So the same people that got you involved in a tax fraud scheme are holding $100,000 worth of your investments?
Not exactly - they brokered the deal. The "investment club" (Home Equity Investment Rewards) is affiliated with the land banking company (Syndication and Development). The land investment was around $76,000. We took out $100,000 because it also had to cover our membership fee in the investment club ($4,000), penalties for renewing our mortgage early ($3,000), CMHC insurance (Canadian PMI) on the new, high-ratio mortgage ($8,000), and the rest paid off a line of credit.
The land-banking company bought a big plot of land from a farmer outside Edmonton, then chopped it up into half-acre parcels and sold them to investors like us for $38,000 each. We bought two units, for $76,000. We are the legal owners of the property, we have deeds, and I personally did a title search to verify that they're legit. Our names are indeed on the titles for the properties we bought.
The company managing the deal has the land re-zoned, and has a development plan for the land created. Then they shop it around to developers to actually build it. The added-value is that the bureaucratic red-tape and design work is already done. All the builder has to do is build it and sell the homes. We won't know how much we'll profit until they've finished actually working with the city to have the land rezoned, and designed. The land banking company keeps 1/3 of the properties for themselves, so they too can profit from the value being added to the land. They told us it typically takes 5 years to bring the land to a state to be sold to builders. We bought in August of 2006.
The sketchy part is that when I did the title search on the land, it also revealed how much the land-banking company paid for the land before they chopped it up and sold it to us. Basically, they paid $10,000 per half-acre, which they then turned around (within 1 year) and sold to investors like us for $38,000 per half-acre. They quadrupled their money in one year, while at the same time presenting us with official-looking land appraisal estimates assuring us we were paying a fair price for the land. I now know how the land banking company profits from the deal, and unfortunately, it's clear that they make far more money acquiring these properties and selling them off to investors like us than they make from actually following through on the development. Still, they do eventually follow-through (or else word would quickly get around that nobody ever makes their money back, and they'd be shut down), so I'm still optimistic that we'll at least break even, even if we don't double our money as they've promised.
Any chance you can get that back.
We own the deeds to the land, so we're free to sell those to whoever we want, whenever we want. But with the strings attached (they're units of a land banking trust, and we can't do anything with the land without approval of 51% of the other landowners), there's not really much point. We're going to just wait it out and hope to at least break even.
Because based on what you presented, you should run, not walk, to get your money back.
Agreed. Hindsight is 20/20, and I've learned a lot
about money over the past few years. Back when we participated in this land banking deal, and the charitable donation scam, we were much more naive and trusting. We were invested in high-fee segregated mutual funds (MER: 3.75%!!!) and had never even heard of index funds. Our financial situation is much more mature now.
The tax-shelter scam thing is still weaving its way through the courts. The company running the charities is fighting the tax agency to argue that it's a legal loophole, while at the same time, a class action law suit has been launched against the company, to recover our original bogus "donations." I wrote a cheque to them for $11,000, got back $14,000 from the government, then paid back the government $20,000. So overall, it's a net loss of $17,000 for me (and hundreds of others who were bilked). We've already paid it off (as I said above), so it's in the past for us, but if we can get any of it back, I'm certainly going to pursue any avenues available to me. I chalk it up to another expensive mistake I've made in order to gain valuable knowledge and experience about money (right up there with paying $40,000 for a VW Jetta that didn't even have leather seats). Live and learn - I just hope someone else reads this and is able to avoid the same pitfalls that have set me back so far. I know I'm not too bad off (net worth of $250k at age 34), but it pains me to think how much further ahead I could've been if I'd invested that $40k instead of blown it on a car, or what I could've done with an extra $20,000 this summer, while the markets were down, instead of having to send it to the government. 20 years from now, who knows how much it could've grown.
Anyway, I guess that's the value of these journals, right?