Mad_About_Money_final Mad About Money_Dec 2016 - Page 28

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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 .
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 .
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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