I’m disturbed by a certain type of person each and every time I see them.
They make me sick.
And their behavior perturbs me.
Who is it?
People who try and “Ponzi” their way out of trouble.
Let me explain…
1. Start with someone who doesn’t *really* know what they are doing. (I’ll call this character the “villain.”)
2. This villain gets slightly successful one time (but often this is really just the result of a fluke, like good timing or a sweetheart deal).
3. They now think they have the Midas touch in business and everything they do will turn to gold.
4. They can’t actually replicate or achieve success in any new venture, yet they are still convinced they are a business genius.
5. The villain convinces foolish investors to invest their hard-earned money into them and their lame ideas. These foolish investors do so based on the previous successes of the villain. (If only they would look at the actual results rather than get caught up in the villain’s pie-in-the-sky dreamy visions — which they are always very persuasive and convincing at selling…)
6. The new venture doesn’t do well. It doesn’t come anywhere close to projections. It doesn’t make any of the money that was promised.
7. The villain is now too far into debt to call it quits, so he simply doubles down on his stupidity (since he still has delusions of his own grandeur) and continues to sell the project or idea and actually brings in new people (and new money) to the idea or investment.
8. Any noisy investors get paid off from the new money coming in (and then usually have to sign gag-orders to ensure their silence). This is the Ponzi part of the process, as they are basically just robbing Peter to pay Paul.
9. The process continues until the whole scheme collapses and anyone left loses what they put in.
I unfortunately hear these stories all the time.
Especially as the President of one of the top Real Estate Investor Associations in the country.
And I’m disturbed every time I hear the gory, yet always similar, details.
So take this as a very valuable lesson.
And be careful what — and WHO — you invest in.
Do your own due diligence.
And don’t be afraid to ask detailed questions.
If you are already in a situation and are stuck…
The squeaky wheel usually gets oiled.
And then you might get out before the inevitable collapse.
I think it best to just avoid the whole situation from the start.
And you do this by learning how to build a solid business on your own.
It takes an ounce of effort, but then you don’t have to hand a hard-earned pile of your green stuff over to someone you aren’t actually sure you can trust, and then risk having it disappear.
Tom Zeeb has been featured by CNBC, Kiplinger’s Magazine, and The Washington Post, among others. Tom is a business mentor to entrepreneurs and real estate investors. He is the President of TractionRealEstateMentors.com and TractionREIA.com, the Recipient of the National REIA “Honors of Merit” and the “Award of Excellence” for Best Real Estate Investor Association. Check out TomZeeb.com for more articles.