My Brother-In-Law needs help (Real Estate Investment Fund)

[Butcho22]

Okay, I'll try and explain this as best I can. Let me know if anything needs clearing up.

My sister's husband is currently just starting his 3rd year in medical school in Vancouver,Canada. A resident he has met at the hospital owns/runs a Real Estate Investment Fund on the side. (His employees run it obv)

Basically he's presenting it as a no lose opportunity from what I have gathered. Guaranteeing no less than a 9.75% return, paid monthly.

He recommends investing no less than 100k. This money would be coming from my B-I-L's line of credit, which has 6% interest. So basically he's guaranteed 4.75% on his money. (possible? especially dealing with real estate???)

From what I've been told, the owner sounds like a stand up guy, but my brother-in-law is a newbie when it comes to this stuff, no doubt.

Now I'm not asking someone to tell me everything about this as I'm sure that takes time, and I'm sure you would need more information to do that.

Basically I'm hoping some of you can post advice for him, to cover his back through this process...anything that he may need to know or read to make sure he's fully informed before making a decision this big.

Any info or links to reading material on this subject would be much appreciated, as I'll eventually just show him this thread.

Again, If I wasn't clear about something, let me know and I'll ask him when he gets home later tonight.

Thank you in advance

[gull]

9.75% guaranteed return is impossible. This reeks of a scam (or at least not a full disclosure of the risks involved).

[jono]

seems too good to be true, huh?

[Butcho22]

The only way I can see this guy guaranteeing that return it to draw a contract stating that the money will come out of his pocket if necessary. (which seems highly unlikely)

[Jimbo232]

Whether or not this is a good fund it becomes an insanely difficult investment to justify if the money is coming from HELOC and he is fighting against a 6% vig.

He shouldn't even consider investing the money unless it is his own

[jaydub]

Yup, those no lose hedge funds with RE holdings have sure been doing well as of late.

J

[Butcho22]

Thanks for the replies so far guys.

It's actually a "Trust", not a fund. (Although I doubt that makes any difference.)

My B-I-L told me that the guy actually said to him that he will probably have people tell him this isn't the best idea. He also said that if there are bad months/streaks or whatever, "the business absorbs the losses"

This seems incredibly iffy, and I'm wondering if anyone has heard of that being done.

I realize the answer seems rather obvious, so I apologize to those who may view this as a waste of time or whatever.

Any further replies with any type of info/input on this would be appreciated.

[Jimbo232]

Sounds like this could be a privately held REIT (Real Estate Investment Trust). "A corporation investing in real estate that reduces or eliminates corporate income taxes. In return, REITs are required to distribute 90% of their income, which may be taxable in the hands of the investors."

As others have said nothing is guranteed. Even if this REIT has shown a great history of returning 9.75%, your BIL is investing from a 6% loan, so his "guranteed" return would be 3.75% before tax considerations - nothing to write home about. Just speculating here, but being in medical school his earning potential is pretty high, but at this point (unless he comes from a wealthy family) his net worth can't be that significant. At this point I would imagine $100,000 is a huge percentage of his net worth to be chasing a 3.75% "guranteed" return with. If he had a $1M portfolio and could siphon of $100K for this investment it may be something worth chasing if he really trusts the guy, but given the circumstances I can't see how this would be prudent.

[Butcho22]

Thanks a lot, Jimbo. Yeah it would be pretty much all of his "net worth" at this point.

[bronx bomber]

100% no risk? Has Grimstarr expanded?