How do you get your wife on board?

[Grizz]

$10.33 /mmbtu, basis Henry Hub. This is low?

ha

good point. I should have said that it has become uneconomical since partially due to the recently strong CDN dollar making it pricey for the U.S. to buy our nat.gas, and partially due to insane boom mentality rises in drilling and production costs it is tougher to make a buck exploring for the stuff here.

 

[haha]

good point. I should have said that it has become uneconomical since partially due to the recently strong CDN dollar making it pricey for the U.S. to buy our nat.gas, and partially due to insane boom mentality rises in drilling and production costs it is tougher to make a buck exploring for the stuff here.

Thanks for the clarification. I had noticed that recently NG drilling has been much stronger in USA than in Canada.

Ha

 

[accountingsucks]

I live in Edmonton also and I have heard of S&D before. They certainly have made lots of $ on all their developments, but let's face it anyone in real estate in Alberta the last 5 years has made a tonne of money without doing much of anything. They have 5 or 6 projects going at any given time...one thing I have never understood about them is what happens if their current projects don't sell? Does the company simply wind up and disappear. That gives the impression of a ponzi scheme in that once the new money drys up, they head for the hills. Like you mention, all S&D land owners do actually own the land so you do have an asset that is worth something, but it is illiquid and would likely be difficult to sell immediately if you ever had to. How well this particular project does depends on how the Edmonton RE market ends up doing. As you may know, Edmonton home inventory is at record levels and prices have declined since summer of 2007. If you drive downtown you will also know that a glut of condos are going to be completed in the next year and a half. Who will buy all these properties? If real estate weakens, then any residential development will also suffer. It's not clear from the SD site if this is a residential or commercial property.

 

[chris2008]

Get out, get out, get out. If not, this club sooner or later will ruin you.
In the world of shady finance business the sales guys know well that those people who have already burnt some money are the best targets for new sales attempts:
because they want to make up for their loss they are not as careful as new investors and they have already proven that they are dupable.
The addresses of such victims are even SOLD!

If my husband would insist to stay in such clum and make such investments I would rather split all our assets once and for all with him and let him do with his part what I cannot stop. This will at least protect my 50%.
By no means I would get into debt for such "investments".

 

[kombat]

Just curious, did HEIRS also handle the refinancing of your home for you?

They brokered the new mortgage, yes. The mortgage itself, of course, is held with a bank (First National, 5.35% 5 year fixed), not HEIR. I've no doubt they picked up broker commissions for brokering the new mortgage.

 

[kombat]

Overall, I'd say that you likely have not been taken in on this one. Although it looks much like the types of gains that the U.S. housing markets had prior to that bubble burst, these ones aren't based on crazy lending or anything suspect. Here's the warning. Pay close attention and always remember this. The value of land in Alberta is going fluctuate exactly in parallel with oil and natural gas prices.

Wow, thanks Grizz, I appreciate the first-hand perspective. Our land is in the "Royal Links Point" development, which is actually in Leduc, just south of the airport. Our property is just west of highway #2, and just south of the Leduc Golf and Country Club, in the kink of the highway there. Here's a link to the region on Google maps.

I'm not necessarily counting on "big gains." At this point, I'd be ecstatic if we even just broke even. Based on the commentary in this thread, I'm now afraid that this whole thing is a scam, and that S&D is going to close up shop and disappear with our money, and it will turn out the deeds we have are bogus, and we'll be left with literally nothing to show for our $80k. That's pretty much my "worst case scenario," and the other posters here have got me feeling that it's now the most likely.

 

[kombat]

They have 5 or 6 projects going at any given time...one thing I have never understood about them is what happens if their current projects don't sell?

From the way it was explained to us, S&D doesn't actually develop the properties. Here's how it was presented to us:

1. S&D studies hundreds of properties and makes an educated guess at which ones are the best candidates for development, based on urban trends, environmental aspects, projected growth, and whatever. They then buy these properties from their current owners (farmers or whoever).

2. S&D chops up the property into "units" and sells those units to a pool of investors, keeping about 30% of the "units" for themselves. This money allows them to go and find other properties to invest in for future projects.

3. Once the development has been sold out to investors, S&D then goes to the city to determine the best use of the land (residential, commercial, or a mix).

4. S&D applies to have the land re-zoned appropriate to the intended type of development.

5. S&D then hires a development company to draw up plans for a community on the land, including roads, drainage, housing lots, right down to the placement of streetlights and fire hydrants. Everything is up to code. They work with the city to ensure the development is approved.

6. S&D then opens the property up to bids from local developers. By this point, a few years have passed and the land would've (hopefully!) appreciated in value, all on its own. But since it's already been re-zoned, and a complete development plan has already been created, and all the developer has to do is build it, it should be substantially more valuable.

The developer bids on the land, and the landowners/investors vote on whether to accept or reject the offer. A 2/3rds majority is needed.

The idea is that since the red tape has been taken care of, and all the developer has to do is build it, then the land is now substantially more valuable. S&D's newsletters report the status of all their properties on a quarterly basis. Each newsletter mentions a couple properties that have been sold recently, including how much the selling price was per unit, how much the investors originally paid for their units, and how much profit the investors made. They typically double their money, which isn't entirely unreasonable in my opinion (that's about a 15% CAGR - ambitious, but it is real estate after all, in Canada's hotbed of oil activity).

 

[Grizz]

Wow, thanks Grizz, I appreciate the first-hand perspective. Our land is in the "Royal Links Point" development, which is actually in Leduc, just south of the airport. Our property is just west of highway #2, and just south of the Leduc Golf and Country Club, in the kink of the highway there. Here's a link to the region on Google maps.

I'm not necessarily counting on "big gains." At this point, I'd be ecstatic if we even just broke even. Based on the commentary in this thread, I'm now afraid that this whole thing is a scam, and that S&D is going to close up shop and disappear with our money, and it will turn out the deeds we have are bogus, and we'll be left with literally nothing to show for our $80k. That's pretty much my "worst case scenario," and the other posters here have got me feeling that it's now the most likely.

Firstly, you are sitting on a very juicy piece of real estate indeed. I would even suggest that it is the best of S&D's properties.

The "Port Alberta" project is going to draw in a lot of people to the area. Even without that, the airport is going to do yet another massive expansion due to the huge and much faster than expected rise in air traffic. You are located only a mile or 2 from the airport property next to some very nice upper middle class residential developments. I'm pretty sure that you aren't under any flight paths either. There will be a major interchange built very near you as well, and a large powercentre anchored by Wal-mart, Rona (like Home Depot), and Canadian Tire (think department store for automotive, recreation, gardening, and tools)is still being built very near your property. The Nisku industrial park which is where my business is located is a 5 or so minute drive from your place and is absolutely exploding with new developments (it's oil country after all), and lucky you, your place is only a 15 min. drive from my house, stop in for coffee some time.

You bought at about the time that the land prices levelled off around here, but as long as S&D are on the up and up, I would definitely not attempt to get out of this one. Not sure how S&D structures things, or how unruly it might get, but if you would like to sell 10K or so of it, I'd be very willing to take a good look at it.

That said, I looked at the S&D news section of their website, and it says that they have, within the last few days donated a million dollars to go toward construction of the new Beaumont Aquatic centre. Beaumont is another absolutely booming bedroom community to Edmonton and is located about 15 min NE of your property. If their news report is true, I'll be seeing it in the Beaumont weekly paper probably today. I would think that a donation of that size would give you some comfort that these guys aren't some shady back room operation. I'll let you know what I find.

 

[FIREd]

4. S&D applies to have the land re-zoned appropriate to the intended type of development.

That I see as one of the biggest threats to your gains. I too own raw land in the vicinity of a large, growing city (in Europe though). The land is actually located in a small town adjacent to the big city. As the big city expanded outward and the suburbs moved closer to my lots, the price of my land steadily increased over the years from about 10 euros per square meter in 1995 to about 80 euros per square meter in 2003. Then, the small town got a new mayor. He decided to put a freeze on all new constructions, all land that could have been developed was re-zoned as farmland overnight, and the price of land plummeted to about 3 euros per square meter within 1 year (so much for the safety of hard assets!). In the past 5 years, the price of land has increased to about 100 euros per square meter in neighboring towns while it has hovered around 3 euros for our town. We are now fighting to get the freeze lifted and have the land re-zoned but we might have to wait until the mayor is ousted to succeed.

As Grizz mentioned, policy changes by the city of Edmonton could have a major impact on the potential value of your land.

 

[Grizz]

That I see as one of the biggest threats to your gains. I too own raw land in the vicinity of a large, growing city (in Europe though). The land is actually located in a small town adjacent to the big city. As the big city expanded outward and the suburbs moved closer to my lots, the price of my land steadily increased over the years from about 10 euros per square meter in 1995 to about 80 euros per square meter in 2003. Then, the small town got a new mayor. He decided to put a freeze on all new constructions, all land that could have been developed was re-zoned as farmland overnight, and the price of land plummeted to about 3 euros per square meter in 1 year (so much for the safety of hard assets!). In the past 5 years, the price of land has increased to about 100 euros per square meter in neighboring towns while it has hovered around 3 euros for our town. We are now fighting to get the freeze lifted and have the land re-zoned but we might have to wait until the mayor is ousted to succeed.

As Grizz mentioned, policy changes by the city of Edmonton could have a major impact on the potential value of your land.

It's a good point that you make, and if I didn't know this area, I'd assume the same. Edmonton has no jurisdiction in the area where Kombat's land is, and farm land is definitely not in short supply. He's located in a sweet spot right on a very major corridor between Edmonton and Calgary. Leduc city and county councils are very accustomed to, and pro-development. I just can't see that piece of land not being developed.

Oh, I forgot one more thing. There is once again serious talk of a high speed train to connect Edmonton and Calgary. Kombat would be near that as well.

 

[brewer12345]

Lucky guy: sounds like you fell over a gold bar on your way to be mugged. But don't tell your wife or you will get dragged into more schemes.

 

[kombat]

If their news report is true, I'll be seeing it in the Beaumont weekly paper probably today. I would think that a donation of that size would give you some comfort that these guys aren't some shady back room operation. I'll let you know what I find.

Thanks, Grizz, I'd really appreciate that.

 

[heyyou]

In the early 80's, making $30K a year, a financial adviser found me an investment and received a finder's fee. I nearly doubled a $9000 investment with a limited partnership(LP) using leverage to buy land in the path of development. The principal had 40+ of these land deals going, and was taking 20% at the start, note that he was somewhat diversified and his risk ended at the start. Then I committed to a $60K LP before the bottom fell out of the Phoenix real estate market when the tax laws changed. I lost all of it and had to repay previous tax deductions since the LP went bankrupt. With a steady job, being broke is not as bad as it could have been. I was greedy, plain and simple. What goes up fast, can go down fast. There is always risk, always. Diversification is key.

For the OP, you are not diversified, you are leveraged (mortgaged) and concentrated. That is a dangerous combination. If you make money, are you paying off the mortgage or rolling it all into another investment like I did? If the investment works, pay off the mortgage, split the remainder and let your wife continue to play with her share of the money. Discuss that plan NOW. You are sharing the debt and the risk now, you do not have to share the next risk.

A clever remark from a previous oil boom was about LPs for oil exploration, "some drilling companies were busy looking for oil and some others were just looking for new investors." Paying a club fee to hear those presentations, then having the investment firm find the mortgage re-fi for you, are far beyond reasonable. What was the fee on the new mortgage? That is not a coincidence that the rah-rah club attitude is pressuring you to buy, that is a calculated part of the structure. I wonder if 100% of the club members are investors, or if some are just hired cheerleaders.

When, not if, the boom collapses, you will find those land promoters in the next boom town. My promoter moved on to San Diego when Phoenix land values collapsed.

 

[kombat]

If you make money, are you paying off the mortgage or rolling it all into another investment like I did?

If we make money, I'm going to take $30,000 and apply it to the mortgage. This will accomplish 2 things:

1. It will get our Loan-To-Value ratio below the magic 80%, relieving us from having to pay CMHC insurance again (Canada's version of PMI).

2. It will reduce our remaining amortization from 25 years to 20, while keeping our monthly payments the same. This will nicely align the loan payout date with our anticipated early retirement date (age 55).

The remainder of the profit is destined for my RRSP (Canadian 401(k)), which will hopefully generate a huge income tax refund, which will of course be once again reinvested back into the RRSP.

I have no intention of investing another penny with this "wealth club."

 

[Independent]

Not very many posters are dealing with Kombat's real issue. He has already decided that he wants to cut his losses and leave, how does he convince his wife?

FWIW, I've been there. Except in our family she's the conservative one. It took a while to convince her that a money market fund was "safe" enough, then we moved on to CDs, then I-bonds. It's been a slow process and we've left a lot of money on the table.

If I had it to do over again, I'd be more aware of the emotional stuff and less concerned about the rational. If your message is "You aren't as smart as me, and I think we have to change direction right away." you're fighting an uphill battle. A little more discussion about how you've been confused, greedy, scared, etc. as you've learned about this stuff, spread over as much time as you can afford, might help.

 

[TickTock]

What goes up fast, can go down fast.

The closest thing to a physical law in the world of finance!

 

[haha]

I wonder if 100% of the club members are investors, or if some are just hired cheerleaders.

I like the way this Hey-You thinks! One of my entertainments when I used to go to free presentations was to try to spot the shills. Of course I admit that I am warped.

If the investment works, pay off the mortgage, split the remainder and let your wife continue to play with her share of the money. Discuss that plan NOW. You are sharing the debt and the risk now, you do not have to share the next risk.

I am not sure this can be done, legally or realistically. Say you find a way to make an ironclad agreement, which IMO is doubtful. Then your wife goes broke. Then she loses her job. Then she gets sick. Then she discovers that she really isn't very fond of you anymore and wants to live alone.

Do you kick her to the curb? Most guys wouldn't and couldn't. So I think Kombat is stuck with trying to reach a mutual agreement, unless this is approaching divorce country.

Not very many posters are dealing with Kombat's real issue. He has already decided that he wants to cut his losses and leave, how does he convince his wife?

I am not so sure that this is his main issue. I think he has not yet decided whether the loss of a big score is outweighed by the chances of a big hit.

I can definitely relate to this, it's the twin towers of greed and fear that move every speculatively minded person, likely me more than most.

Good luck whatever path you take, Kombat.

Ha

 

[Bimmerbill]

I'm lucky. My wife is cheap. So cheap that I need to nag her to go buy some nice clothes once in a while.

 

[Darryl]

Kombat, sell 1/8th to Grizz for $10,000 it is a forward progress toward getting your money back. Then find about six more friends like Grizz if this thing works you can all celebrate together. When it craters you're only out $10,000 and you'll have someone to drink a beer with.

 

[kumquat]

Kombat,

This looks better than I would have guessed. The land deal may work out.

I'd be trying to see what I can do to avoid CRA's wrath on the charitable deduction thing, however. I don't think CRA has ever lost a high profile case and it could prove expensive.

But, maybe, the land profits will cover the CRA liabilities and you'll just have to put up with perpetual tax audits. Good luck.

 

[Grizz]

Good news Kombat, I just picked up the Beaumont news and the front page has a pic of S&D brass donating one of those huge novelty cheques for a million dollars to the Beaumont Aquatic Centre. It's the biggest donation in Beaumont history so it was the topic from pages 1 through 4 and then again on 13. Hopefully that gives you a better feel for your investment. I'm actually a bit jealous, and although I am presently concentrating my real estate investment efforts at nearby recreational lake properties, I will definitely be watching for future S&D projects. Good luck.

BTW, I also read the Leduc paper today and they are building a rec facility at a cost of $40 million about a 5 minute drive from your property.

 

[kombat]

Thanks for the update, Grizz. I feel a lot better about the S&D investment. However, I still intend to stick with "traditional" investment vehicles from here on out.

As for the CRA scheme, I've pretty much resigned myself to expect a letter from CRA eventually requesting repayment of the income tax. I'm OK with that. If the most I lose out of all this is $15k in income tax repayments, we'll still be well on our way to financial independence. Losing $80k, on the other hand, would've been a much more painful setback.

 

[Buckeye]

I think you still need to assume you could lose the entire $80k and plan accordingly. If you can deal with losing the $80k because there is a huge potential upside, stick with it. You now have your chance at a "do over" before it's too late, i.e. "If I had the chance to do it over, I would have (left, recovered) the money that has already been invested."

You now know the risk involved so you should be able to accept the outcome with no regrets if the worst possible scenario comes true and everything is lost.

 

[clifp]

"How do I get my wife to understand my point of view?"

How do you get to understand her point of view? I think you need to break down her viewpoint into little pieces and then go through each piece. Where you disagree on those little pieces, see if you can talk about those with her.

She views these investments as "safer" because you own a hard asset, which I interpret to mean she believes that the land won't go down in value. So here's how I would break it down:

2Cor521

Not having a wife or much of a relationship for the last couple of years... I am not sure I can be a lot of help on the psychology part...

That said you've mentioned that she views stocks and index funds as risky and real estate as less so because it has hard assets.

My 3 step plan to win the wife over would be this.

1. Diversification: You need to point that you've invested $100K in this wealth building club. I don't know your exact financially situation but I am guessing that $100K is probably your biggest investment, excepting your house. As wonderful as these wealth "opportunity" appear ask her if at times she doesn't think that some of these pitches are often to good to be true. Once she concedes that I think you can convince her that having all of your eggs in the wealth club basket, could be disastrous if it turns out be a ponzi scheme.

2.Real Estate isn't risk free. It sounds like most of the investment involve raw land. I am not a Real Estate expert, but I believe that land speculation is by far the riskiest real investment, because unlike say rental properties there is no positive cash flow until you sell the piece. FWIW, various members of my extended family have bought land over the years, AFAIK not a single one made a dime after inflation... on any of them. Of course several saw the land skyrocket a year or two after they sold...

3. Help educate her on stocks. The two biggest concerns that people have with stocks is it seems like you don't actual own anything and the value changes daily. For many people, investing in stocks seems like gambling at casino and the game seem rigged in favor of the house, where you buy high and sell lower.

Start with some basics. A $10,000 investment in say the S&P 500 actually buys lots of hard assets, a couple gallons of gas at Exxon, a tree branch, at Weyhouser, a case of Coke, some fries at McDonald's, an iPOD at Apple, a pair of shorts at Gap, and a shelf at Walmart. More importantly it entitles you to a small share of the profit of all of these companies at 493 other ones. Over time the profits of these S&P 500 have grown tremendously, some of which have been paid out in dividends and other reinvested in the companies.

Once people make the leap from stocks are squilly lines that go up and down randomly, to owning a piece of the company. I think stock investment because much easier.

 

[chinaco]

Kombat,

I agree with most of the other posts on the matter.

Consider having you wife talk to an independent financial adviser about these short of investments. His/her word may be considered unbiased.

Try to research (possibly using the SEC or state government info) about fraud and the risk in these types of schemes. Testimonials are worth their weight in gold.

Remind her that even if the presenter is legitimate... the managing partner may not be or they may just take huge risks and make mistakes... the end result is your money will be gone!

Even if the person presenting the investment had good intentions (legit)... things can go wrong and often do. There is substantial risk in many areas.

If that does not work... then you can hold your ground on it. Or agree to some small amount of play money and let her learn her lesson. But seek an agreement that if it does not work out... the only approach going forward is a diversified portfolio of stocks, bonds, etc.

One other thought... is she dreaming of some fringe benefit... like a free vacation property out of it?