Read the truth about property investing (including the Horror Stories), here in our blog
Open
X

Well let’s put it this way, it’s extremely rare that I trust any property investment guarantees.

Time and time again I see marketing that promises ‘guaranteed returns’.

Not always, but more often than not, it’s more of a catchy marketing headline than anything that is cast iron or something that you should rely upon.

I will probably get so many people telling me that I am wrong and that guarantees really do exist, and they may do sometimes. But usually the guarantees are little more than company’s assurances or simply their best intentions and the hope that they’re still solvent and profitable in the future.

If the company offering the guarantee isn’t solvent or profitable, where’s the money going to come from to back up any promised guaranteed returns?

Guaranteed Returns are not always what they seem

You will see on the above that the investment offers a very good 10% Assured Return, thats brilliant, especially if all your ISA is producing is 1.5% p.a. or less. However, not everyone will take notice of the asterix. On this occasion, way, way down at the very bottom of the email, in the small print, is – *for first year only.

So that great big, headline grabbing, return has vanished after 12 months… what then? Who knows!

Often this type of marketing is simply trying to get your attention and make you believe that your investment is safe. I believe you must always ask yourself these three questions as a minimum:

1) If there were absolutely no guarantees in place at all, would you still invest?

2) Can you see evidence that the property investment (or any other investment) can, on its own merit, truly produce the level of  returns promised year on year?

3) Does the company have any history of paying returns on investments outside of any guarantee periods?

You trusted and believed the original marketing! The promise of a guarantee attracted your initial attention and more so, that’s possibly what clinched it for you as a sound investment. When investments turn out to have had hollow promises I think it is so wrong, however good the intentions were at the outset.

Some time ago, I posted a blog doubting the so called guarantees of an investment that promised significant returns. Shortly after, someone left a comment about another investment that, he suggested, truly did have a guaranteed return – I agreed to meet him to take a further look at the investment…

Two days before the meeting I received a notice that the auditors had declared the company insolvent. Why?  Well here is the strangest twist I think I have seen to date;

It was not declared insolvent for the usual reasons (such as lacking the funds to pay its monthly bills or staff, or because cash flow had dried up) it was actually declared insolvent because the company had built a ‘guarantee’ into it’s marketing and contract. At the end of the year the auditor could plainly see that there is no chance of the company fulfilling that obligation and consequently it was to, in effect, be placed into administration.

How bizarre and upsetting would that have been for investors? Because the investors had to receive the stated ‘guaranteed’ returns the company had to go into administration. Investors got no return at that time and had to face the potential of losing everything. Had the guarantee not been there the investors would simply have received the returns that the company were able to produce, albeit lower than promised, but then something would’ve been better than nothing.

That has to be an unfortunate favourite of mine, but there are many other examples of similar so-called guarantees that simply have no actual long-term substance to them.

 

I am not against guarantees being offered but I am against using them purely for marketing and to mislead someone into believing that any investment is therefore completely safe. Investing never has been and never will be completely safe. That I can guarantee!

For more information please feel free to contact me further.

Visit Us On TwitterVisit Us On FacebookVisit Us On Google PlusVisit Us On PinterestVisit Us On YoutubeVisit Us On Linkedin