High Rates of return on private mortgages or investment
Now we all know that real estate usually delivers double digit returns, based on all factors – Mortgage paydown, appreciation, cashflow etc. In a normal market, appreciation is easy to estimate based on a certain market appreciation (3% or 5%) for example. Hot markets though can be a haven for scammers. Promises of huge returns are rampant, and we believe them because we get caught up emotionally. Those high returns are possible and probable even in many markets, but is the person soliciting funds being mindful of over promising? How people do one thing is often how they do all things so, if they are being unrealistic in this respect, what other ways are they being unrealistic? Remember to ask why they feel their numbers are strong and make sure their answers involve third party, well respected sources.
A guarantee of return
Most people know that the only investment that is allowed to come with a guarantee is a Canada Savings bond. So….if you have someone telling you that the investment is guaranteed or 100% secure be very cautious before investing with them. They could just not understand the risks, the language they are allowed to use or they could be outright scamming you. There is no such thing as a 100% guarantee when investing outside of Canada Savings Bonds. There are a few JV scenarios where someone can tell you a set ROI, rather than a prediction that is based on reliable sources, but that is different than guaranteeing a return. Just beware that this would be unwise of a JV Working Partner to do, and unwise of a Money Partner to accept.
These principles apply also for those that come in with the best of intentions as well. Not just those deliberately trying to take advantage. One such couple had created JV partnerships with 5-10 people for ONE property, thinking that they were providing a vehicle for people who only had 5-10,000 to invest. They felt they were doing the right thing. But their overpromises and naive view of real estate led them and their partners to a place of losing it all.
Moral of the story – be realistic and don’t deal with anyone that isn’t.
Written by Leticia Casanova for Investor Life Inc.