Hi,
I’m a mortgage broker and was just asked by a client of mine about Massland, so I shared what I know and what to watch out for. I stumbled across this post while looking for more info about actual performance of sold sites from them. I am also an investor, so am keen to learn different strategies and the practical implications. Here’s what I know:
1. Anyone asking for anything more than a nominal $1k holding deposit prior to issuing a sales contract has their own financing problems that they are trying to get you to fix.
2. When you get a sales contract, it may be possible to get approval from a lender for finance. Most don’t do valuations for off-plans, but a few do and it’s a great way to protect yourself from getting ripped off.
3. Buying any property involves buying land and a building. We had a look at the sketches and rough dimensions, which seemed to show a ground level area INCLUDING GARAGE of around 80m, suggesting the whole block is only around 120m. Other reputable companies in similar areas are selling 400m blocks for around $370k, so you’re buying under $100k of land. The building cost of a 3 bedroom townhouse will vary by quality and size, but if they are selling the finished product for $430k, then you’re either paying $330k for the building, which seems huge for a 3 bed townhouse, or you’re paying more like $200k for a tiny piece of land.
4. I mentioned this to a solicitor friend of mine and they said paying a deposit without a contract AND finance approval would be unwise. They also questioned how the company can get approval for such tiny blocks in an area where bigger blocks are the norm. It then hit us that the company don’t have to have approval for something they can sell before they show any evidence of it existing -ie a sales contract with land details specified. – Keep in mind they also sell courses in “options” where they take out an option to buy land that can be on-sold at a profit, without ever owning it.
5. Rental guarantees are a super-cheap way to increase the value of a property. e.g. if a property is worth $350k and would rent for $350/week, but you can sell it for $430k guaranteeing it will rent for $450/week, it’s only going to cost you $100/week = $5k/year. You can offer a 2 year guarantee and it will cost you $10k, to increase the price by $80k.
6. Clients of mine were sucked into buying off this company last year, but they refused to give access to the bank valuer prior to the deposit being paid. They said they would only give access to certain valuers and not others. This is another red flag. Bank valuations often come in low for off the plan properties, but normally if you get 2 separate ones done, you’ll figure out the true value. By not allowing some valuers through, the results can be skewed.
7. Buying more than 2-3 properties using borrowed finance is beyond the reach of most within a 5 year period. This is because if you buy a 2nd property for $400k, which rents for $400/week, you have to borrow $420k to do it. You may pay $400/week in interest at 4.95% and think it’s ok, but a bank will look at it differently. Firstly they will only use 80% of the rent, or $320/week as they assume the rest disappears in agents fees, rates, insurances and vacancies. Secondly, you may be paying interest only at 5%, but they will want you to afford P&I payments at 7%, or higher to avoid getting into financial difficulties, which means $640/week. That means you have to afford a shortfall of $320/week, or around $16k/year. Doing that another 18 times might be a bit tricky for anyone on a normal income!
8. The strategy of buying and holding over the long run is a good one, but you have to buy right in the first place. The median price in Glenfields has risen 47% in the past 10 years, with half that growth in the past 2 years http://www.realestate.com.au/invest/house-in-glenfield,+nsw+2167. The 10 year average compounded growth is only 4% per year – pretty low by Sydney standards. But if you over-pay for a property by 20%, it will take 6 years before you get back to true value and then another 18 years at 4% to double the original purchase price- 24 years in total. Buy a fair value property in a slightly better area growing at 5% and you’ll double your money in 14 years, instead of 24. Let’s also not forget that property values fall too, like they did in Glenfield in 2006, taking 3 years to get back to their 2005 peak. In the past 20 months, prices in Glenfield have jumped 24%, so the probability of prices falling in the next 2 years is much higher than the probability of them rising.
9. The strategies I see here for making loads of money, are buying a $400k block of land and putting 4 townhouses on it, then selling them for $430k each. Total cost to build would be under $1m, allowing you to make around $400k profit, or to sell 3 and keep the 4th to rent out with no mortgage. Better still, if you can pay $10k for an option on a $400k block of land, get some drawings of townhouses done and sell 4 of them for $40k each, you can walk away with $150k and let the original owner clear up the mess later on.

As a final reminder, please don’t part with anything bigger than 0.25% of the property value without a solicitor seeing a contract and don’t part with more without proper finance in place and your solicitor’s approval. Good luck!