Protecting Yourself from Bad Property Investment

Added: (Tue Jun 24 2008)

Pressbox (Press Release) - The whole idea of investing is to make money, not lose it, but if you invest in a property development scheme and things go wrong you stand to lose all your money. This is because traditionally a property developer cannot get his entire loan from the bank, as the bank knows it's a risky venture. The bank will lend 60% and require the developer add 10% of his own money. This leaves 30% to be found and it usually comes from the investor.

The trouble is that it is an unsecured loan. That is you are actually investing in the development, not the property itself. The bank's loan is secured; if things go wrong they get the real estate to sell. If there is anything left over - which is rare - the developer gets it. That leaves the investor up the creek without a paddle, as the saying goes.

The hype in the developers' brochure will rabbit on about what great gains you can make by investing with them, but not much is said about the risk - or the fact that the loan is unsecured. It's far better to invest your money in real estate yourself, then if something goes wrong you can recoup a little by selling.

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