Investments are confusing. It’s not like in the old days, when investing meant pretending you had gold bars hidden in the walls, and then chuckling when grandsons repainted your house “out of love”. These days, investment involves a complex interplay of risks, returns, and time calculations. In other words, the lay investor’s more out of depth than a goldfish in the Sahara. Don’t worry though; you can start by knowing what to avoid:
1. Unregulated Gold Trading
Genneva (not a typo) is now the most notorious example of this. But others exist. Here’s how most unregulated gold schemes work:
It starts with an invitation to a free seminar; one with an attention whore of a title. Something like “How to make a million by next year”.
When you attend, you get a pep-talk on the rising value of gold. The speech is usually peppered with buzzwords: “retirement”, “financial freedom”, and “controlling your destiny”. It concludes with a suggestion that you buy a gold bar from them (around $10,000 is a common figure).
The traders then promise to pay absurd interest on said gold bar (e.g. 3% compound interest per month), and to buy back the gold bar within a year. At which point, you’re wondering why they’d do that. Why trade the gold to you for cash, then buy it back at interest?
How about because the gold’s already marked up when they sell it you?
Most are selling you the gold at 10% or 30% above market value. So the minute you buy it, the seller’s already made a huge profit. Some will close down almost immediately afterward, leaving you an overpriced gold bar.
2. Overseas Land Plots
I’m not talking about overseas property, but overseas land dealers (e.g. land banking, zoning funds). Some of them even use misleading names, calling themselves REITs (Real Estate Investment Trusts) or property developers.They’re about as related to those businesses as Finding Nemo is to marine biology.
This scheme involves selling plots of junk land. Sometimes the land’s described as infill (vacant plots which may have loose zoning laws, depending on the country in question).
See, zoning laws restrict how land plots are used. With Singapore’s zoning laws, for example, no one can build a chemical dump in the centre of Bedok New Town. These overseas land dealers sell plots “zoned” for low value purposes (e.g. landfill), and tell you the zoning laws are about to change: Soon they’ll be able to build a mall there.
By buying the land before the zoning laws change, you’ll make a bundle.
And if the government there has no published plans to change the zoning laws, don’t worry. They’re in “confidential talks”. Where confidential = non-existent. Buyers tend to end up with plots of worthless land, which might appreciate in about two centuries.
And if you want to offload that plot later, good luck. Selling land overseas has all the ease of flossing a live alligator.
3. No Cash Down Property
You may have seen the ads: Seminars on “no cash down” properties.
You’ll be charged a lot of money (maybe $3,000+), to hear how to buy property without a down payment. The “advice” ranges from the obvious to the hair-raising. Some typical examples:
- Ask friends and relatives for money. Because apparently, you had to pay $3,000 to know this.
- Make a joint purchase. Never mind the future headaches when you want to sell, but the other buyer doesn’t. Or if someone pulls out after the option is signed.
- Apply for a personal loan for the down payment, at the exact same time as the housing loan application. Because the personal loan may not be reflected yet, when the bank checks your debt servicing ratio. I know that trick too. I just told it to you for $3,000 less.
These seminars don’t tell you how to avoid the down payment. They just tell you ways to borrow the money. If you need help affording a house, follow us on Facebook instead.
But how about “no cash down property” itself, as an investment?
The simple answer is dangerous. Not because the property market is bad, or because there’s a scam involved. It’s just dangerous because, if you had to duck and dodge to make the down payment, you’re probably trying to buy something you can’t afford.
Think about what it means to cheat the bank’s debt servicing ratio: It just means you get to take a loan which, by professional estimates, you might not be able to pay.
4. Industrial Chemical Products
Vat of snake sake
This one has a few variations. “Industrial chemicals” are the most commonly used product description. But variations include vaccines, cleaning products, and agricultural chemicals.
This is when a company claims to have developed a potent chemical, with sci-fi qualities. It supercharges machines, increases refinery output, cures cancer if you stand close enough, etc. If you’ll invest in the company, they’ll produce and market this miracle product.
The return on investment will be incalculable You could get triple or quadruple the money back. Apple couldn’t match it if Steve Jobs were cloned in a vat and re-hired. There are just two problems:
First, most people who invent an industrial chemical or vaccine don’t buy a factory and start making it. They patent it and sell it to existing companies. But okay, benefit of the doubt and all. Let’s say these are the rare exceptions.
You have the second problem of no product history. Even assuming you have the chemistry degree needed to understand the product, you can’t take their “projected returns” seriously. If people knew which products would yield 12.5% returns by year one, business would be a hell of a lot easier.
Most people who fall for this end up being ripped off (the company closed down and ran with the money), or getting far lower returns than promised. Other times, internal management issues tear the company apart (i.e. one partner wants to shut it down, because he p;ans to open his own company manufacturing the same product).
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