Investments that you better stay away from
With your money, you are a welcome victim for all kinds of questionable advisors and intermediaries who persuade you to make an allegedly lucrative investment and earn a lot of money from commissions and fees. Since investment scandals were anything but rare in the past, you should first get an overview of those investments that are out of the question.
Because a decided “No!” In the right place sometimes saves you from high losses. Stock exchange legend Warren Buffett got to the point when asked what the most important investment rules are: »Rule No. 1: Don't lose money! Rule No. 2: Never forget rule 1! «
1. Eco investments in wind power, solar parks, geothermal projects and combined heat and power plants
"Earning money with a clear conscience" is how many providers advertise their investments. In other words: You want to put your money in wind power or solar parks - or alternatively in geothermal projects and combined heat and power plants. Why in the past, especially with »EcoInvestments«, did so many projects fail and have wasted billions in Germany alone?
On the one hand, some doers were specialists in the area of ecology, but failed in the area of economy. Not every good idea produces good returns. On the other hand, some fraudsters (unfortunately successful) have relied on investors and savers not to do the exact calculation if the motto is "Eco-investments - earning money with a clear conscience". Who wants to be considered a bean counter when it comes to a good thing? This trick switched off common sense when investing.
Four types of investments are common:
- OTC bonds: As an investor, you lend money to the operator with the purchase and receive a piece of paper (or an electronic document). This money is then - allegedly or actually - put into a wind power, solar or geothermal project. But be careful: You cannot really judge whether the promised interest will be paid on time and in full. You rely on the information provided by the provider. In contrast to exchange-traded paper, there are no publication requirements here and, moreover, mostly no ratings (i.e. no assessment by agencies that take a close look at payment power). Since there are no daily quotes on the stock exchange for over-the-counter bonds, you might notice with a long delay if the business model does not work as promised. And there is something else that speaks against any kind of over-the-counter paper (including shares and dividend-right certificates): you cannot get rid of them if you want to sell. Because as a buyer practically only the provider comes into consideration, and he will insist on the agreed term. However, it is doubtful whether it is still fluid enough to pay back the borrowed money. Often enough it turns out during the term: Unfortunately, the supposedly profitable business model Wind Power, Solar & Co. has only produced losses and therefore there is no longer enough money to repay the bonds.
- Over-the-counter participation certificates: Participation certificates are a balance between equity and debt - or you could also say: between shares and bonds. That means that as an investor, you are moving a little more into the position of an owner. However, this is particularly noticeable in the risk that you as a buyer of such participation certificates will be burdened. Because often the annual distributions depend on the profit of the company. If the profits are low, the distributions are also low, if they fail to appear completely, then the distributions will also fail. Otherwise, the same applies to this form of investment as to over-the-counter bonds. In addition, your protection as a creditor of such a provider in the event of its insolvency is even worse than the protection for bond holders. Perhaps you still remember the Prokon debacle? Exactly: It was about participation rights worth more than one billion euros, which the wind turbine financier Prokon bankrupted in 2014 with its bankruptcy. The former holders of profit participation certificates now have to wait several years until at least some of the losses are offset. The insolvency administrator repays partial amounts from sales proceeds of the former property at irregular intervals. By the way, Prokon has been »refurbished« and is now going back to investing as a cooperative.
- Closed funds or silent partnerships: With this form of investment, you become an entrepreneur, more precisely a shareholder. If the fund has enough money, no further shares are sold, hence the term "closed". In most cases, however, as a partner you have no say in what the Guide of the company. They should only participate in the profits. However, you bear the full entrepreneurial risk. As with over-the-counter bonds and profit participation certificates, it is not easy to separate your share in the company, especially not before the end of the term. Another big minus point: The "FondsMacher" and the sales outlets collect high fees, which can well be in the double-digit percentage range of the investment amount. So only part of your money is actually invested in the project. And then only this part can make a profit. This makes many promise of returns completely unrealistic right from the start. So here too the advice is: stay away!
- Direct purchase of solar modules, combined heat and power plants, etc.: Here you are not buying paper, but (supposedly) existing real assets. For example, a certain number of square meters of solar modules on the roof of a production hall. Or an entire cogeneration plant. You will then primarily make your profits from the sale of electricity or district heating that is produced with it. Or from leasing the systems in question to the operator, for example. But we also strongly advise against this. Such participation models have also existed in the past - often with catastrophic consequences for investors. For example, at the Nuremberg company GFE, which sold “vegetable oil cogeneration plants” to private investors with great success in 2010 - for 40 euros each. These systems should be leased for 000 euros per month. The lease should benefit investors directly. The public prosecutor intervened at the end of the year. Because the company had sold nothing but hot air. The advertised cogeneration plants did not even exist. A clear case of investment fraud: more than 1000 investors were cheated by 1400 million euros.
The problem with such offers: You cannot check any of what the providers tell you: you do not know how profitable an advertised business model really is. You do not know the risks - the indication that total losses are possible nowadays has to be given for practically every investment offer and is therefore meaningless. You do not even know the scenarios that the provider used in his forecast calculations - for example, the feed-in tariff for green electricity, which incidentally has fallen rapidly in recent years. And with “real” goods, you don't know how many of them actually exist and which ones are assigned to you. Therefore, you should avoid such investments!
2. Forest and wood
Mind you, this is not about a piece of forest inherited from grandfather. Keep it calm if you enjoy it. Because it can (at least) cover your winter firewood needs, and you may like to work outside from time to time in the great outdoors with a chainsaw and ax or wood splitter.
The situation is different with investment offers from the forestry and agricultural sectors. Whether teak investments in Brazil, tea tree plantations in Australia, sandalwood plantations in India or maple, cherry or robinia forests in Switzerland: (again) OTC bonds, silent participations or profit participation certificates are sold. Some providers also sell you the individual logs or certain areas directly.
The same concerns apply here as with the above-mentioned eco-investments: the whole thing is extremely opaque. You neither know how profitable the business model is, nor do you know the risks. Prices fluctuate extremely strongly in forestry and agriculture, and that is just one risk among many. Because pest infestation, droughts, storms or floods can quickly destroy a plantation completely. Then the money invested is gone. In addition, there are a lot of black sheep in this area of financial investments, who first collect the investors' money, accept generous commissions and then go underground when the project turns out to be unprofitable at best and fraudulent at worst. And honestly: How do you want to prove to Brazilian dishes without the help of the provider that the teak plantation bought for a lot of money really belongs to you? Don't get involved!
3. Closed and open real estate funds as well as housing associations
It sounds plausible at first: If you can't buy an entire property right away, you buy a property investment. This is made possible by the so-called closed real estate funds, open real estate funds and housing associations.
Closed real estate funds
Let us first come to the closed real estate funds. They each finance a single real estate project, for example a high-rise building with umpteen residential units or a business park. There is a good reason why these funds are described as "closed": investors can only purchase shares during the so-called subscription phase. When the money necessary for the realization has been collected, the fund is closed and no further shares are sold. However, the money is then tied up for the entire term, which is often ten or even 20 years.
- A later return is promised from renting the individual residential or commercial units or from selling them. In addition, the tax advantages are underlined: Since such real estate projects are usually financed with a high proportion of bank loans, the debit interest is tax deductible. In addition, because the shareholders of such funds are usually managed as limited partners - i.e. non-liable partners - they can claim the interest on their tax returns and thus save taxes. High earners with a high tax burden in particular are often successfully lured with this argument.
- It is precisely with this external financing that our main criticism begins. In addition to saving taxes, it serves to leverage future profits, i.e. to achieve a higher return on the equity invested. Because Klaro: Anyone who earns higher interest with third-party money than he pays in debit interest, can achieve a higher return on the money he brings with him.
- However, bank loans also make the business model extremely dangerous. Because woe if the bank suddenly has doubts about the profitability or the intrinsic value of the property or the real estate park. Then such a loan is quickly canceled - and the whole business model will not work without external financing. Rising interest rates can also quickly put an end to such a project, because suddenly the loan rates turn out to be much higher and possibly cannot be met from the current income.
- Last but not least, when you invest in closed-end real estate funds, you also have the problem that you already know well enough about eco-investments and financial investments in forest and wood: Your shares are not tradable on the stock exchange, and your money is thus tied up for a long time. There is a lack of transparency, which is self-evident and even mandatory for shares traded on the stock exchange. You also cannot predict how serious the provider and how profitable his business model is.
Apart from that, the lavishly designed posters and documents at various investor fairs reveal that the provider is probably cutting off a large piece of the pie from investor money himself. Why else would he go offensive for customers? Every euro that is invested in colorful advertising, exhibition stands or sales staff is deducted from the investor money.
Open real estate funds
In contrast to closed-end funds, open-ended real estate funds are traded on the stock exchange and are not restricted to individual real estate projects. The providers are often well-known fund companies such as Union Investment (UniImmo), Deka (Deka Immobilien) or an investment subsidiary of Commerzbank (hausInvest). As an investor, you can buy shares of these funds on the stock exchange at any time. The fund management invests the investor money in a wide range of properties, depending on the fund's statutes, for example in residential complexes, office complexes or commercial properties in various cities in Europe or around the world.
- Open-ended real estate funds are definitely more transparent than closed ones: As an investor, you can have the value of real estate assets in the fund, the so-called net asset value (NAV), displayed at any time, because regular valuation and publication are mandatory. You can also call up the stock market value of your fund shares at all times. You can find all of this information on the fund company's website and on various stock exchange platforms on the Internet (such as http://www.boerse.de or http://www.finanzen.net).
- In practice, however, open-ended real estate funds have weaknesses: If a large investor were to pull out a lot of money at once, fund management would be in dire straits: it would have to sell one or more properties from the portfolio at lightning speed. Because of the time pressure, this would probably only be possible at a large discount to the market value, and this would lead to losses. Because this was exactly what happened frequently during the 2008/2009 financial crisis, the legislature has now introduced new rules. Accordingly, those who bought shares must remain there for at least 24 months. In addition, the regulations now stipulate a notice period of one year. It is therefore not possible to react quickly to changes.
- At the moment there is another problem: Due to the cheap real estate loans made possible by the low interest rate policy of the central banks, real estate prices have risen rapidly. This can be seen - apparently positively - in an ever increasing NAV of open-ended real estate funds. But in Germany one speaks of a real estate bubble in some areas, and real estate is also overpriced in other countries, especially in the metropolitan regions. This bubble will burst at the latest when interest rates rise again. If you then hold shares in open-ended real estate funds, you have to reckon with major losses: the value of the fund shares will decrease suddenly with the falling demand for real estate. Another weak point: Since “concrete gold” is currently so popular, the fund companies are showered with new funds. Since in the worst case, this money as cash reserve in the cash register even causes negative interest, the fund managers are under pressure to invest fresh money as quickly as possible. This drives property prices up and increases the risk of bubbles. For this reason too, we do not consider open-ended real estate funds to be recommended.
Shares in housing associations
Finally, there is the question of whether shares in a housing association could be a sensible alternative. You can or must think about this if you are looking for a flat in a big city and want to move into a cooperative flat. The acquisition of such shares is often a prerequisite for moving in as a tenant. There are also some cooperatives that are looking for private investors at investor fairs. But you'd better not buy such cooperative shares.
Because often the business model is hardly more serious than with closed real estate funds, and the commissions for the providers are high. In addition, there is another danger with such cooperatives: the so-called obligation to make additional payments. If the real estate project realized via the cooperative runs into the red and the money gap cannot be filled with bank loans, then as a cooperative member you have to refill new funds if the statutes of the cooperative so provide. This usually happens when it is already clear that this investment will never pay off. The bottom line is that membership in a housing association is not a recommended investment.
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