When your David Lerner salesman calls – make sure you read the prospectus when they try to sell you APPLE REIT.
Don’t believe the salesman when he says it doesn’t cost you anything or that Apple is paying David Lerner and not you.
Here is the truth:
The Apple company owns the real estate company that buys the properties – currently hotels. They take 2% commission off the top for buying the property. David Lerner gets 10% right off the top for being the sole underwriter. Another Apple company gets 1% up front per year to manage the Reit. So right up front only 13% or 87 cents of every dollars actually gets invested. At the back end when the properties are sold the Apple owned real estate company gets another 2% off the total sales proceeds.
Guess who is getting rich on your money – Apple and David Lerner, that’s who.
Another thing – they quote the product as fixed at $11 per share. The Apple Company has the right to change the price per share at will so when they say you could get all your money back after three years – what they really mean is if Apple Company continues to price at $11 per share, then you can get your money back.
Lastly – the way you get your money back is quarterly based upon no more that 5% withdraw rate. If more than 5% of the investors ask for their money back each quarter then you won’t be able to get all your money out unless you re-submit the next quarter and the cycle starts all over again.
Hotels have been a good investment since 1999. How long do you think this will last? Everything goes in cycles. Don’t be surprised if the next REIT that Apple and David Lerner offer is larger than the last – in order to keep the money tied up for a long time.
Be careful with Apple REIT. What do you think happens when a REIT gets sold? You get your money back plus a nice profit if things go well. Of Course David Lerner will suggest you reinvest in the newest REIT so he can take 10% of your money again and the whole cycle goes on and on.
I bet they will be quoting 7 years life of REIT but actually sell off REIT in 3 years. I wonder why?