I just heard an interview on a local radio station with a marketing director of a property syndication promoting his syndication company.
These are the "claims" he made on air:
1. The company has been around 11 years
2. The company is regulated by the FSB
3. The company offers capital and 12.9% monthly income guaranteed!
4. That the risk profile of the typical investor suited for this is low risk
5. He recommend the investment was almost as safe as cash in the bank due to the capital guarantee of 5 years (calling the guarantee a buy back)
This is what he failed to tell you:
1. There is no liquidity in your investment if you want to sell your shares. Your "so-called" advisor who sold you the shares at 10% commission will then have to sell your shares to another victim, if he can find one.
2. You are buying unlisted shares. As far as I am aware unlisted shares are sold via a prospectus and are governed by the companies act. Therefore I'm unsure if the company is regulated to give financial advice as it seems to lead one to believe. Normally this licence should be displayed as well as the advisor selling this investment should have a separate licence in terms of FAIS.
3. The so called capital guarantee as it is promoted in the company's advertising campaigns, is not a guarantee at all! It is described in the application form (which is a very scary legally binding document that offers no protection to the investor except for a three day cooling off period) is actually just a buy back "promise". If the company is not in the position to buy back your shares for double the price you paid less expenses 10% commission, there is not much you could do. This is highly irregular for a company to make such offers without backing it by a bank guarantee. But I am sure they intend to sell the shares at a 100% profit to repay your investment in 5 years time (that is if they are still around then). How the company can guarantee buying back your shares at double their value is very suspicious and sends out alarm bells. No one can predict what the property price will be in 5 years time. Furthermore what would happen if 50% of their shareholders wanted their money back at double the investment in 5 years time? How would the company pay that back? There is only one way to pay back investor funds and that is with new shareholder funds (sounds like a ponzi scheme in the making?)The company's claims are misleading the general public (who are mainly retired) to believe that this investment is safe and the capital is guaranteed. Clearly a "buy back gaurantee" clause is not a guarantee worth anything at all? Investment compainies that offer capital gaurantees do so with AAA Banking Institution. A buy back offer is not a capital gaurantee. Even AAA Bank Guarantees are a risk as who knows if the bank will be there in 5 years time.
3. Also if the syndication company is liquidated, you will have no claim against the company and will have to stand in line behind all the creditors. Basically your investment is at the mercy of the directors.
4. He mentioned the risk profile of the syndication company is Conservative again this is totally incorrect! Unlisted shares are extremely high risk in fact the highest risk of any investment. Even listed shares in stable well known property companies are rated moderately aggressive.
WARNING:
IF YOU INVEST IN UNLISTED PROPERTY SYNDICATION SHARES YOU ARE PUTTING YOUR MONEY AT HUGE RISK!
If it sounds to good to be true it is!
