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Old 04-18-2008, 10:36 AM   #61
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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.
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Old 04-18-2008, 11:24 AM   #62
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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.
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Old 04-18-2008, 01:11 PM   #63
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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.
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Old 04-18-2008, 01:23 PM   #64
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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."
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Old 04-18-2008, 03:06 PM   #65
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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.
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Old 04-18-2008, 04:13 PM   #66
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What goes up fast, can go down fast.
The closest thing to a physical law in the world of finance!
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Old 04-18-2008, 06:01 PM   #67
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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.

Quote:
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.

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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
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Old 04-18-2008, 06:49 PM   #68
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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.
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Old 04-18-2008, 08:00 PM   #69
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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.
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Old 04-18-2008, 08:14 PM   #70
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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.
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Old 04-18-2008, 08:19 PM   #71
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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.
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Old 04-18-2008, 09:13 PM   #72
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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.
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Old 04-18-2008, 09:38 PM   #73
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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.
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Old 04-19-2008, 05:48 AM   #74
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"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.
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Old 04-19-2008, 06:20 AM   #75
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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?
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Old 04-19-2008, 11:26 AM   #76
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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.
This is always a red flag to me. There are some "college financial counselor" companies in our area that, without charge, advise parents of high schoolers how to pay for college. They explain to the parents that tat this point they need to tap the equity in their home and then they helpfully handle that for them and earn a commission or whatever (I am sure this is how these companies earn the bulk of their money). So I just wondered if HEIR earned a little off that. I wonder if they cold-call people based on information they obtain on balances left on existing mortgages.

Anyway, good luck. If you are the one who convinced your wife it would be a good thing to invest with this group, it will probably be easier to convince her it is time to at least stop putting money into it, imho.
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Old 04-19-2008, 12:13 PM   #77
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So I just wondered if HEIR earned a little off that. I wonder if they cold-call people based on information they obtain on balances left on existing mortgages.
I feel that good results don't grow on trees. So a cardinal principle is that you want to be in line to get the full return should your investment pan out, since you are assuming the full risk.

On the other hand, promoters like to get their return upfront. Marty Whitman refers to this principle as SOFT-Something OFf the Top. So the promoters are well once they have your money. It looks like this outfit has seen to it that they collect many fees, commissions, etc. So your load is so high that it would require lots of luck to get a return commensurate with the risk you have assumed.

Therefore this doesn't have to be a fraudulent or illegal scheme for it to still be a bad investment. In fact, it could be a bad investment if somebody walked over the property with a Geiger counter and discovered uranium. A lucky investment, possibly a lucrative one, but still a bad investment decision going in. If these opportunities were anything out of the ordinary, they would be offered to wealthy individuals in small private offerings that require very little in terms of a marketing or compliance organization.

But you are dealing with a marketing organization. If what is being sold really stands out, one doesn’t need the very considerable expense of a marketing organization.

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Old 04-19-2008, 12:16 PM   #78
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I think I know where the land is located, and I agree with Grizz that it has alot of factors going for it. Should Kombat not worry about the impeding real estate bust in Edmonton though? Sales down 54% over last year and listings have sky rocketed. It would be difficult to sell the land as a residential development I would think in this environment. Commercial would likely be another story though.

Alot of nuts on here, but interesting to read nonetheless......

Alberta Bubble
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Old 04-19-2008, 04:35 PM   #79
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Dear Kombat

I would be happy to buy your S&D land for $80,000 and give you enough profit to get out of your wealth building club and pay for your tax problem. Just so long as you can give me your title to the land. Please respond I will send you me email address. Thank-you.
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Old 04-20-2008, 04:11 AM   #80
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I think I know where the land is located, and I agree with Grizz that it has alot of factors going for it. Should Kombat not worry about the impeding real estate bust in Edmonton though? Sales down 54% over last year and listings have sky rocketed. It would be difficult to sell the land as a residential development I would think in this environment. Commercial would likely be another story though.

Alot of nuts on here, but interesting to read nonetheless......

Alberta Bubble
I respectfully disagree. Look at the want ads, if you have a trade in Edm., $65k+ per yr jobs are everywhere and yours for the taking. Alberta is still actively recruiting for workers around the world. I see that in Ft. Mac, Finning is advertising $50/hr + benefits for mechanics. You can also often work as much OT as you can stomach.

There is a very real need for workers here, and although it is not fast enough, they are still coming. Housing was overbuilt and just got a bit ahead of itself. Commercial and industrial construction hasn't blinked at all. IMO that is proof that it's a small correction. The only thing that can destroy Edm. real estate are oil prices below production cost of about $25/bbl. This is the boom 'n bust capital of the world so it may happen, but likely not right away.
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