How to detect an investment scam when you are the private lender

While doing a training recently I got side tracked by a conversation of scams “to get you to depart from your money.” People where telling stories about how it all happened. Some of it was recounting a newspaper article from a fake news source. One was a personal story of a “savvy” real estate investor who cashed in all of his 30 properties and gave the money to a “foreigner” to invest in China. Then there are the Bernie Madoff’s, Ephren Taylor of Overland Park, Kansas, Randy Poulson of Swedesboro, New Jersey and the list is endless. It all starts with you. It all ends with you! The best piece of advice I ever got was from Warren Buffet translated by Ron Gray. “If you don’t understand it, then don’t invest in it.”   I learned this lesson the hard way.   I have done many things I did not understand, but were interesting to me at the time. I only learned how to do them correctly later. When you decide to venture into lending money understand what is your risk tolerance?   Is your risk tolerance high and you swing for the fences with all the passion of a teenager? Is your risk tolerance low where you just want to sleep at night and know that It is safe? Each has a risk and a reward! I was watching jeopardy the other day and the gentleman who was cleaning up $300,000+ and doing a great job swung for the fences on all categories and with his bets. He came on the show with nothing and if he went off the show with nothing he got his 15 minutes of fame. His attitude when he lost was refreshing because he moved on instantly from a loss to eventually win the game in the end.

The reason it starts with you, is knowing what is your appetite for risk?  Are you willing to lose everything in a blink of an eye?  Knowing the right questions to ask and knowing what are the right resources to use to get quality information, can be the key to a making a successful investment.  Many of the people in my training were risk takers, but when it came down to pulling the trigger to invest in a project they didn’t. Why? Fear, lack of knowledge, it was a bad deal, it seemed any excuse would do!

I am very analytical. I need to know about everything. I am an (ex) control freak. I want to know what are the weak links in the process. I want to know the odds of success. Who am I dealing with?  I don’t have any supernatural powers. We alI have been scammed before. I am sure your goal is just like mine “not to be scammed.”

Where do you get the best information? Three sources that I rely on are: 1) a credit report, 2) a criminal report, 3) a neutral disinterested third party. The internet is a fabulous thing, but you cannot trust everything you read. Go to the leaders in the industry, an attorney, people who are doing the investing, coaches and mentors. I have noticed that the scammers use time as a tool to get you to commit now and not later after you have done your research and due diligence. Ask me about the story of the “HUD SCAMER Quit Claim Deals.”

Here are several ways I demonstrate to potential lenders that I am reputable and they should loan to me:

Skin in the game.  I typically put money into the transaction. The fact that I am willing to put my money where my mouth is, is huge. Have you ever had a stock broker recommend a stock only to tell you later they never buy what they tout as “a great investment with a solid up side?”

Paperwork done by a third party.  This keeps the I’s dotted and the T’s crossed by someone not profiting in the transaction. These professionals allow all parties to have time to review and address concerns!

Tracking and regular accounting.  Allowing the Private lender to see regular reports of what is happening with the project is key.

Transparency in the transaction. There are no stupid questions. You trust everyone but verify everything. I went to an auction recently that had some very nice pieces of jewelry. The auctioneer had a great spiel. He made statements “this piece of jewelry was appraised last year for $40,000.”  “These diamonds are all rated VVS1. ”   “This piece came from a very well-known local wealthy family in the area and they paid $50,000 and its worth so much more.”   I learned from an attorney sitting next to me the auctioneer was well within his rights and was not liable for puffing his wares to the public.  If it is too good to be true then it isn’t true and buyer beware.

There are other ways that I demonstrate that I am a legitimate and will deliver on what we have agreed upon.  Ask me how to build your reputation based on these authentic and successful techniques.