Syndicating (or pooling) of your money with others to buy larger commercial real estate projects is a great idea – if executed well . It is a proven path for wealth creation – if bought at the right price and managed well. Not all real estate classes are created equal – and not all operators are equal either – and this recession is a case in point. There are eight typical mistakes in real estate syndication projects that you must avoid !

What are they ?

1. Overpriced Assets sold to innocent investors at a huge premium. Often an asset is purchased by the syndicator, and then sold to the “innocent” public for a lift up from a low of 20% to several 100% on some land deals. This used to be OK in a very strong market. Let’s use an office or retail syndication as an example: An office tower or larger retail center is bought for $10M which was perhaps fair market value in 2006 or 2007 or 2008. It carries a 70% LTV mortgage, say $7M. $6M is now raised .. $1M in cost for commissions and for other soft costs like marketing and legal expenses, and $5M to syndicate the asset for $12M. OK if it cash-flows and maybe can be exited in 5 years for $15M … however roll forward to 2009 and with rising office vacancies and higher CAP rate demands by banks this asset today is now worth $9M .. down only 10% .. in some cases perhaps down 20% to $8M. Deduct the $6.5M mortgage (now paid down a bit) and you see equity of $1.5M .. a 75% drop in equity from $6M raised !! There are some private REITs out there or some office syndicators that pretend the world still looks like 2008 with low CAP rates and flat values. HELLO. Let’s assume the asset was bought in 2006. Roll forward to 2011: the 5 year mortgage is now due. It is now maybe $6M. The asset is worth $8M. Most lenders today would not lend 70% on a retail or office tower. Maybe 60 to 65%. Thus, a $5M mortgage can be obtained .. $1M short in a relatively normal market. A recipe for bankruptcy .. and in any case huge investor losses despite a minor correction of value of only 10% to 20%.

Thus: check the true asset value if you intend to invest .. and do not accept their excuses for uplifting the building value because there isn’t any ! Then hopefully you can co-invest with one of the many ethical syndicators out there !

2. Inexperienced Operator with NO OPERATING TRACK RECORD.

Many a syndicator has had some success raising funds, sometimes for flow-through tax deals or other parties. They make a commission only. Hey, let’s open up a syndication firm they say. Buy an asset and manage it and take commission and an operating profit. Big mistake in many cases as it takes years to understand how to buy, even more years how to buy well and not overpay .. and even more years to manage an asset well .. especially in a more normal less heated economy !

Thus: check their track record and depth of knowledge in the asset space they operate

3. Excessive Fees – usually upfront – independent of project success !

Some syndicators charge in excess of 10% commission. 10% seems to be the norm but is still high as it has to be made up through asset performance which takes a few years. Also an annual asset management should probably not exceed 0.5% on the asset value or 2% of the cash invested … otherwise it is too rigged towards the syndicator and not the investor. It has to be win/win !

Thus: Lower is better !

4. Unrealistic ROIs using unrealistic assumptions

A common trick is to use unachievable future values of condos or land prices as a high ROI is easily achievable on a spreadsheet or in an ad. However this is now a lower demand world caused by more cautious and financially less wealthy baby boomers.

Although housing has shown feeble signs of recovery, this economy has been a wake-up call to investors who thought they could ride a never-ending real-estate bubble for condo projects, land sub-divisions or international real estate in hot markets like Costa Rica, Mexico or Belize. Then there’s commercial and office real estate, where many institutional investors have recently taken enormous losses.

Thus: are these future values achievable in the timelines advertised ?

5. False sense of security – syndications using terms such as “asset backed” or ” up to 18%+ interest on our mortgages” or “secured by a mortgage” .. since in many cases these mortgages are in 2nd or 3rd position and exceed by far the value of the underlying real estate. In construction or land development projects the investors money is often in 2nd or sometimes in 3rd position behind an expensive first position .. hardly security but a sham ! Don’t call it a mortgage if it is indeed equity or investment dollars.

Thus: security not in 1st position or exceeding going in prices, based on future speculative possible prices is not security .. it is false advertising !

6. Executives that were charged .. by the Alberta or BC Security Commissions or are embroiled in lawsuits with their current or previous investors.

Thus: check out the project and the people behind the project. What did they do before they did this venture ?

7. Big ads promising huge returns .. usually paid for with your own money as an expense to the business.

Thus: look for soft costs besides (huge) commissions too .. 2.5 % – 3.5 % of money raised is reasonable .. more is not !

8. Not taking ownership of the asset although promised by their marketing. Ensure that the investors actually own the asset ! Frequently .. and I invested in 3 such deals .. the asset is not held by the investment group but by a shadow company and the money is lent to them. It is now almost impossible to trace the money trail .. especially if this shadow company also co-owns many other assets with many mortgages. Thus, one collapsed and unrelated project can derail your project too !

In summary: it has to be win/win ! Are the operator’s profits aligned with yours, the investors i.e. usually at the end on exit? Or are they lining their pockets upfront regardless of asset performance ?

There are quite a few scams out there .. and many were in the news lately .. but even more exist that just exploit the legal loopholes .. but there are many honest folks like us too. Use these eight guidelines to distinguish between the honest and the dishonest operators .. and you too can successfully and profitably co-own a larger piece of real estate or a pool of hard assets with others !

Yours Sincerely,

Thomas Beyer, President

Prestigious Properties Group

T: 403-678-3330

F: 403-770-8885

E: tbeyer@prestprop.com

www.prestprop.com

Collectibles can include art, antiques, old coins, vintage cars, stamps, rare books, Persian rugs, baseball cards, bottles of fine wine and other items that offer the potential for appreciation in value. Unlike other investment vehicles, these items generally do not generate any type of cash flow during the time that they’re owned (unless the property is so rare and exquisite that you can open a museum and charge admission for patrons to view it). In addition, a number of other characteristics make collectibles investing significantly different from investing in financial securities.

First, specialized knowledge is necessary in order to be able to determine the value of a specific collectible, whether it’s a work of fine art, a rare book, or a vintage car. It can be quite easy to pay too much for a collectible if you don’t have the expertise and familiarity required to judge the particular item. You should therefore be knowledgeable about the factors that determine the value of the specific collectible.

Furthermore, the markets for collectibles are informal as well as unregulated. When buying or selling a collectible item, it’s important to have an idea of the worth of the item because you’re dealing with individual buyers or sellers. There are no current price lists as there are with stocks and other financial instruments. Similarly, there is no governmental body such as the Securities and Exchange Commission (SEC) that regulates companies who list their securities on the financial markets. You can easily pay too much or sell your collectible for far too little without being able to seek any recourse from an official regulator. Additionally, many collectibles are bought and sold at auctions, where prices can vary greatly.

Supply and demand generally determines the value for collectibles. For example, the supply of paintings of those artists who are considered to be the truly great masters is limited; it can, therefore, require huge sums of money to invest in these items. Think about it: what actually makes a work of art by da Vinci, van Gogh, Picasso, or Salvador Dali worth two million, twenty million, or a hundred million dollars? It’s the fact that they are others who are willing to pay those prices to acquire such works. By comparison, the works of unknown artists are much more available, thus they’re bought and sold and far lower price levels.

Investing in collectibles will also likely not bring particularly fast profits. As stated previously, there’s no underlying cash stream upon which to base the item’s value or return-on-investment. Returns are only realized when collectibles appreciate in value and are sold at a higher price than that at which they were purchased. This desired increase can often take a number of years – at the very least – to materialize.

Finally, collectibles must be characterized as illiquid assets because they’re not easily converted into cash. Added are the high transaction costs associated with liquidation of these items. Regardless, investing in collectibles provides a definite sense of pleasure and enjoyment for many individuals. If collectibles are of interest to you, there is any number of easily accessible books, magazines, and websites to provide you with specific information on the many different types of potential investments available. As with any investment, however, proceed with knowledge and prudence.

There is a very big difference between trading and investing. Currency trading is not investing. It is considered speculation (like day trading stocks). Every portfolio requires a certain portion of speculation and investments. With the low minimum required ($2,500 for a standard account / $250 for a mini account) required to start trading currencies, online currency trading can be the perfect tool to deal with the speculative portion of any portfolio.

The approach that should be taken when investing and trading should be different. Investing requires the thorough fundamental analysis of a security to determine if it is attractive or not. For example, to increase the probability of making a good stock investment, an individual should try to buy that stock at a good price. In order to do that, the investor needs to determine if the current price of the stock in the market is attractive relative to the stocks intrinsic (real) value by studying the company’s financial statements, earnings trends, current and future business environment, quality of management, and many, many other factors. In making the investment, the investor is not concerned with what is going to happen to the price of the stock the next day, because investments are long-term in nature.

Speculation (like currency trading) is short-term in nature. An day trader buying euros versus the dollar is not trying to predict what is going to happen to the euro in the next 10 years. He is concerned with the price fluctuations after he enters a position. His goal is for the euro to appreciate in value as soon as possible after his purchase. In order increase his chances of trading successfully, a currency trader will study the past price history of the currency pair he is trading and compare it to the current prices to determine what the price is PROBABLY going to do next. This study of prices is called “technical analysis.” To learn more about technical analysis, read “Technical vs fundamental analysis in the currency market.” [In our free currency trading training, we teach our customers how to use technical analysis to trader currencies]. For speculation, trading currencies is a lot more advantageous than trading stocks because a lot less money is required to trader currencies and currency trading offers lower margin requirements and flexible trading hours (increasing leverage increases risk) [to see more advantages of currency trading, click here].

Although some claim that no speculation is profitable, this is far from the truth. The reason why many disagree with speculation is because of a misunderstanding of what speculation can be. Pure speculation is equivalent to going to Las Vegas and betting everything on the roulette table. This type of speculation will always lead to financial ruin. Most people think that all speculation is like this. Currency trading, on the other hand should not be approached as careless speculation. Traders should treats it as a business and dedicate the time to learn about it and get a lot of practice on a demo (simulator) before they even consider risking any of their real capital. Before a currency trader starts trading, he also needs to understand how the currency market works and how to operate his trading software. This is taught in our currency trading training.

There is a very big difference between trading and investing. Currency trading is not investing. It is considered speculation (like day trading stocks). Every portfolio requires a certain portion of speculation and investments. With the low minimum required ($2,500 for a standard account / $250 for a mini account) required to start trading currencies, online currency trading can be the perfect tool to deal with the speculative portion of any portfolio.

The approach that should be taken when investing and trading should be different. Investing requires the thorough fundamental analysis of a security to determine if it is attractive or not. For example, to increase the probability of making a good stock investment, an individual should try to buy that stock at a good price. In order to do that, the investor needs to determine if the current price of the stock in the market is attractive relative to the stocks intrinsic (real) value by studying the company’s financial statements, earnings trends, current and future business environment, quality of management, and many, many other factors. In making the investment, the investor is not concerned with what is going to happen to the price of the stock the next day, because investments are long-term in nature.

Speculation (like currency trading) is short-term in nature. An day trader buying euros versus the dollar is not trying to predict what is going to happen to the euro in the next 10 years. He is concerned with the price fluctuations after he enters a position. His goal is for the euro to appreciate in value as soon as possible after his purchase. In order increase his chances of trading successfully, a currency trader will study the past price history of the currency pair he is trading and compare it to the current prices to determine what the price is PROBABLY going to do next. This study of prices is called “technical analysis.” To learn more about technical analysis, read “Technical vs fundamental analysis in the currency market.” [In our free currency trading training, we teach our customers how to use technical analysis to trader currencies]. For speculation, trading currencies is a lot more advantageous than trading stocks because a lot less money is required to trader currencies and currency trading offers lower margin requirements and flexible trading hours (increasing leverage increases risk) [to see more advantages of currency trading, click here].

Although some claim that no speculation is profitable, this is far from the truth. The reason why many disagree with speculation is because of a misunderstanding of what speculation can be. Pure speculation is equivalent to going to Las Vegas and betting everything on the roulette table. This type of speculation will always lead to financial ruin. Most people think that all speculation is like this. Currency trading, on the other hand should not be approached as careless speculation. Traders should treats it as a business and dedicate the time to learn about it and get a lot of practice on a demo (simulator) before they even consider risking any of their real capital. Before a currency trader starts trading, he also needs to understand how the currency market works and how to operate his trading software. This is taught in our currency trading training.