Giving our hard earned savings to a shark can get us bitten and I have spoken about this recently. But we could also get dragged off a cliff by a well-meaning property businessman through bad business decisions, incompetence or just bad luck as well if we are not careful.
At face value it does look as though Bob Quigley perhaps had good intentions and also perhaps fell foul of poor business management, incompetence and even bad luck - maybe he did not intend to lose his private investor's money, as in the case of a property shark where there is a clear intent - but at the end of the day the result is the same - a loss of investor's money.
So, what lessons can we learn from this case as investors?
Well, the first one has to be our trusty old friend - due diligence. Before parting with any cash we need to do our research on the people, companies and investments (properties) that our money will be invested in. With this information to hand we should be able to make better informed judgements.
Somewhat related is - understanding the regulations. As laymen we are not going to be expert on the finer details of the Financial Services Act but we owe it to ourselves to do some research around the type of investment we are invited to undertake, especially if it is ‘non-mainstream’ and indirect. A few Google searches may lead us to the fact that someone collecting in investment funds needs to be properly regulated. If they are not then stay clear.
Next, has to be - seek adequate security and protection. If the person, company and investments seem to check out and we have done some background checks on the regulations involved then we can move a step forward and consider an individual investment. With property investing there is always an underlying security - the property itself and so consider taking a charge over the property to protect yourself. Equally, have a properly drawn up loan agreement that sets out all of the terms involved including repayments rates and dates, etc. If you are being asked to invest in the world of second charges or refurbishment works costs with little or no security then bear in mind that you do in effect have pretty much no security at all and so decide if this is the right place to invest a large part of your savings. Remember also that if we invest into a company or other such ‘shared ownership’ arrangement that this in effect a business and so the risks of failure are typically both higher (look at the corporate failure stats) and can lose all of our capital not just the returns element.
Finally, I heard recently (and forgive me that I can't recall exactly where), of setting a 'golden rule' when it comes to where to invest your funds – i.e. never over commit funds into high-risk, speculative investments that you have little direct control over. Set a maximum percentage for these types of investment if you really want to go into them and this should be something like 10% of your total investment funds. That way you can limit the damage should things go wrong and so not risk losing your entire life savings as a result of failure.
I feel a little sorry for My Quigley here, as it sounds like he may have been well intentioned and has been caught out by the property crash and financial crisis but in reality he should have known better and done better and so the real losers are of course the family and friends that have ended up losing substantial amounts of money as a result.
I guess if nothing else this is a lesson to all of us about the potential risks of investing in a business as opposed to hard bricks and mortar alone - combining the risks are of property and a business start-up are potentially multiplied. Therefore, in addition to trying to avoid being bitten by a property shark we should also try and avoid sleep-walking right over a cliff by simply passing over large sums of cash to well-meaning property businessmen – be they family and friends or otherwise.
Source & credits: Landlord Zone