Risk versus Reward
When it comes to investing, it all boils down to 2 simple elements – Risk versus Reward.
Every investor is simply looking to place their money into the minimal risk possible, for the highest returns available.
Traditionally, it’s widely considered that placing your money with the bank is the safest option, and still today, this remains the most popular place for people to keep their money.
The banking business model is quite simple; they borrow money by offering interest to their clients to place funds on deposit or in fixed term policies. Then once the bank have these funds they then lend that same money back out to other clients. Lending is done in a variety of ways but the ‘bread and butter’ of the banking industry is the mortgage.
The mortgage is the cheapest form of lending a bank generally offers. Most banks work to similar criteria and are very stringent with the terms in which they will lend.
When assessing a mortgage application, the banks are generally looking for 2 things:
1 – Security
2 – Ability to repay the loan
As a rule of thumb the banks will consider lending at around 70% loan to value (LTV). This means that they will only lend a sum of money equal to a maximum of 70% of the value of the asset that they are securing the mortgage against.
Ability to repay the loan
Banks are very ‘black and white’ when it comes to this, and in order to be financed at their most competitive rate, they will look for an established revenue stream that is sufficient enough to comfortably make the monthly payments. Generally for corporate loans, they like to see 3 year’s history of regular income. Once this criteria is met the banks will be willing to approve a mortgage, as this will be considered a very safe investment by the bank.
What Happens When you put your money in the Bank?
When you put your money in the Bank, they are making a huge mark-up on your money. In the current financial climate banks it’s not uncommonly for a bank to be paying interest of approximately 1% p/a to borrow money and then lend that same money back out at 5% or higher – meaning that they are making a whopping 400-500% mark up on YOUR money!
Due to the relatively large sums of money involved, the banks are very fortunate to only have competition with in each other as it is very rare that an individual is wealthy enough to be making such substantial personal investment.
At Emerging Trends Advisors we have tirelessly searched the globe looking for the best investment products on the market to offer to our clients. What we continuously found was that any developer/company that was offering to pay returns which were higher than the lending rate being offered by the banks in their respective countries, was that something simply didn’t quite stack up.
Now we’re not saying that the market is obsolete of investment products that represent a good return for a fair risk, not at all. We are simply stating a fact here: If an investment product is offering ‘guaranteed returns’ of 8% per annum ‘secured by real estate’ in a country where the banks are offering mortgages at 8% or less, then the question needs to asked: Why do they not just go to the bank?
Think about it; if a company is offering 8% and going to the public, they will also invariably incur marketing costs and probably commissions too, therefore making their total cost much higher than what they are promising to the investors. Another inconvenience will be that when going to the public, they simply can’t be sure of exactly how successful they will be in raising the money, and so when planning the development of their project they inevitably will not be able to give firm timelines as any work will be dependent on first raising the funds. So to put it simply, if you’re considering an investment product which is offering you 8% per annum and the investment is based in a country where the banks are lending at anything less than 10% then for whatever reason, the banks simply considered that offer as “not worth the risk.”
If you dig deep enough you will generally find one of the following reasons for the banks refusing to lend:
– The asset securing the investment isn’t of sufficient value.
– There isn’t an established revenue stream in place to cover the interest being payable.
– The people behind the projects are deemed non-creditworthy.
As mentioned above the banking business model is to lend money. Banks spend millions on marketing campaigns solely to let people know they are willing to lend, and so it’s not in the bank’s interest to turn people away for no reason, in fact it’s the opposite. So if a bank has rendered an investment product as “not worth the risk” even if increasing their rate of interest to try and accommodate them, then surly this has got to get you thinking twice about the risk of such investment?
So we can argue that the banks are fortunate enough to be selective and that your average customer simply doesn’t have the option of a “safe” investment vehicle such as a mortgage available to him, and in fairness this is correct. Even if an individual was wealthy enough to consider offering a mortgage to a person or company as a personal investment, invariably there are laws in place prohibiting people from doing just that. It’s no secret that the banks have a lot of say in most country’s policies and it’s in their interest to make it as difficult as possible for anyone to muscle in on their turf.
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At Emerging Trends Advisors we were determined not to accept ‘the way things are’ and we set about developing a product that would enable our clients the privilege of enjoying an investment vehicle usually only reserved for the banks and big institutions.
The first thing we needed to do was find a country whereby the base rate of interest was such that we had enough room to make the margins required. Furthermore, we also had to be confident in the economy and long-term future of the country. After extensive research we decided India had everything we were looking for and in fairness even more in terms of potential.
In India the banks are managing to offer mortgages which fully meet their stringent criteria, commanding interest rates of 12-15%. Obviously our intention was to step in place of the Indian banks and offer mortgages at cheaper rates, and fund these mortgages by grouping our smaller investors together. This was easier said than done, as mentioned above, there are legal obstacles to overcome. In order to ensure that we could achieve our objective and most importantly stay completely within the lines of the laws, we set up a legal team that consisted of established Indian lawyers and also international lawyers, specifically from CMS law – one of the top 10 legal companies in the world.
Once we had extensively researched the laws within India and the regulations of the Reserve Bank of India (RBI) together with laws of several other countries, we agreed upon a structure that see’s us issue corporate bonds from a entity in Singapore, which then allowed us to move the funds into India, via purchasing equity in other companies that were formed specifically to own the properties being offered as the security over the investment.
Not being a bank or an approved lender in India restricted us from registering charges on properties with the government land offices, and so to overcome this obstacle we entered into an ‘escrow arrangement’ to give sufficient protection to our investors over the security. We then proceeded to converse with some Indian corporations to discuss entering into this arrangement with us. This in fact proved very easy, with almost everyone agreeing to refinance their current mortgages with us at a lower rate – a ‘no brainer’ as they say!
Of course, prior to entering into any agreements, we first needed to ensure that we were lending responsibly. To do this we simply followed the process that a bank would use when considering an application, taking into account the same 2 crucial points:
1 – Security: For this we engaged with CBRE (the worlds largest real estate company) to process thorough valuations on any properties we considered to ‘re-mortgage.’
2 – Ability to repay the loan: For this we engaged with KPMG (one of the leading audit firms in the world) to carry out full audits to satisfy us of the applicant’s ability to repay.
We are now fully confident that we can offer THE ONLY investment product on the market that fully meets bank lending criteria and with the returns we can offer our investors, we believe that when assessing the risk versus reward ratio, our investment product wins hands down over any other product you might be considering.
With no expense spared and an obsession to develop the best product possible, we spent a total of 12 months before we offered the first investment options. On top of the patience in making sure no stone was left unturned, we also incurred total expenses of over $700,000 USD in legal, valuation, audit, firming companies etc. to bring this product to market.
We are the first in the world to have done what we have done and whilst the interest rates remain as they are we believe that this product will be completely unrivaled.
Due to a willingness of almost everyone to use us to re-finance their debt, we began to realize that we could be very selective. Therefore, we made a decision that we would prioritize the companies that had an ‘ethical concept’ to their business. This then added an extra bonus that we could not only offer fantastic, second to none investment options, but investments whereby our clients could also be proud in the fact that the money is being invested into very good, ethical types of businesses.
Aditya Group, who are the first ‘re-mortgage’ we are doing, are a philanthropic group that actually donate millions to educating children in India.
Next in the pipeline is Baidyanath; a natural medication company who are now also involved in the alternative energy business of wind farms, naturally talking the problem of pollution in the world.
The Opportunity to Invest
To find out how you can earn great returns of up to 10% per year on low-risk secured investments, boasting long-established revenue streams to facilitate the repayment, plus helping towards bettering the lives of children and more, please contact Emerging Trends Advisors today to speak to one of our consultants.