Land Scams: How to keep yourself apart

Whenever any buyer invests in land he has different questions in mind: whether I will my title cleared? Is this land disputed? Am I being a part of any fraudulent activity? and others...
There have been London Land Scams, Kent Land Scams and Sussex Land Scams in the past but land scams are no more common than other types of real estate fraud. Where there is money to be made fleecing the greedy, the ignorant, or the just plain lazy, con men are sure to follow.
This isn t what is commonly meant by land fraud. Here are some real examples:
- Selling worthless land, in other words land without development potential, and claiming it has great value, the classic being land underwater but also land on the sides of cliff faces, under bridge abutments, and in the medians of highways. - Promising land buyers development amenities like golf courses, community centers, and tennis courts that will never be built. - Promising land buyers subdivision improvements like sewers, street lights, sidewalks, even roads knowing none will ever be built. - Making false representations to buyers about the value of their land, especially claiming that lots bought today will skyrocket in value. - Vague descriptions on deeds which allow the land promoter to sell the same land to multiple buyers at the same time. - Illegal or unapproved subdivisions, especially where land has not been properly platted and permits granted. - Selling land where clear title cannot be transferred, for example, selling land you don t own and masquerading as the real owner through the use of forged documents and fake IDs. - Reserving mineral, water, and other land rights without disclosing this important fact to buyers at the time of sale. - Using high pressure and unscrupulous tactics to sell land, especially misrepresenting a buyer s legal rights to cancel an agreed upon sale. - Selling land of marginal value for excessive prices, especially through the use of easy credit terms ($5 down, $50 a month). - Selling land where defects such as environmental contamination are known but not disclosed or failing to tell buyers material facts which would ultimately diminish the sale price of the land.



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Pre-Construction Investing

With pre-construction investing, you can make a large profit, and there are even ways to limit your risk. This strategy generally won t work well in slow markets, but then markets go up and down. If the time isn t right now, try it when prices are rising.
The first time I remember hearing about this was in the late seventies. As condominiums became more popular, the prices rose consistently (remember that this was a time of high inflation too). Smart investors took advantage of this before the condos were even built.
First you need to understand how these projects were financed. A developer would determine that there was enough demand for a condo complex, get an option on some land, and have a plan drawn up. The banks didn t want to loan money on an unproven plan, however. How did the developer prove that the units could be sold?
By selling them! If you want to be the proud owner of one of the beautiful new units in the Blue Spruce Condominiums, you had better buy now! That was essentially the pitch, but of course people wouldn t (and couldn t) pay for something not yet built. They could sign the contract to close on the unit once they were done, however, and put down a $500 deposit.
If the units were expected to sell for $55,000 when done, the developer might sell the first dozen for $50,000, just to get things moving. Once he had enough contracts in hand, the bank would put up the money so construction could begin. Six months later, as the condos neared completion, the last ones might be selling for $65,000. Things already there to look at tend to sell for more. (And inflation was at double digits during some of these years.)
Investors who bought a unit at first had a contract to buy at $50,000. If it was assignable, they could just sell it to a buyer for say $13,000, which with the $50,000 price added up to $63,000, still a discount from the going rate of $65,000. If the contracts were not assignable, he could sell the unit and do a simultaneous close. This latter way had more costs, but he still made over $10,000 on an investment of $500.
By the way, as long as the language of the contract limited damages to the deposit amount, (ask an attorney), the buyer could walk away if necessary. The most he would lose is $500.
Pre-Construction Investing - A More Recent Example
Around the time we moved to Tucson, Arizona (2004) there were new subdivisions going up all over. One developer had a subdivision where he was building homes to sell for $150,000 and by the time they were half sold, he was starting to sell them for $200,000. Lucky homeowners who put their deposit down early got to move into a home with $50,000 of instant equity. This did not go unnoticed by investors. Soon many of the sales were to investors who intended to immediately resell the homes for a profit once they were complete and they closed the purchase. Some did very well in this way.
Eventually, the developers stopped selling to the investors. So many investors were in on the game that when the subdivision was done, the developers had to compete to sell their own remaining homes while all the investors were trying to unload theirs. Prices could be pushed down or houses could sit on the market longer, creating more expense for the developer. They preferred to sell to people that were actually going to live in them.
There are other ways to invest in pre-construction deals. Some builders need your help to get financing, for example. If you agree to buy their new house, you can use your credit standing to get a construction loan. They might line up a dozen investors to get a subdivision built in this way. The sales price is set at a level that hopefully assures both you and the builder a profit.
You sell as soon as the home is complete. The builder may sell to you for $160,000, knowing the home will be worth $190,000 when done. If his cost is $130,000, and you are his way to get the money to build it, he is happy. Often the bank may not know that it is an investor and not a resident buying the home (you changed your mind?), but you can let your conscience be your guide when it comes to the financing paperwork.
You can do something similar with condo conversions. When an apartment building is converted into condominiums, the developer may need to pre-sell enough units to get the cash and/or financing necessary for the deal. These early sales are often at prices far below what the finished condos sell for. You might put a $2,000 deposit down on a $85,000 condo that is worth $95,000 or more when it is done.
You ll notice one thing in common about all of these examples. They assume a hot real estate market where things are selling relatively fast and prices are rising. That is what you need to really make money safely with pre-construction investing.
Copyright Steve Gillman. For a Free Real Estate Investing Course, and to see a photo of the home we bought for $17,500, visit: http://www.HousesUnderFiftyThousand.com



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Rate cut answer blowing in the wind, says Lomax

The issue of interest rate cuts has been high on the agenda this month as the Bank of England s own inflation report hinted strongly at UK mortgage cuts next year. However, the minutes of the latest meeting of the monetary policy committee (MPC) showed that the people making the decisions were far from convinced that the time for such cuts was nigh. With every stakeholder in the property industry, from lenders to homeowners and property investors comma watching the situation and waiting for news, it is perhaps natural that every piece of economic information, whether in the housing market or other sectors, is both interpreted in terms of its potential rate-setting implications or prompts a call for change. This was certainly true today when the British Bankers Association (BBA) published its latest figures for UK mortgage lending. These showed that in October the net increase in mortgage lending was 5 billion, down from 5.9 billion in September and also lower than the six-monthly average of 5.6 billion. Gross lending was also down, standing at 18.8 billion against 18.9 billion in September and the six-month average of 19.1 billion. BBA statistics director David Dooks was clear enough that the figures showed a slowdown in progress, saying: "October s data provide evidence of a rapidly slowing mortgage market and of consumers limiting their personal borrowing." He said the strain on household finances, the introduction of home information packs and the impact of higher interest rates were all contributing to the trend. The interest rate aspect was cited by the Royal Institution of Chartered Surveyors (Rics) in its response to the figures. Rics chief economist Simon Rubinsohn said: "The accumulating evidence of a more troubled housing market is likely to strengthen the case for an early response from the Bank of England." But when will the MPC make such a move? The rationale for holding back from a rate cut in recent months has been the uncertainty over how various factors, particularly the credit crunch, were likely to affect the inflation situation. Three successive months of the Consumer Prices Index falling below the target rate of two per cent did nothing to change this view. What happens next is, despite the signal of cuts to come emanating from the November Inflation Report, still a matter of uncertainty, according to MPC member Ruth Lomax. Speaking in Hull, Ms Lomax warned that every prediction had to be taken with "a large pinch of salt" - even the Bank s own, which she said were "subject to a very wide margin of error". Citing the tighter credit situation, the ability of individual households to deal with it and energy prices as the factors which would determine whether the "upside" or "downside" influences on inflation prevailed, she compared the challenge faced by the MPC to that of meteorologists on a windy day, who were trying to work out if the brewing storm was "a force 6 strong breeze, or a full force 8 gale". In the midst of such uncertainty and, to stretch the weather analogy further, the desire not to become the economist equivalents of Michael Fish the day before the 1987 Great Storm, it may be that the MPC s wait-and-see policy will persist for longer than many will wish. Then again, it may not. However much Rics, homeowners or property investors will wonder when the cut will come, the answer may indeed be blowing in the wind



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