Great Deal Or Questionable?
I was offered an opportunity to invest in a "Real Estate Investment Trust". Minimum investment is 50k. I was offered 4% interest to be paid monthly. It was explained to me that the investors money is pooled together and loaned out at about 20% per month to large projects. I was told that I could withdraw my original investment after 6 months with written request. Has anyone seen something like this before? Is it a scam? My friend has been investing for most of this year and gets his check every month (he showed some of them to me). I still have reservations because even in ponzi schemes, early investors usually make money. Somebody please help if youve seen this before because I dont want to miss out on a good thing or get burned with some scam. :-?
Somebody please help me with this. I am currently not going to put money into this. If someone has any experience (good or bad) or knows somene who has, please post. Opinions are very welcome too!
Marv
Hello? Anyone?
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and loaned out at about 20% per month to large projects.
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This sure sounds like a scam. Why would anyone pay 20 percent for a real estate loan.
BOB FORD
I agree with Bob... 20% sounds like a scam... However - I regularly loan my money to private investors at a rate of 5% per month, so if you find private investors that need hard money, it is very possible to get these kind of returns... 4%-5% - not 20%...
Good Luck!
[addsig]
It could be actually INVESTED from that large money pool with 20% profit. That's actually a low return on a RE investment. Which makes me think, that they play it safe. "Payable monthly" is a good little cashflow statement too. I do this with my clients. I invest their 50-100k, and live off the remainder of the interest after it is paid to them. Basically YOU become a hard money lender. 4% is not that great of a return. I offer 8% to my "private money".
Here's the trick. If the money is invested in large real estate for large stable profits, then it is not easily liquifiable. I make my clients sign a form that they will have a window of opportunity to pull out their money, and I need 6-12 months notice of intent to withdraw. If you are "emotionally attached" to your money, then you need to verify that the money can be relatively quickly liquified, and also find out what liability the Trust will hold. I make sure my clients sign off a statement that they understand that their investment is NOT guaranteed in any way, but a long term investor who wants to recover a loss is better than searching for a new one, so I offer them business equity if any of their investments turn into a losing position. Some of them take their losses (tax advantage there too!) and leave, and some of them become partners. Ironically, each one happened to me only one. Generally I'm VERY conservative with investments, and don't lose my clients their money. Ask to see their portfolio, or ask where specifically will your money be used? I had no portfolio on my first deal, but I showed a tremendously profitable duplex to an investor, and they financed it 100%. They helped me get started, and I offered them 10% instead of 8%. WIN-WIN is the key.
Lou,
Now is your return based on the money invested or based on the profit generated by the property? Example: I invest 100k, so I get 8k monthly until i am given my initial investment back. As opposed to 8% of the monthly cashflow of 8% or profit after sale.[ Edited by ricemarv on Date 11/22/2004 ]
i agree that the 20% a mo. sounds fishy..........km
20% a month is usury anywhere in the US I would think. Unless they mean cumulatively (from all the various projects they loan to) they get the 20% and not just from one project.
Yes, 20% per month is usury...anywhere in the US! 20% annually is nearly usury in most areas.
Also, 5% a month is ALSO usury in anywhere I can think of...you might want to check with your lawyer before you lend out any more money...
Simple case scenario:
$45k (reasonably priced for the area) 3/1 SFR, which is rented out to a Section 8 tenant at $650/mo. Tenant pays all utilities.
$10k down, $35k from bank at 7% over 30 years.
P.I.: $233
T.I.: $81
Maint.+Reserve: $100/mo
Total monthly expense: $414
Monthly return: $236
Annual return: $2832
ROI: 28%+
Things don't always go smoothly. Some times there's a vacancy, and some times you need a new fridge. But if all you need is 20% ROI, you still have 8% ($800 per annum) to play with. I give 8-10% to the client, and keep anything in excess for my deal-finding and management services. They are FULLY aware of what I am doing, they know I am an investor, and how I get paid is disclosed. Therefore, there's no lying or fraud. Everyone is happy.
No, 20% does NOT go to the private money lender - I'd go broke then!
Lou,
Go back and re-read the original post. The sponsor of this investment claims he is lending at 20% per month. I.e. in excess of 240% per year. Not, as you seem to have read it 20% per year.
I agree with you 20% per year is manageable-- 200% per year is not. This is almost certainly a Ponzi scheme of some sort.
I wholly agree with CommercialKing.......this is a scam of some type, probably a Ponzi sceme.
It is a misdemeanor under many state laws to make loans with interest rates above 25 percent per year and a third-degree felony to charge more than 45 percent a year.
Call toll-free 1-877-FTC-HELP (382-4357),
Write to Federal Trade Commission, CRC-240, Washington, D.C. 20580.
For information on home equity scams. www.ftc.gov/bcp/conline/pubs/alerts/eqtyalrt.htm
For information on the Home Ownership and Equity Protection Act – and how to detect predatory lenders. http://www.ftc.gov/bcp/conline/pubs/alerts/hoepalrt.htm
For detailed information on how to spot home loan frauds. www.consumerlaw.org/consumer/foreclose.html
By participating in such a plan get you a lot problems, I would not take the risk.
This is what is known in the industry as predatory lending.
RUN; RUN as fast as you can.
[addsig]
Let me start off by stating that I have not invested in this nor do I intend to at the moment. I just really want to find the truth. The details that I can remember about the deal is as follows:
Minimum investment 50k
I will recieve 4% of my original investment monthly in a check.
This money is pooled with others to be loaned out to multi Mill $ projects at a much higher rate (15-20% monthly)
Each project has a lot of equity, usually around 50%
If default, liquidate.
My return is not dependent on the money being allocated to a project, therefore gaurenteed monthly return.
Cannot pull initial investment out for 6 months and after that it takes 30 days with written request.
Thats all I remember right now (More will probably come to me later)
The only thing that kept me from writing this off as a scam is that a friend of mine borowed 500k from private lender to close a 26M deal and had to pay back private lender 750k 90 days later. Right now I dont operate on that level and dont know if SUPER high interest loans are often used to close large deals.
ricemarv,
If your friend is closing $26 million deals than i would gather he is an experienced investor. Yes sometimes investors will pay an unusually high rate of return to a hard money lender, when we know it is a cant miss situation that just has to get done, no matter what. This deal that you are talking about is not one of them. You are talking about 2 totaly different things here. Like John Michaels says "RUN AS FAR AS YOU CAN FROM THIS DEAL"
Usury would go to the matter of a lender "requiring" the payment of usurious interest to secure a loan. I do not feel that usuary would be involved if a borrower initiates and volunteers a return on investment over and above a certain percentage. But then, one could always structure an loan/investment opportunity whereby the borrower would pay a certain interest rate as a minimum on the investment participation (or loan), and would ,AT HIS DISCRETION, (or that of his board) pay out an additional bonus based on the profitability of the investment opportunity or operations. Or, the lender might simply bank his deposits at that bank , and maintain a compensating balance (or buy their CDs).
PS: By the way, Lou, I noticed in one of your posts, a malaprop which I, myself, was guilty of for many years concerning the oft heard prhase "for all intensive purposes". Someone finally told me, that phrase is actually, "for all intents and purposes". Not trying to embarrass you...just thought you might like to know.
And, I could't communicate with you directly as I have never upgraded my membership in this site to do so.