About 5 years ago I was offered $2 million to help promote something.
Now I know I talk some trash some times about how fat my wallet is, but $2 million dollars is still $2 million dollars. And for promotion work it’s an absolute s#!t can of money.
So, you know, I was curious. My spider-sense is already tingling at this stage – something about these guys just didn’t feel right. But, there’s no harm in having a look, so I started doing some research.
And stranger things have happened. The financial world is full of labyrinths and worm-holes. Maybe they had discovered some secret sauce that people needed to know about.
So I started doing my due diligence.
They were selling land. Or more to the point, they were selling options on land. Or more accurately, they were selling shares on an option of land. Land-banking.
Ok, that’s a bit “creative”, but maybe the numbers add up.
I knew one of the areas they were promoting so I actually got in the car and did a drive-by.
When I was out there I saw a sign that said: Land for Sale: $165K for a 650sqm block.
Ok… I checked the numbers they’d sent me. They were offering the same blocks for $220K on a 7 year option.
What’s the go here mate?
He reckons that it’s $165K with a 12 month settlement. The $220K settles in 7 years.
But that still doesn’t really add up.
You’d need land values to go up 33% just to make the strike option. That’s like 4-5% a year.
That’s about what I’d expect land on the suburban fringe to grow at – at best. So there’s a bit of risk there.
But then there’s all these glossy promises about massive uplift because the area is booming, and they were going to get subdivision and development approvals etc., and it’s going to look really lovely when they’re done.
They were calling it, the Toorak of the west.
A bit of a stretch, I thought. Toorak is in the East.
So effectively you’re asking me to take a punt on how good you and your mates are at engineering a boom in a particular area and pulling together some pretty complex developments – over like a 10 year time frame?
Who are you working with? Lend Lease? Meriton?
I did some research. Nope, you’re just some $2 company that no one has ever heard of.
Alarm bells going off all over the place.
Land can be a great investment. As I’ve said before, it’s the value of the land that grows over time. Built dwellings actually depreciate in value the older they get.
I know this because I’ve got a mate who made well over $150 million in a 20-year window buying land and waiting. What he was doing isn’t what we’re talking about here.
Anyway, back to the story…
They weren’t even selling you land. They were selling shares in a large parcel of land – before there was even the planning subdivision in place. That meant your investment was not in the land as a deposit, but in the company.
A $2 company.
And if shit hits the fan, what security have you got against the company?
Sorry lads. The doors that way. Stop wasting my time.
Anyway, what did I see earlier this week? Stephen William Hill, the bloke behind this particular scheme – has landed his dumb arse in jail.
An ASIC statement announced that Steven William Hill has today been sentenced in the Sydney District Court to 2 years and 9 months imprisonment.
ASIC alleged that between January 2006 to February 2007, Mr Hill induced various investors to pay approximately $618,000 to acquire interests in a ‘house and land' property development located in Queensland.
The defendant was found guilty of fraudulently misappropriating $281,000 of the invested funds, which were directed to company bank accounts to make payments to Mr Hill and other third parties.
According to ASIC, Mr Hill reviewed the financial circumstances of investors, recommended they set up a self-managed superannuation fund (SMSF) for investment, referred investors to a solicitor to establish a SMSF, elicited establishment fees and instructed investors to deposit their funds to his company bank accounts.
ASIC found that Mr Hill advised investors their funds would be used as ‘seed capital' in a number of Queensland based property developments he was facilitating. Mr Hill advised investors that they would receive returns of between 10 – 30 per cent per annum, however, unknown to the investors, funds paid were not invested in the property developments as originally advised by Mr Hill.
What a dumb-shit.
Man, this stuff gets me angry. All that drama, all that stress and heartbreak you’re creating in other people’s lives… and for what. A pissy $280K? What a moron.
So what are we looking out for? How do we make sure we don’t get scammed?
The first thing is to be wary of land banking scams like this. It’s similar to the failed land-banking schemes, which have seen some investors lose everything.
First up, land is a great investment yes. But only if you actually own it, not some share in some option over it. Now, if you own the option outright, you can make a killing. I’ve got another friend (who you will know quite well if I mentioned his name), who has built a $50 million+ empire in the last 15 years doing exactly this strategy.
But again, the scheme going on here was totally different.
I mean, what developer is going to come along and say yes, I’d like to negotiate with 700 different people over the price of this land.
Some people have used land banking to make a heap of money, true. But they have the pockets to buy the entire parcel of land outright, and the pockets to be able to sit on it for years until it’s ready. We’re talking Donald Trump sized pockets.
That’s not me, and it’s not your mum and dad investors.
The other point, and I really want everyone to know this, is watch out for people who sell you the advice AND the solution. There’s always a conflict of interest there.
“What you need is an investment in a high rise apartment, and oh look, I happen to have one right here. Lucky you.”
I can’t tell you how many times I’ve been approached to flog individual developments or properties. But that’s not my bag.
They have offered me $25,000 commissions. And when I say No, the number goes up to $35,000. Say No again, and then it’s at $50,000.
Jeez, you know who’s paying for it at the end of the day? You are, if you’re a mug who buys these sorts of deals.
I talk knowledge. I teach strategy. That’s what people know me for. Teach a man to fish and all that.
I teach the techniques of fishing. I leave it to others to go and find the fish.
So good on ASIC for putting scumbags like this behind bars. All power to them. In the mean-time, be warned. Watch out for land banking scams, watch out for people selling advice AND the solutions, and always get everything checked by an independent entity.
The best way to protect yourself, (because independent entities sometimes aren’t all that smart either) is to become educated so you know the bloody difference so you know the difference between a good and bad deal.
…come on guys, it isn’t that hard!
It’s just money at the end of the day, but there’s a lot of heart-break along the way.
Have you been involved in any dodgy land-banking deals?
Have you bought property that at settlement was 10% less than the purchase price?
How do you make sure you protect yourself and don’t get scammed?