- LeighMember@leighJoin Date: 2003Post Count: 130
Thought I’d share with you a phone call I received from a friend yesterday. He called with a really exciting opportunity – a guaranteed 20% return on your investment. Here’s the quick basics I got out of him.
- The group offering the deal were using the money to fund a property development.
- The 20% return was a fixed return rather than annual return and was based on an 18 month investment – i.e. 13.34% PA
- The loan was unsecured, but ‘guaranteed in writing’ by the development group.
My quick analysis
- Why couldn’t they get mainstream lending?
- Their guarantee is only as good as the development and the people running it. Obviously the banks saw the deal too risky to lend money secured against the development so why would you even think of lending money unsecured.
- The 13.34% return is very small for such risk. As an alternative investment (worst case/lowest returns) you’re going to get 5% in a term deposit which is as safe as it gets. So you’re really only looking at an opportuntiy of around 8%. Of which inflation will take about 4% over 12 months.
I told him if you’re willing to lend money purely on a written guarantee then why settle for 20% when I know my company will offer him 200%! hehe 
“If you can count your money, you don’t have a billion dollars”
J. Paul GettySteve McKnightKeymaster@stevemcknightJoin Date: 2001Post Count: 1,763
Sounds to me like that Mezzanine Finance thingie that Mr. Kaye was pushing a while back.
No money down for developers… they borrow 80% from the bank and the other 20% from investors.
100% debt + property development = potential for huge financial disatser.
Remember that success comes from doing things differently.
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
Success comes from doing things differentlyG-MAN007Member@g-man007Join Date: 2003Post Count: 37
mezzanine is usually 60-70% bank 20% mez and 10% developer. I would stay away unless theres a prospetus and you have checked out the quality of the development yourself.TerrywParticipant@terrywJoin Date: 2001Post Count: 16,213
There was a whole development that went bust recently. Many people have lost $100,000 and more in this mezzanine finance investment. And the company involved was allegedly intorduced to investors through a ‘investment’ company famous for Mezz finance.
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