Am I getting scammed?

Question

A old coworker has started a RE investment group recently. Basically asking for money in return of a 30% ROI. My partner says that she does not trust it and thinks that he might just take the money and run. He has a LLC that I was able to confirm that is real and registered. I signed a none disclosure agreement already that seemed pretty straight forward and basic.

He definitely talks the talk and walks the walk of someone that has a understanding of RE. He showed me the numbers and the area that he wants to flip houses in. I did a little research and found that the area and the numbers match. He is saying that once the deal is ready that I will have full access to the property and everything that is going on.

His plan is simple. He has found an area that is growing. He wants to buy some land developed it then sell the house. After all is done he will return the money plus 30%. He claims to be in the middle of construction of a house right now and has found another lot that he thinks is good and has the contractors ready to go.

Was wondering if anyone has any good questions I should ask before I hand any money over or any signs to look for that may make it a scam. I personally trust him but you can never be to careful.

Thanks for reading!

Basil Kostaras · Answer

Hi Greg, it's tough when personal relationships are involved in business deals. A few helpful questions you may want to inquire with: 1) Who is going to hold the money? Is it going into an escrow account and will be disbursed by a third party according to a construction schedule? If the money is going into your friend's personal bank account or LLC bank account they have full access to the funds and full discretion on how it's used 2) Is the 30% return a cash on cash return or is a total internal rate of return (inclusive of cash flows and appreciation once property is sold)? This may impact your strategy and exit plan 3) Depending on what your state requires (not sure where you're at) your friend may be obligated to provide specific reports for his subdivided development if it is going to be over a certain size. You may want to understand what he knows about that to ensure there aren't any additional documents above the non-disclosure agreement he should be providing youGood luck with your evaluation!

Miguel Del Mazo · Answer

If you have to ask "am I being scammed", the answer is "I don't know, but it doesn't matter because I don't understand this investment enough to invest in it". Only invest in something when you completely understand how that thing will make money. If you can't see how all the pieces fit, either dig and learn more until you are satisfied or find a different opportunity to invest in. There is no shame in working hard, saving money and investing it in something simple when you "get it". The best investors in the world won't touch an investment that doesn't make sense to them. To more directly answer your question. You need to see his paperwork. Does he have legal title to the home he is building. Will he share his contractor's contact info? Can you see the house? What do the comparable house sell for? Keep asking questions. The part where he promises 30 percent return is sketchy to me.

Greg Feilner · Answer

@Basil Kostaras 1) Great question! didn't think to ask that. I defiantly will ask next chance i get.2) From what i'm reading and understanding the 30% is cash on cash return. so once the one house is built and sold the money plus the 30% will be returned to me and it is my responsibly to do the taxes on it. I will inquire more on this also. He did verbally mention that I could leave the money plus the returns to his LLC if I wanted to do another flip with him. But I don't recall anything in the DOC about that.3) I'm in Texas if that helps. That maybe what he is supposed to send over next. Thanks again!

Greg Feilner · Answer

Thank you all for your reply!! @richard rajatan I guess the none DISS was also a investor agreement if you will. He also said that he will be sending another doc that will "Have all the contact info and details" before i hand any money over.@Miguel Del Mazo I personally feel like i understand what he is talking about as far as numbers go and what he is doing. what i guess i don't know is the fine details as in payment and how and when it happens. maybe this will be explained later. my wife is the one who is a little more how you say shy when it comes to any form of handing any money over. cant blame her. I will defiantly ask to see more paper work on the liget of his claims. As of the comps they look right to what he says. Thanks!@Enrico Angella Thanks for the input i will keep that in mind.@Julius Chinn Chicken not 100% sure what you mean. would love to hear more on your thoughts. I always try to keep my partner in the loop and listen what she has to say. She doesn't have a great knowledge on real estate but she will always listen to me yap about it.

Julius Chinn · Answer

He is telling you straight out its a bad deal Non disclousue? come on. Is he Grant Cardone level? 30%???????????????? Scam is a strong word. He is telling you what going to happen. Will it - got no idea. Im with the WIFEY.No expert here. But he might be Syndicating. Ask him.

Enrico Angella · Answer

a 30% ROI doesn't sounds too good to be true for a passive investment, and usually when it's too good to be true it it's true! I would personally stay away from this guy!

Rich Ramjatan · Answer

@Greg FeilnerI’m no expert on these type of arrangements, but I don’t think you would just write a check to him without some form of written agreement, or maybe a lien , etc .