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01. This Book
02. Syndicate Boom
03. Get Information
04. Syndicator
05. How much?
06. Depreciation
07. Depreciation Applied
08. Declining Balance
09. Straight Line
10. Paying Taxes
11. Pay Mortgage
12. Income Taxes
13. Paper Loss
14. Tax Shelter
15. Rent?
16. Syndicator Units
17. Wear + Tear
18. Lease-Hold
19. Building
20. Comparison
21. Specialized Properties
22. Growth
23. Leverage
24. Share Growth
25. Why + How
26. Syndicate Agreement
27. Net Lease
28. Long-term Lease
29. No Guarantee
30. Inflation Clauses
31. "Inflation Clause" Works
32. Inflation Clause?
33. Mortgage Due
34. Interest Rates
35. Short Term Mortgage
36. Good Mortgages
37. Refinancing
38. Refinancing Clauses
39. Share of Mortgage
40. Share of Profit
41. Purchase Options
42. How Purchase Options
43. Stunt the Growth
44. "Subordination"
45. Long Term Lease
46. Business Organizations
47. Syndicate Debts?
48. Management
49. Your Consent?
50. Sell Your Unit
51. Investment Trust?
52. Business Syndicate
53. Multiple Properties
54. Dream or Reality?
55. Syndicator's Background
56. Value of Guarantees
57. Look for Yourself
58. Conclusion
Resources
56. Value of Guarantees
At times you will be told that the yearly distributions to investors are guaranteed for the first 2, 3 or 4 years. Often such a guarantee may indicate that the deal is a little more risky than the average one. You will find that such a guarantee is most often mentioned in connection with ventures which are still in the planning stage.
Obviously, your investment will only be safe if payments will be kept up over a far longer period than 3 or 4 years. But since the guarantee is given, you may as well try to evaluate it. Whether it is given by an individual or corporation, it is only of value if the guarantor has the financial ability to make good on the guarantee. Therefore, if the statement concerning the guarantee is not accompanied by information proving the financial responsibility of the guarantor, it is not very meaningful.
You may be interested in the setup of a recent syndicate. The principals guaranteed payment for the first three years. That syndicate was going to build property and would have no income for some time. How was it going to meet the payments at the outset? It raised from its investors a considerable sum of money above its investment needs. The first distributions to the investors were to be made from the very funds which the investors had paid in. To a certain extent, this guarantee really amounted to saying to the investors: you pay in some extra money which will be used to make the first distributions to you. We guarantee that the early distributions will come out of your money.
When there is a guarantee, you should ask yourself first whether the investment does not carry unusual risks. Then you should see whether the financial information supplied concerning the guarantor is adequate and makes it appear probable that the guarantee will be enforceable and meaningful. If you are conservative, you should in fact ask yourself whether you would participate in the investment even if there were no guarantee at all. After all, the first two or three years over which the guarantee extends do not determine the value of your investment.
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