10% a month guaranteed. Sounds too good to be true?
In my 10 years in the investment and insurance industry, without fail someone approaches me almost every year to tell me about a new mortgage investment plan that they are either already part of or considering investing in.
The idea is always the same. Put your money with a specific company to invest in private mortgages while the minute details are different for every company. The gist of it is almost always the same; put your money with this particular company and in return, they promise you a guaranteed rate of return anywhere between 8 and 10% per month.
The interest will be added into your investment account every single month provided you remain invested with them. This sounds pretty amazing right? Well as my grandfather always said, if it sounds too good to be true, it probably is.
You see people are always happy to tell you about how they’re making money using this particular investment idea, but the funny thing is, you rarely hear about the times when it fails. In my 10 years in the investment industry, I have heard (rather quietly) of 3 incidents where investors lost everything in such a set up.
The Globe and Mail reported on Thursday Nov. 11th about the ongoing court case of Mr. David Singh and his companies Greenview Capital and Rockfort Capital. An employee of the company came forward to the Ontario Securities commission and reported that Mr. Singh was not using the funds invested as advertised. Instead he was paying tuition for his kids private schools and buying sports cars etc.
Upon the completion of a forensic audit by the OSC, it turns out that Mr. Singh’s company wasn’t really a mortgage company at all. In fact, of the $5,600,000 he had raised, he had only set up 1 mortgage on an industrial property near Timmins ON.
Mortgage Investment Facts
Look, I get it. We are all seeking bigger and safer returns on our money. The idea of 8 to 10 percent a month sounds amazing! But let’s think about these three points:
- The big banks are charging 1.8% to 3.5% on mortgages right now. And that’s per year. Not per month. What kind of borrower would be willing to accept these terms? The answer is not many and not top quality. The risk is massive and often the only way these people are getting paid interest is from the money of another investor. Google “Ponzi Schemes” for more information.
- There is a Multi Billion Investment Management Industry in this country that does everything it can to get bigger and better returns for their clients. If these types of returns were so easily available, don’t you think they’d want in on the action? I mean what company wouldn’t want to advertise this kind of returns. Unless…. It wasn’t totally above board.
- In speaking with a number of Mortgage Brokers in the Region, they tell me that while they do some work with private lenders to place difficult mortgages, they only do so with “Sophisticated Investors” with a minimum net worth of $10,000,000. Not with anyone off the street with $50,000 to invest.
The bottom line is this, if a deal sounds too good to be true, it’s because it is. Don’t fall for the allure of guaranteed big returns. Because most of the time, they are not worth the paper they are written on. To achieve greater returns on your money, the thing you really need is a slightly higher risk tolerance and most importantly, patience. In time, with the power of compound interest, all of your investments will pay off handsomely.