Investments too good to be true - Alex and Jan

Alex and Jan wanted their savings to earn more than the after-tax return they were getting from their savings account at the bank.

Alex's friend Harry told him about this good deal he had invested in, that locked up your money for two years but gave a return of 15% a year. This sounded too good to be true.

The deal involved Alex and Jan giving $75,000 to a company developing luxury apartments on the Auckland waterfront. Alex and Jan would be one of a large syndicate of investors. They would get the money back when 80% of the apartments were sold and they'd have a 3rd mortgage security, behind a bank and the developer's own investment company. Harry knew a bit about property and said the project was a winner. People would be scrambling to buy the apartments and the interest rate in the meantime was unbeatable.

Now it's four years later and the developer has sold only 60% of the apartments - some at significantly reduced prices. The bank loan has been repaid but there is no money to repay Bill and Jan, and the rest of the syndicate. They have been forced to accept an arrangement to defer repayment for at least two years and maybe longer. Interest payments have stopped.

Alex and Jan knew that it was a high risk high return investment. They had got caught up in the excitement of turning $75,000 into $97,500 in two years, (not allowing for tax on their income of $22,500) and didn't stop to consider whether they could afford to lose some or all of their hard earned money if things went wrong. Now they faced the very real likelihood of living a minimal lifestyle. Not what they had planned.