Property Investment Opportunity

[Ripper]

Hi All,

This is my first post and I am also new to the investment property market, therefore I apologies for not using or miss-using the right terms.

I was approach by someone last week to offer me a property investment opportunity.
The deal is to buy with X amount of money some units in a unit trust.
This money will earn interest until all apartments in the project will be sold.
I will also get the option of acquiring an apartment (or more, it all depends how many units I will acquire) with a 10% discount.

First question I had was "how safe is my money?" I mean, what happens if the company goes bankrupt? His answer was that my money is pretty safe, as I am buying units in a trust that owns the land. Therefore in case of a bankruptcy the company sells the land and returns my money.
Now, as far as I know, in case of a bankruptcy the bank take over the whole thing and I will not see a dime. Am I wrong?

Another question that I had was around the prices of the apartment in the area when the project is due. How/Where I can research the estimated prices in the future?

Hope these are not too big questions to answer here in the forum.

Cheers.

 

[Ausprop]

tread with caution... you need to do a lot more research on this. Your money is the most at risk in these sorts of projects. You are correct - bank holds 1st mortgage, investors pick up the scraps. Talk to a westpoint investor and see how safe their money is.

And if, as he says "His answer was that my money is pretty safe" then ask him to underwrite your investment personally (if you are brave enough to do this that is)

 

[BayView]

Unless the 'somoene' that approached you is is a person you know, you can bet that it is a sales pitch.

Or worse; if it is someone you know; it is probably still is a sales pitch. People trust more the people they know, unfortunately.

Who makes money from sales? The sellers.

How much interest will you be earning? The current rate for ING type accounts is around 7%; this is better than any 'normal' bank.

If your contact has promised more than 7% return, then there is a good chance is that you are being asked to get involved in a Westpoint type scheme;

They pay you your interest from funds borrowed from te next lot of 'investors' who have put up the money to fund the current project. The next investors get their returns from the funds (borrowed) from the next lot, and so on.

Unless you are using money that you can AFFORD to lose, I would steer clear.

 

[The Y-man]

Unless you are using money that you can AFFORD to lose, I would steer clear.

Agree. The money you are putting in would have to be the same amount you are willing to spend on raffles or at the casino.

Cheers,

The Y-man

 

[lizzie]

i believe (but may be wrong) that this type of financing is called "mezzanine finance".

you may have heard of many of companies using this technique going under (bankrupt with unfinished building projects) recently and investors loosing everything - tread carefully.

 

[evand]

Only give your money to this person if you can have property as a security. If you cant, forget it.

If he loses your money, he can just say 'bad luck, its gone' And theres nothing you can do about it.

Theres a reason 'developers' raise money the way they do and thats because they cant get it elsewhere. (commonly the final 20% - 30% mezzanine funds they need)

Think of yourself as a bank. Would a bank just lend it to this guy on a promise of future profits? NO! And neither should you.

If you are thinking of building long term wealth rather than a remote chance of a quick profit. Run away, don't even consider it.

 

[VYBerlinaV8]

Be sure you understand the ENTIRE business model, including how all the players get paid. Remember also that 'guarantees' only work if there's $$ that can be recovered. If all the the $$ get burned up in fees, commissions and costs, then your investment will, literally, be worthless.

Personally I wouldn't get involved in something like this - you will likely get similar or better returns by doing things yourself.

 

[LynnH]

I agree with the others - it sounds dodgy and I would steer well clear.

Cheers
LynnH

 

[Ripper]

Wow...thanks for the feedback

Great stuff guys.
You reassured all my fears on that one.

 

[skater]

Like the others, I agree. Tread with great caution.

 

[karina]

I agree with the others.

I really believe whatever you INVEST in you should be able to CONTROL. Control is very important in investing, lose control and you may never see your money again.

 

[live life]

if its not under a first mortgage then is no guarantee,if you every see your money again.If it does go to the wall.In my experience ,get away from the hipe,do the math. you can make good money out of it.But ask yourself can i afford to lose my investment. check there previous building projects as well.
With value of property check out with a couple of real estate companies. Or get the plans looked at ,by registered valuer.Good luck

 

[myviolet]

i will not even consider it
never put your money into someone else game!

 

[casper007]

Mezzanine funding is like Pyramid selling. The only person who makes money is generally at the top ... The developer often sits there with intricate company structures guaranteed to pay them handsome 'consulting fees' which they can siphon off over seas and through family trusts ETC.

Then the next level is the bank who holds the title deeds on the land ... so they are reasonable well protected.

Last of all comes the Mezzanine investor looking for the quick buck.

If after all this you still believe there is money in it ... Do I have the deal for you ...

I know this guy high up in the Government of Uganda and for a small fee they will give you...