How to make sh10m from sh900k in two years; but not from pyramids!

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

01 February 2009

Beware! Pyramid Schemes are back!

In last two months, four people have asked me how one can tell the difference between a fake and a genuine Pyramid Scheme.

My response has been the same in each case: There is no such thing as a genuine pyramid scheme! So; how can one tell whether an investment is legitimate or a con?

If the scheme is guaranteeing returns that are higher than those paid by Treasury Bills and Bonds, then it is a con! The operative word here is “guarantee”. The Bills and Bonds currently pay about 8.5 and 12 percent per year, respectively. The rates are published every Friday in the national newspapers.

Pyramid schemes promise similar percentages, but per month, or per week. That is simply impossible! Even if you know ten friends who have made money from a particular scheme, remember that, as the eleventh “investor”, your chances of losing out are 11 times as high as those of the first ten.

Of course there are many things you can do and make such high returns, but you have to do them for yourself – not giving some one the money and simply waiting for it to grow!

You might come a across a good deal like this one: A real estate developer approached a lawyer for legal services in the development of residential houses.

The lawyer charged sh3 million for his services, but during the discussions, it emerged that the selling price of the houses was also sh3 million each. The lawyer suggested that he be given one house instead of payment in cash.

The developer agreed and the work started. As the construction was going on, the lawyer reserved another three houses at the price of sh3 million each. He put down a cash deposit of 10 percent for them – sh900,000 in total.

Soon, demand for the houses picked up and the price was raised to sh3.5 million; then to sh4 million and so on. By the time the project was completed two years down the line, each house was fetching over sh6 million!

The lawyer now offered the three extra houses for sale at sh6.5 million each. All were bought within one month raising a total of Sh19.5 million. He paid the developer the outstanding balance of sh8.7million (three units at sh2.9 million each) and walked away with a cool sh10.8 million!

Now if you subtract the sh900,000 deposit that the lawyer had paid, his profit comes to sh9.9 million. Now that’s about 10 percent per month, on average; but when getting into it, the lawyer was not certain that he’d make so much.