Investment scams
February 12th, 2007 | Author: Scott McCullough | PermalinkI recently spoke with a client about a promoter that apprached them trying to raise money for a $6m deal and he was $2m short. He was seeking investors to generate the $2m. His promise was an 18% return on investment and security by having a lien on the land which was the purpose of the deal (of course the lien is shared with all the other investors). My question to my clinets is why would anyone who has the land to use as collateral seek a pool of investors and offer them an 18% return on their money when he could go to a bank and get a loan for the $2m for far less interest. Read the paper, watch the news and you learn that there are way to many examples of these promoters scaming people and taking their life savings. It’s always a better move to aviod these “to good to be true” deals and avoid being the next story in the paper.
There are many instances in which a party will pay 18% (or more) for financing on a piece of property for development because banks have limitations on home much they can lend on raw land. People in such a situtation, however, will should not go to individual investors. Rather they should go to a hard money lender. These types of lenders specialize in lending on developable property to get them to the stage where a bank will lend on them.