Every April 1st there are lots of humourous stories about April Fools’ Day pranks, but not many of them are real estate focused. It might be because a real estate prank might sound a lot like a real estate scam when you describe it to friends or say, a judge.
While they might not be April Fools’ Day pranks, there are some unbelievable real estate scams over the years. It seems crazy that anyone could fall for them, but information wasn’t as readily available years ago as it is now.
Here are our favourite real estate focused shenanigans from the past.
It sounds very…lush.
While he may not have recognized the term, Erik the Red, originally from Iceland, could be considered one of the first real estate agents. He definitely was one of the first people to (allegedly) recognize the benefit of marketing a location properly.
As roughly 79% of Greenland is covered in an ice sheet, the name of the country seems to be a tad optimistic. The story behind the name is found in the Saga of Erik the Red, written 400 years after his death, which claims “In the summer, Erik left to settle in the country he had found, which he called Greenland, as he said people would be attracted there if it had a favourable name.”
The next time you read an MLS listing that describes a house as needing a bit of TLC and then click on the photos to see the shell of a home, think of Erik the Red and shake your fist in the general direction of Greenland.
He preferred to call it a Ponzi business model.
As is evident by the fact that it is built into its actual name, real estate is focused on real property that actually exists. While Erik the Red may have been one of the first to use marketing to paint an inaccurate picture of a location, he has many spiritual successors.
Charles Ponzi (whose infamy is the namesake of the Ponzi scheme) jumped bond after his initial fraud was discovered and headed south to Florida. He set up the Charpon Land Syndicate in 1925 and bought 100 acres of swampland about 65 miles wet of Jacksonville. He paid $16 an acre, subdivided each acre into 23 and sold each plot for $10.
After his initial investment of $1,600, Charles made about $23,000 on selling the prime Florida land to investors. It’s a good model if it wasn’t for the fact that it wasn’t prime Florida land, but uninhabitable swampland falsely marketed as a good building site. This scheme wasn’t nearly as profitable as his previous fraud where he paid existing investors with funds collected from new investors. It also didn’t last long before Florida authorities arrested him.
In a metaphysical sense, don’t we all own everything?
While you can definitely make money on buying and selling real estate, George C. Parker decided that it would much more profitable if you skipped the expenses involved in buying the real estate, and just sold it without buying it.
A native New Yorker, George C. Parker became infamous in the late 1800s for selling New York City landmarks to unsuspecting investors. He sold Madison Square Garden, the Statue of Liberty, the Metropolitan Museum of Art and on a number of occasions, the Brooklyn Bridge.
He would set up a fake office, forge documents to support his claim that he owned the property in question and then find someone to swindle. He would target immigrants who had just arrived at Ellis Island and out of town tourists on their first visit to New York!
According to his legend, he sold the Brooklyn Bridge at least twice a week and while that may be an exaggeration, he did sell it on at least a few occasions, including once for $50,000. The Brooklyn Bridge had been a toll bridge and he used the income potential from tolls to justify the business investment. Just like Charles Ponzi, the scam was based on the premise of a logical investment that turned out to be far from how it was described.
While April Fools’ Day pranks can be lots of fun to read about, the real estate scams above were far more damaging that a simple prank. Modern day real estate fraud is based on similar principles to ones of the past, albeit with different techniques. The best advice when it comes to investing your money is advice that has been around a long time – if it seems to good to be true, it probably is!