Season 1,

25: How to Lose Money by Investing Internationally with Kathy Fettke

February 18, 2017
Kathy Fettke is the co-founder of the Real Wealth Network, and she specializes in teaching people how build multi-million dollar real estate portfolios through creative finance and planning. (Membership is free at www.realwealthnetwork.com.) She is passionate about researching and sharing the most important information about real estate, market cycles and the economy.
Kathy is also the author of the #1 best seller, ‘Retire Rich with Rentals’, and a frequent guest expert on such media as CNN, CNBC, Fox News, NPR and CBS MarketWatch. Learn from her story how easy it is to be business savvy and still land yourself in trouble if you have not vetted the people and situation thoroughly enough.

GREEN FLAG: WATERFRONT DREAM

In 2010 there were some scary situations in the world with the Great Recession and so forth. The government was bribing people into buying into real estate, which was only a temporary fix. I had taken some hard hits financially during the previous 2 yrs. and the state of the country in general was not looking good. Frankly I was terrified and did not know how I (and my family) we were going to financially survive in real estate in the US.

When a colleague of mine (who I thought was trustworthy) told me about a waterfront property project in Nicaragua, I was interested. In California, you would pay a couple of million dollars for a similar 3 BR waterfront condo set-up, even during recession. But the one they were building in Nicaragua was only about $150,000. It sounded like a good deal and I thought that if things in the US completely failed, my family would have somewhere to go abroad. We could go live in Nicaragua waiting for the US to recover from collapse.

The Company wanted to sell us on the place, so they invited us to Nicaragua all expenses paid. Since it was also our wedding anniversary, it seemed like a great time for my husband Rich and I to take a little vacation and check things out. They put us in a fancy hotel, wined and dined us and even took us on a helicopter ride to the gorgeous waterfront site where they planned to build the condominiums. There was nothing but dirt there at that point, but we were actually very impressed with the whole thing. Wyndham Hotels and Jack Nicklaus (golf courses) had both signed on and everything was looking fantastic. On the 3rd night they had a big party with dinner and dancing and plenty of alcohol flowing and when they brought out the contracts we toasted and signed for ours. No money was exchanged at the time.

RED FLAG: IGNORING MY GUT

 We went back home and had some time to think about it before actually sending the money to complete the transaction. During that period everything still looked good, but I felt in my gut that there was something not totally right. It seemed a little odd to me that they brought the contracts out only after everyone had plenty to drink at the party, and I was also a little uncomfortable with the way the owner/builder flirted with me. The builder had not actually built in Nicaragua before (not a country known for stability) and I did not know how to pull apart titles in that country to verify certain details so there were important facts left undetermined.

But I was not thinking right, so I ignored all of that and moved forward on trust (never a good idea in business). I was worried about my family and I needed a back-up plan in case we were not able to cope in the US anymore. I thought this property in Nicaragua would be our place of safety.

I did finally decide to investigate the builder a little further. We did a google search on the guy and more Red Flags popped up. We found out that there was a dispute with some other investors regarding a property in Nicaragua and they were calling him a fraud. We confronted him about that situation, but he was very charming and believable. He knew all the right things to say to make us believe that the guy on the internet was playing dirty and trying to take his clients.

I called the colleague who had initially hooked us up with this Nicaragua deal to see if he had more info. I was very disappointed to learn that he had neglected to tell us that not only was he on commission for this project, but that he had never seen an actual commission check from this builder on previous deals with him. That seemed like a significant issue. At the same time the builder was pressuring us a little and saying he had other offers for our condo. It was hard to let go of the attachment we already had for this vision of beauty and refuge and so I decided to hold onto my plan and we went ahead and sent them the money.

BLACK FLAG: DISASTER STRIKES

At first we were sent a lot of nice photos of the construction site and work being started.

It was only supposed to be 6 months till the condo was finished. It was only about a week after we had sent the money that disaster hit. We got word that Wyndham and Jack Nicklaus had both learned about some problems and had pulled out of the deal. The builder could not pay the property taxes; could not get another construction loan; was out of money. He lacked experience, had gotten into a project that was too big for him to handle and was now floundering.

This was such a shock for me. If only we had waited one more week to send the money! The previous week everything was fine and now our dream was dead and gone and our money with it.

WHITE FLAG: LIVE AND LEARN

My husband was incredibly supportive during these times. He voiced no negativity or criticism, he just focused on the future and moving on. He told me we would be fine; this was a lesson learned. He had been through a recent bout with cancer and had an incredible attitude about life and challenges. He was peaceful and brought no stress into our home or marriage. He was an awesome support to our whole family through this whole situation.

I was not quite ready to move on however. I got in touch with the other investors, some of whom had put all they had into this investment, and then lost it all. It was tragic. They decided to sue the developer for the land and I joined in the efforts. Five years later we are still in litigation and have no idea if we will win. We later found out the developer is still marketing this same property in order to get people’s money and we cannot even warn people about it because the lawsuit is not closed.

CHECKERED FLAG: MOVING ON

Some people will lose money because they won’t take risks; some will lose because they take too much risk. I have decided that the way to go is to take risks, but ONLY under the guidance of others who have been there a hundred time before and know how to do it. I lost about $100.000 and worse I lost the dream of escape and safe haven. I had imagined it all in my mind and now it was gone.

But you can get sick if you let worry and regret eat at you. We have to learn our lessons and move on. My husband said it is better to focus on what is coming next and how to apply what we have learned, rather than fretting about our mistakes and living in the past.

FAILING FORWARD

In each episode of How to Lose Money, we ask our guests to answer a few questions about failure. Here’s what came out of this episode:
  • Why did this failure experience happen to you?
Many, many people put their financial trust in me. They listen to my advice and look up to me. I know in part this was necessary so I would never ever take that trust lightly. Selfishness and greed motivate a lot of people who will not be out for your best interests. There have been quite a few time I’ve trusted and ended up getting hurt. I can take that, but I could not stand it if that happened to my investors. This has taught me to be extra careful with other people’s money.
  • What’s the single most important lesson you’ve learned from this?
I’ve learned not to jump into something I do not fully understand. I think you should only enter an unknown arena of investing with experienced mentors. Now I will only do that kind of thing if I have someone by my side who is an expert with much experience.
  • How do you protect yourself from failing in this way again?
Listen to your gut. If I had listened to my inner self I wouldn’t have lost all that time, money and hope. I think you have to make time for quiet in order to be able to hear that voice. I start my day in silence now, just 5 or 10 minutes to be quiet and meditate. There’s so much noise around us all the time that you can miss what your instincts are trying to tell you if you if you don’t make time for it.
  • Who do you turn to when you need help?
We have come up with a due diligence checklist in our company that must be completed in order to move forward on any type of project. Because it is so important for us to take care of our investors’ money we have a team who makes sure every item is checked every time. This thorough checklist is vital in providing the help we need.
  • What advice would you give to someone in a similar position to yours?
My advice is: take what you’ve learned and move on. No one will win every time. You are going to recover from that loss and you will do better next time. Keep going! Most people give up before they are able to take off.

Everyone who has succeeded has lost a lot along the way. I won’t work with anyone who hasn’t learned how to handle failure. Just keep in mind that every experience you have is making you more of an expert.

This episode is based on an interview with Kathy Fettke. To hear this episode, and many more like it, you can subscribe to How to Lose Money. If you don’t use iTunes, you can listen to every episode here.

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