As with any investment, if you are approached about an investment opportunity in real estate securities, it is important to Check First and look carefully at what exactly you are being offered. An unsuitable investment can have a damaging social and financial impact on you and your family.
When is a real estate transaction a security?
Be sure to understand your real estate investment opportunity. For example, is the offering a security?
Generally, a sale of a piece of real estate as an investment or for personal occupation is not considered to be a sale of a security under the Securities Act (Alberta).
However, if the sale involves a scheme or arrangement whereby the purchaser may earn a return through the efforts of a third party in connection with the real estate, it may be considered to be a sale of a security.
In other words, if a buyer purchases a piece of real estate for a set price to take ownership on a set date, that is likely a real estate transaction. If the seller retains ownership of the property and a buyer purchases an interest in the property or its owner, expects a return on his or her investment and neither plays a role in the management of it nor occupies the property as tenant, then the transaction may be the sale of a security.
If a sale of security occurs it will be subject to the requirements of the Securities Act (Alberta), and as such must be conducted by or through a registrant, under a prospectus, or by way of an exemption from the prospectus requirements. To see if a company is relying on an exemption, click here.
Commonly used promotion tactics
It is common for real estate investment companies to advertise in order gain your interest in their opportunity. Here are some ways you might be introduced to the investment opportunity:
- professional looking websites, emails, advertisements, flyers and/or invitation in the mail
- radio ads or tradeshow sales pitches that appeal to your lifestyle goals
- paid real estate advertorials (advertisements designed to look like regular news articles)
- invitations to seminars with free perks such as a free dinner or travel. Read more about real estate investment seminars
- word of mouth appeals through friends, family or co-workers that are interested, have already invested in the company or may have something to gain in recruiting you
Spot the “red flags” of an unsafe securities investment
If you hear some of these commonly used sales pitches, take some time to think about whether the securities investment opportunity is right for you:
- Above average returns with little or no risk. No investment is risk free and, generally, the higher the return, the higher the risk - consider what you are willing to lose.
- Offers of loans or suggestions of ways to finance the investment (e.g., remortgaging your house) and further investment seminars.
- Claims of a secret or exclusive technique for building wealth.
- Limited time offer that discourages investors from getting independent advice.
- Promises to ‘be a millionaire in three years’, ‘get rich quick’ or ‘have the retirement you have always dreamed of’.
- High membership fees with vague explanation of forms you must sign.
- Talk of tax avoidance, moving money offshore or using RRSP eligibility as a hook.
How to protect yourself
Check First. One unsafe investment is all it takes to cripple you financially. Do not let anyone pressure you into making decisions about money or securities investments without getting independent financial advice. Protect yourself by learning to ask the right questions.
Here is a checklist of information you should get from any individual or company offering you a securities investment:
|☐ ||Ask the individual about their qualifications: |
- Are you and your firm registered with a securities regulator?
- How long has your firm been in business?
- How long have you been with the firm?
- What is your education and professional experience?
- What products and services do you offer?
- How will you help me reach my goals?
- How are you paid for your services (salary, commission or flat fee)?
- Can you provide me with references from clients who are like me?
Read the Choosing An Adviser Factsheet and Working with a financial adviser brochure for more information.
|☐||Ask for written information about the company or investment. This may include: |
- a prospectus
- an offering memorandum
- most recent Annual Financial Report
- most recent quarterly or interim financial reports
- recent news releases
- research reports prepared by the dealer/adviser
- examples of the statements you will receive
- information outlining the level of risk involved with the investment
- asking what exemption they may or may not be offering the investment under
- asking how you will be able to get your money back out at a later date (e.g., can you sell what you’ve bought to someone else?)
- other information
You can print off our Take Notes form that is ready for you to use.
Conduct your own research on the real estate investment and do a background check on the company or individual.
Find out how to do this on How do I check out a real estate investment opportunity?
Some final tips
- NEVER sign any paperwork that affects your finances or your home unless you clearly understand the impact of what you are signing. You may also want to consider hiring a lawyer to help review documents.
- Walk away from any lender who tries to pressure you into making a quick, spur-of-the-moment decision.
- Be cautious. Even when dealing with what appear to be trustworthy lenders, carefully consider more than one opportunity, because the terms of varying offers can differ significantly.
What can I do if I think I have been scammed?
- If you have just signed up for an investment for which you no longer feel comfortable - click here.
- If you have been approached about a seminar or real estate securities investment which doesn’t seem right, or if you have invested money and now feel it is a scam, you can make a complaint on the ASC and Real Estate Council of Alberta (RECA) websites.
- Visit our Scam Stoppers section where you can learn what the ASC can and can’t do for you as well as learn the best way to contact the ASC to report a suspicious investment.
- Speak out by talking about the investment with others. You may be able to help protect other family and friends who are thinking about getting involved.
- Read more information on Real Estate Investment Seminars and get more tips on How do I check out a real estate investment opportunity?