Over the past 15 years, I have been exposed to a wide variety of investments in diverse asset classes from stocks, bonds and options, to licensing agreements, commodities and real estate. It is very important to know what you are investing in and be able to forecast a cash flow in your investment. It is also important to know if there could be a capital gain and have a clear understanding of where your money goes. I used to believe that these were the most important questions to ask.

I have completely revamped my philosophy and now ask the following question before anything else. Is the investment being offered to you legal or not? Let me give you a few examples.

Someone asks you to sign a document for a mortgage on a property which you claim to be moving into. You never actually live there as your home and collect a commission for lying on the mortgage application. Congratulations, you have an infinite rate of return (because you put no money into the deal) and have committed fraud!!

You attend an investment seminar whereby a promoter you have never met is selling shares in a real estate development project. They go to great lengths to discuss the rents, landscaping, new roads, amenities, etc. At the end of the seminar, they give you a piece of paper asking you to purchase shares in their real estate project. For the purposes of illustration, let us assume you are not an accredited investor (i.e. millionaire). The following questions must be asked by you:

1) Are they legally registered with the appropriate securities commission to solicit these non-real estate investments? If not, it is illegal.  Real estate is not the same as shares in a real estate project!!

2) Do they have a prospectus filed to prove that the securities being offered have been thoroughly vetted (i.e. reviewed).  Ask to see the prospectus (especially if they are not registered to do this work). If they don’t have one, this is also an indicator that the offering is most likely illegal.

The next time you see an investment offered for a development or quick cash for signing a mortgage application, ensure that it is legal? If uncertain, ask someone not interested in your transaction for assistance such as a real estate or securities lawyer before you invest.