Why land banking is so profitable…for spruikers

There’s a reason why Henry Kaye has put so much effort into selling land options, and why both 21st Century Education & Global 1 Events have taken a big risk to their reputation by teaming up with Henry.

It’s simple: land options are massively profitable. Well, they are when done the way that Henry does them.

I’ll explain how it works.

We (Global 1) were just getting started selling our land option program in 2011 when this story broke:

Delving into the dark side of shadow brokers

(Of course this article caused a mad scramble, both at Global1 and at 21st Century Education/21st Century Direct Property where Henry’s sister, Julia Feldman, was the marketing manager.

21st Century were denying that Henry was involved in their business and denying that the options on flood plain land in Shepparton were a shonky investment.

Global 1 wanted our clients to know that their land options would be totally different to those being sold by 21st Century, and that our program was totally different to that of 21C.

Threats of lawsuits were thrown around because the article in The Age was supposedly false and defamatory. Nothing ever came of those threats in the end, and of course we know why.)

The main thing to note in this story is Henry’s choice of the land that he used to set up the option deal. It was a slab of flood plain in the regional town of Shepparton, Victoria.

Most people would never think of trying to flog a subdivision on flood plain, but Henry is not most people. This block of land had 2 things going for it in Henry’s view:

1) The land was as cheap as chips of course, because you can’t build on flood plain so no one else would want to buy it. That’s key because Henry always wants very high profit margins in his deals; he’s never willing to accept the typical figures that the rest of the industry usually sees.

Apart from making Henry rich, those margins are needed to pay the sales companies like 21st Century and Global 1 handsomely. Without a big payoff they wouldn’t take the risk of partnering with Henry Kaye and his bad reputation. If exposed, they would be badly damaged.

2) The land could carry a good story about future capital growth, based on expected strong population growth in nearby Shepparton.

Now, a good spruiker can dazzle uncritical seminar audiences with projections of massive growth and the complex structure of the option deal. Very few people are going to insist on tracking down a block of undeveloped land in a remote town and check its zoning before parting with their money.

So long as there is some land, any land, there to be optioned, a lot of people can be persuaded to buy. So to Henry’s thinking: why pay any more than the minimum you have to spend? Flood plain is fine. If you sell the mums and dads a 10 year option on the land, it will probably be at least a couple of years before anyone realises that nothing is happening, the development isn’t moving ahead. By then, Henry will have long since moved on to his next deal.

And of course, just over 2 years later The Age reported the unsurprising news that the Shepparton project was in liquidation and Henry had moved on to selling options in Bendigo instead:

House ‘idyll’ just barren paddock

Well, not really IN Bendigo of course, because property prices in Bendigo were already starting to creep up. Henry wants to buy cheap and keep his margins high, so his new project was 12 kilometres outside of Bendigo. That’s quite a distance from the CBD for a small regional town like Bendigo. Hmmm.

Meanwhile back at Global 1, in the second half of 2011, front man Rowan Burn had been selling memberships for several months and building up demand for the first, promised property deal. It was time to put some land options in front of the members and get them to part with their cash.

And here’s where things almost came unstuck.

We couldn’t do the transactions ourselves because Global 1 didn’t have a real estate license, or any salespeople trained in selling property. So Henry’s sister, Julia Feldman, contracted a real estate company to be the sales arm of the scheme. Unfortunately for us, they did their due diligence on what they were selling.

Oh dear. Suddenly they got cold feet and wanted out of the whole thing. Here’s what they’d learned:

First, the land was in Truganina, a little outside the western fringe of Melbourne. OK, so buyers have to wait for the city’s outskirts to expand past the new development, and there’s a glut of available property in Melbourne’s west at present. That’s not ideal, but we are talking about 10 year options so maybe time will cure those problems.

Second, there is a prison next to one side of the block of land. Hmm, doesn’t make for the best neighbourhood.

Third, there’s a high voltage power line running across the block. Ah, that’s a bit of a problem.

Fourth, the land is zoned industrial with little to no chance of that ever changing. WTF?

With that, the real estate company bailed out and ran. Some clients had already signed contracts, some of them heard whispers of problems with the project and wanted their money back. There were too many rumours in the end, so Global 1 had to pull the project off the market. We blamed everything on the real estate company and managed to keep it all (mostly) quiet.

Some months later, we released a new project to the ever-patient members of the group. This one was even further west of Melbourne, in the new suburb of Melton. Ah well.

And that’s where we are today. Henry has his 2 sales channels, Global 1 and 21st Century, selling his two option projects in the outskirts of Melbourne and Bendigo. Are either of them a good deal for investors? You decide.

The lesson in all this is: before you invest in property from a seminar, ask the managing director of the company running the seminar to give you a signed legal declaration stating that Henry Kaye is not currently involved in any aspect of their business and has never been involved, in any role. And keep that stat dec, it will be useful if things go pear shaped and legally nasty later.

In fact, anyone who’s bought property from either Global 1 or 21st Century Property Direct should go to their offices and ask for that, right now. If the MD won’t sign that declaration, then you know why. Your next stop should be the media.

At least people are starting to talk about this:

https://web.archive.org/web/20130315112523/http://www.propertyinvesting.com/forums/creative-investing/4346473

http://www.ripoffreport.com/r/Global1-Training-Pty-Ltd/nationwide/Global1-Training-Pty-Ltd-Market-First-Group-Pty-Ltd-John-Demartini-Rowan-Burn-Henry-Kaye-1174981

http://global1events.blogspot.com

I’m just glad I’m out of there.

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3 Comments

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3 responses to “Why land banking is so profitable…for spruikers

  1. Pingback: Why land banking is so profitable…for spruikers | Jamie Mcintyre Exposed

  2. macgonagle

    Great article. I applaud your courage.

    From a legal perspective you don’t NEED a stat dec if you later want to prove misleading and deceptive conduct. Any kind of representation, oral or written, will suffice. Naturally a written representation is easier to prove.

    Therefore I would say you just need to ask “can you please confirm that Henry Kaye is not directly or indirectly associated in any way with this land deal.”

    If you are not given this assurance then draw your own conclusions as to why this may be.

    Like

  3. Nuggets

    To pull off all these sales one of course needs a real estate licence holder with sub agents flogging the product. Not sure about Global1 but 21st Century was using Cameron Fisher of Changing Places just down the road in Kings Way, another avoid at all costs low life.

    Like

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