What Factors May Stunt the Growth of Your Investment

We have stressed the importance of the growth poten­tial of your investment. Naturally, everything which stunts growth is important when you make your invest­ment decision. The various factors are treated in separate chapters. But in view of the importance of the subject, let us set down in one place the main factors which in­hibit full growth.

Refinancing clauses: If the agreement provides that a substantial part of the excess of new mortgage financing over and above the sums which are needed to pay off the old mortgages will go to persons other than the cash in­vestors in the syndicate, you lose a part of the growth potential of your investment.

Leasebacks and long term leases: If the syndicator or seller takes a long term lease at a fixed rental on the syndicate's property, the growth potential of your invest­ment is probably cut down. You will lose most of the in­crease in rentals.

Division of profits on sale: If the investors have to share the profits on the sale with the syndicator, the growth potential of your investment is obviously cur­tailed. No need to elaborate.

Purchase and repurchase options: If at the time you make the investment you have to agree that you will resell at a predetermined price, obviously any increase in value over that price will benefit someone else. But i£ the value decreases, you will bear the loss.

Wear and tear and obsolescence: The first four fac­tors can be seen just by reading the brochure. The ques­tion of wear and tear and obsolescence depends on the nature of the property, its use, the quality and experience of the management, the changes in the neighborhood and other intangibles. There is no absolute yardstick for these factors, but still they must be considered.

Some of the factors mentioned above will affect your investment. But not all—we hope—and certainly not all in the same degree. You owe it to yourself to check the brochure for each of the factors, to see how many of them will affect you and to what extent.

Next: "Subordination"—What It Is and How It Works