SEE the BOTTOM FOR DETAILS on HOW TO SAVE $200 to ATTEND MATT”S COURSE!
One mistake perpetuated within this industry is to borrow money from the ‘mom & pop’ class. By ‘mom & pop’, they mean to look to those that normally lend money to banks in exchange for a Certificate of Deposit. This group is extremely security conscious and will avoid risky investments for the most part.
The same reason they choose to invest in CD is the same reason they should not invest in your real estate ventures, especially as an equity partner.
It’s hard to understand why others would suggest for us to market to this class of investors. There are several problems that can occur when you approach this group as prospective investors.
It will take two issues to cover all the problems.
Seniors are an easy target for investment scams and the AG’s (attorney general) office does not tolerate those seeking to profit or scam them. Even though you’re not planning to scam anyone, you must be aware that law enforcement officials proactively protect less savvy and unsophisticated investors from investments not mainstream.
Let’s face it.. Lending money to a real estate investor is not the norm.
Just recently the Iowa Attorney General went after “Publisher’s Clearing House” for marketing to seniors and got them to pay $2,500 each time it mails to someone who had been removed from their mailing list. And they must identify everyone spending over $500 that is over 65 years old; then they must contact them by phone and explain the contest rules to them.
So what does this have to do with you?
It should be a warning sign to avoid dealing with less sophisticated seniors as money partners. If you have been targeting baby boomers and their main investment vehicle is the Certificates of Deposit, — then change your direction and avoid them.
Yes, early on I made this mistake too. I found most seniors could not explain the investment they made to someone else much less remember the details of the arrangement.
That is the problem. When someone doesn’t understand their investment, there lies a problem.
You should never borrow funds from anyone that cannot completely understand the program two years from now. Later on, you may find yourself answering numerous inquiries from other family members. They can be quick to judge you and feel as if you took advantage of their relative. And this never turns out well for anyone.
One call to your state securities commission or the Attorney General’s office means you’ll be on the hotseat for a long time or even worse.
Guy Kawasaki recently wrote an article that agrees with this, he states… (paraphrased)
‘Only borrow from sophisticated investors because they can afford to lose it.’
And that is basically the stance of the SEC and state securities commissions. When you seek out funding from others, avoid those that cannot afford to lose their investment and only deal with people that have investment or business experience.
** Warning: This does not suggest there are not filings or registrations that need be completed with the SEC or your state securities office. More on this in a future issue.
Read the next issue to discover the other reasons you should avoid seeking out this group to fund your deals.
Remember OPM is the best lender you’ll ever have .. but it just needs to be from the right group of people.
Would you like to know how to setup your own Private REIT with multiple investors or Private Funding Company?
Do private real estate syndications seem limited? I think so too….
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