relevant to U.K. standards as well. In other words, "very misleading".
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    Because it's Australia and indeed mostly only WA which have had an issue with wraps and subsequently lease options for many years.
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    Lisa All comments are for education and information purposes only and do not construe as advice or a financial promotion. No liability is accepted for comments made. If you wish to receive information in an advisory capacity then please contact me about becoming a client. www.keys-mortgages.com

    Rent to rent and lease options are a tragedy awaiting to happen and there will be may Gurus and pupils will be damaged and the person who owns the property will be left with the pieces to pick up. The majority of these deals are mainly not to the property's owners advantage and if they have given the other person a right to control or manage there mortgage then God help them.
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    [Image: New-logo2.png] Manchester based investor. I buy, sell, renovate and rent investment property in East/North Manchester Wink email: mike@brentwoodinvestments.co.uk Call: 0161 681 3724


    (21-11-2015 01:29 PM)Michael_Brown Wrote:  Rent to rent and lease options are a tragedy awaiting to happen and there will be may Gurus and pupils will be damaged and the person who owns the property will be left with the pieces to pick up. The majority of these deals are mainly not to the property's owners advantage and if they have given the other person a right to control or manage there mortgage then God help them.

    I totally agree Michael, 'the person who owns the property will be left with the pieces to pick up'. I don't like options for that very reason. You guys know I run a mentoring group, but I won't teach either options or rent to rent -

    options because
    1) I think it is too easy for the person who owns the house to get screwed, I want no part in that (we have seen it with PM and others) and

    2) If I were a judge, looking at an option 7 years hence, when a lot of equity had built up, I would really consider the person owning the house has been taken for a ride by the property investor, so if there were a bunch of no win no fee lawyers chasing this one, hey, what will the outcome be. So I don't want my guys with any sniff of that over them - buy the asset, that is being an investor, tough at times though it may be!

    and rent to rent - because I think it is about creating a job, a letting agent, and though the cash may be fine, the legal complexity or mortgage conditions not being met, and therefore insurance being invalidated, fire / tenant safety, no thanks! I worked out a 50k profit rent to rent business was actually £17 per hour, which is not cool (we geekily do time and motion study on my properties, so see where the time goes).

    But options on resi always made me queasy - on land fine, because you are looking to take a financial risk in getting planning, and therefore paying anything up to £30k or so for surveys, planning work with architects - so on land options, we do have skin in the game, the 'skin' is the payment and time and energy working on planning consents.So committment to work hard to make it happen is there.

    But on resi - people need to learn how to manage assets, and for that there needs to be some skin in the game (to take responsibility, that is human nature) and for that, perhaps some pain, ie financial committment, or the difficulty of raising money, which means people will look after the property through the good and tough times.

    Options give no skin in the game, and so limited committment, which can only be a poor thing for the actual owner, when the chips are down. Not my cup of tea, ever.
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    Ms Cole,

    You're in no position to comment on anyone based on your poor performance and lack of results.

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    I knew a very successful rent to own investor; they would make what most people do pale into insignificance having done over 1000 transactions over a 10 year period.

    They got their timing spot on and got out just before the credit crunch though being in Oz weren't as affected as we were here or in the US.

    They said well over half never came to fruition, if anyone reneged on exercising the option either way it was never worth the legal costs to enforce and that their biggest regret was they'd done them at all!

    In Oz rentals are typically negatively geared so that's why positive cashflow from LOs is so attractive but ultimately he ended up with no assets. He had a nice lifestyle but was so busy he didn't get chance to enjoy it. Once his geese had all gone he had to start again.

    He said in hindsight he'd have bought a dozen rentals, paid off the mortgages and kept them for the long term.

    There's a lesson there!
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    Lisa All comments are for education and information purposes only and do not construe as advice or a financial promotion. No liability is accepted for comments made. If you wish to receive information in an advisory capacity then please contact me about becoming a client. www.keys-mortgages.com


    I agree Michael.

    Funnily enough, in the victims forum, there was this comment:

    I am writing about a certain Ben Chislett, who is at the very least a chisler and a thief. He should be in jail for a very long time. My wife and I were in the process of buying a house through him on one of his rent to own deals. My wife and I are both in our 50s, having returned here from the US, we could not buy a house under normal terms because of our ages and the fact that we we just starting over again. Ben offered us a deal on a home that we should have been buying from him trough one of his companys. To make it a short story, we have paid this SOB over 100,000 on the house since the deal started. We have never missed a payment and we have always tried to take care of the place. In June of this year we found out that this BASTARD, has declaired bankruptcy and we are now going to loose the house that we have been paying on and living in for 3 years.

    He declaired BR in january of this year. We never knew that he had done this and to our knowledge he never reported that we were paying him almost 700 a week. Shouldnt there be a law against this, Shouldnt he have to make some sort of restitution to someone for this. At the moment we can not get a loan to cover the amount needed. We have no down payment as every bit of our savings and most of the salary that we have as income has went on the payments of this house. We are totally screwed. At the moment we can not even get together enough money to move out as we are being evicted by the original owners and we dont have the 2000 for a deposit and rent on a different place.


    This sounds very similar to what Phil Martin did with his lease option mansion in Milton Keynes.

    Phil Martin negotiated a lease option on a mansion, which was later repossessed by the original lender, Santander.

    PM paid for a long time but nearly 2 years ago, unbeknownst to the owner, stopped paying completely. He received correspondence for the property so the owner was unaware of matters until the situation was unresolvable.

    Phil was unwilling to leave the property and strung out the repossession as long as possible with the bank and the banks local estate agent. The owner estimates he has lost around 90k. He attempted on numerous occasions to serve a bankruptcy notice on PM and eventually had to block his driveway with a car to serve it as Phil took his girls to school. There were also numerous other charges on the property, but the owner did not recognise them. One would assume that some if not all of the other charges are related to Phil.

    So in a sandwich lease option, the legal owner of the property and the person who takes over the option to buy the property are both stung. The person who set it up walks away scot free!
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    "buy a house for $1" is simply misleading.

    There is a place for short term purchase options. I have always found long term lease purchase option as putting all parties in a vulnerable position - not a fan.

    As Lisa said they do often work though.

    Unless I'm mistaken Rick is being investigated for the way he marketed his courses? It does not say anything about the process? His advice


    Wow. So that Ben Chislet had a lease option from x and had y paying significant sums to buy something Ben did not even own yet. That simply should not be allowed...
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