Guaranteed 20% return!

Hi all,

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 []

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“If you can count your money, you don’t have a billion dollars”
J. Paul Getty

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