Scams & Prepaid Vacations

When 'Real Estate' is not an Investment

Unfortunately there are lots of 'opportunities' that are passed off as real estate investments; some are purely recreational and a form of prepaid vacation- well others are full out scams and should be completely avoided. 


Generally these take the forms of small investment amounts, between $10,000 to $100,000 and sometimes they are eligible RRSP investments and/or offer great tax credit status. They often offer some kind of equity and/or undivided interest in some great development land that is going produce amazing returns, often the returns or disbursements are going to exceed 10%. Just stay away. NO SERIOUSLY- STAY AWAY! If the development project is feasible and the developer solid, they could get conventional financing cheaper and they wouldn't be bothering with dinky little amounts of money from 'mom's & pop's'. 

This is not real estate investment, you really don't own anything, or you and the other sucker investor's positions are so small and so diluted and usually come after other secured creditors- that when (not if) the project collapses- you will be left with worthless paper (and in some cases liability). In almost all cases the land price is inflated and the development prospects exaggerated. 

If you want to roll the dice and risk your money- go to Vegas, you'll have more fun and your chances of winning are probably higher!

Fractional Ownership

Fractional ownership condos are an improvement over 'timeshares' and vacation clubs, you are actually on title and own something, however- they are very difficult (almost impossible) to finance with a bank, the maintenance/strata/tax fees and costs often match or exceed the value of the time you get, and the rental income or trades into other resorts usually involve significant fees and costs. 

These are prepaid and sometimes forced vacations, not investments. 

There is a time and place for factional ownership condos for the right people, but don't confuse these as being an investment- you are tying up your money for the long term to potentially slightly decrease the cost of some vacation time in the future, you are prepaying for your vacation.

These units are very difficult to resell and the ongoing annual or monthly costs are almost a liability- something that future generations may curse inheriting!

Condo-Hotel Units

Although the ownership structure is better then a fractional unit, condo-hotel units that have forced rental pools (you can't live in your own unit and maximum stays are restricted), and other very purely recreational condo units that restrict or limit your rental options (you have to use the central booking/management company) are not real investments- these are recreational and lifestyle products. 

There could be some long term value appreciation, and some rental income that offsets the high strata and management costs associated with these products- and you can get the benefit of having your own unit in a describable area- and these can be a great thing for families to enjoy, but don't confuse this with an investment, they almost never produce an income that comes even close to providing a return on the money invested. 

Having 100% ownership will make financing easier compared to fractional unit, but this type of product can still be difficult to finance. There are also potential GST and income tax implications that are more obvious and more strictly enforced with professional rental pools.

An improvement to fractional units, this type of product can be a forced savings plan and a way of parking capital and the lifestyle benefits can have some non-financial benefits. This can be the right fit for someone people, but these are true investment properties.

RV Lots

Most RV Lots are not conventional fee simple pieces of property. Many of them involve strange ownership structures like; corporate shares, divided or undivided interests in land, land trusts and probably a bunch of other creative ownership structures myself and most people have never heard of. The end result is that most RV lots are impossible to finance with a conventional mortgage, and are not the same as a 'real' piece of land. Although there can be some great lifestyle benefits, and potentially some long term price appreciation- these again are not true investments, and they can be difficult to re-sell. Adding structures or vehicles to these lots, including 'park model' trailers increases the amount of money invested and does not simplify or make the financing any easier.

Again, these can be great lifestyle recreational retreats- but they aren't investments.

Unconventional Ownership Structures

There are times where otherwise solid investment properties, a lakefront house or a condo unit in a great location- suffer from a strange ownership structure. This could included things like cooperatives, corporate shares, divided or undivided interests, tenants in common etc. Sometimes these ownership structures are 'work arounds' because the property doesn't have the proper zoning or approvals to be subdivided. No matter the reason, these drive values down, they make financing almost impossible, and they make re-sale more difficult. 

Should you avoid these completely? Not necessarily, there might be opportunities to improve the ownership structure and push this asset into a more traditional investment category, or if you have enough capital and see the potential or the income stream- this can be a good fit. But it won't be for everyone.,

Long term land leases, mostly occurring on First Nations lands can sometimes fit in this category, but the devil is in the details. Properly written land leases that are pre-paid and long term (40 plus years remaining on the lease), can often be financed and resold a lot like conventional properties. However, those that have annual lease payments, and short lease terms will be very difficult to finance, values will drop- and they will begin to look and feel a lot more like a prepaid vacation style of product vs. an investment.


A great test to whether something can be considered a real estate investment or not:

Will a traditional bank provide a first mortgage on this property?

That doesn't mean- can you buy it with a line of credit on your house or with other security- it means, this purchase, this asset is considered valuable enough by a bank to use it as security. If traditional banks won't finance something then: 

  1. You will have hard time reselling it
  2. You can't leverage and borrow against it to buy more investments
  3. You are tying up your money, likely with very little return and in many cases ongoing annual costs
There is a time a place to prepay for your vacations or to buy your own recreational unit, but don't confuse these lifestyle choices as being investments.