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MadAbout
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Today, when high inflation is diminishing the actual return on deposits and equity is unstable, the offer of getting a 12 % return on an appreciating long-term asset such as real estate sounds so great that you cannot ignore it. However, the golden rule when investing your money in something is to inquire about a deal that looks unbelievable, since it is actually not true. |
WORKING OF ASSURED RETURNS SCHEMES
Before we tell you whether investing in assured returns is right for you or not, let us elucidate how such schemes work. They begin when you purchase a property entirely, even if its construction is not completed and still has 2 or 3 years to go. You purchase the property either through a bank loan or your own finances. For instance, you pay a certain amount for a flat and during the period of construction you get certain amount per month which is part of the 12 % per year. This money is given by the builder to you in the form of post-dated checks. When the construction of your flat is completed and you get its possession, you have two choices. One is that you can go on with the assured returns agreement or else you can choose to opt out of this project. However, the terms of the agreement can change, since the flat will be given on rent to a tenant and the builder will share the rental fee with you.
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Moreover, there is no confined time period for the assured returns agreement. It is generally for the subsequent 2, 3, 5, or even 10 years after you get the ownership of the flat. This sounds all too good. However, let us see at some of the questions that you must ask yourself before signing an assured returns agreement.
FROM WHERE THE DEVELOPER PAYS THE 12 % RETURN?
Due to the excess supply, some developers are seen as less creditworthy by private equity( PE) and banks that conventionally finance the business. This, in turn, forces the developers to opt for other funding choices, such as getting bank funding through the buyer, which is you, since the buyer can get the loan at lower rates through you. This step is taken in order to raise cheap money from buyers and investors. If the developer seeks a bank loan, then they would get it at a much high price, which is usually 14 % to 15 %, which means that they are getting cheap financing at 10 % to 12 % in the form of assured returns schemes.
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WILL YOUR POST- DATED CHECKS SURELY GET CREDITED?
Assured return schemes are non-secure schemes that come with high risk. This means that even if the developer has a lot of credibility in the market, they will not hesitate even once to not pay the returns to the buyer during a financial trouble.
WHAT SHOULD YOU DO?
Now, the big question is what you should do, should you go for it or not? We advise you to steer clear of such assured return offers. Even if you consider it, you must get some legal help and have a lot of capital. Make sure that you get the agreement scrutinized by a legal expert before you enter it, so that you can minimize risks in your investment.
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