As if it’s not enough having to sift through countless reports, articles, brochures and other media when researching a potential investment location, the real issue for property investors is often what’s been left out.
Property project marketers and developers want you to buy their properties so they promote their developments with the best possible gloss and spin.
This is understandable because it’s up to investors to do their own due diligence and select investment properties best suited to their particular needs and goals.
The problem for investors however, often lies not what’s contained in the reports, advertisements and glossy brochures but what’s been left out.
For example, what if you found some blocks of land being offered at unbelievably low prices with low deposits on easy vendor finance terms?
Smelling a rat, you do some research only to discover that the development is less than 40 kms from the Brisbane CBD.
This land is as far south of the city as Ipswich is west and Caboolture is north with land prices less than half of those cities.
The Russell Island Land Scam
This is what happened in the early seventies, in what became known as the Russell Island land scam, and the story contains warnings for investors today.
The island is one of many in Moreton Bay consisting mainly of sand dunes, mangroves and mud crabs, yet these islands are only a stone’s throw from the heart of Brisbane.
Seeing the opportunity, developers conducted some hasty surveys and bought up land.
They had Russell Island rezoned residential because it was located in Moreton Bay, beyond the ambit of local government regulations, but were then faced with two major issues – the only way to get Brisbane was by boat and some of the island went underwater at high tide.
The innovative developers solved these problems by taking the aerial surveys, mapping and promotional photography at low tide and the state government also came to the party by making vague promises to build a bridge to the island.
The resulting subdivisions saw 20,000 suburban lots placed onto an unsuspecting housing market and property investors rushed to buy their piece of island paradise at bargain prices.
They all sold quickly as it was obvious to anyone who had read the property marketing spiel that Russell Island was about to become one of the most prestigious new suburbs of Brisbane.
Over forty years later and the bridge to the mainland is yet to be built, but buyers who wanted to develop their lots discovered far more pressing issues.
Not only were the blocks of land lacking town water, sewerage or power, most had poor drainage and could never be improved.
In fact, some investors discovered that their blocks disappeared at high tide and were worthless.
There’s nothing wrong with Russell Island as an investment these days, but many investors sucked in by the original developers lost all their money.
If it sounds too good to be true it probably is, yet investors are continuously being roped in by offers of high rental yields, fantastic capital growth, positive gearing, rental guarantees, unlimited potential for development, overseas property bargains or cheap options to buy land.
It’s what the promotional material often doesn’t tell you that can be crucial
Those high rental yields could be caused by falling prices, the fantastic capital growth claims may turn out to be erroneously based on past performance, positive gearing promises could make use of rental guarantees built into the purchase price, the development potential may be without any evidence of actual demand, those overseas properties could be located in derelict precincts of decaying cities and the options to buy may be in rural backwaters that will never actually be subdivided.
Getting information before you make any property investment decision is important, but getting the all the right information you need to make the best decision is crucial.