Personal Development

4 Surefire Signs Your Property Investment Deal is a Fraud

Expertise: Business Management, Landlording & Rental Properties, Real Estate News & Commentary, Real Estate Marketing, Personal Development, Real Estate Investing Basics
106 Articles Written
real-estate-fraud

There are con men, and then there are fraudsters — the former is a definite criminal, relatively easy to see behind bars if he’s caught. The latter, however, can blatantly rip off people for years without repercussion, hiding behind the fundamental American notion of caveat emptor — “let the buyer beware.” It’s your responsibility to make sure you don’t get defrauded; no one is looking out for you. As far as that goes, there are some surefire signs that a property investment deal has some amount of fraud built into it.

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4 Surefire Signs Your Property Investment Deal is a Fraud

Guaranteed Returns

Simply put, there’s no such thing as a “guarantee” in an investment. The very nature of investment is “accepting immediate risk in exchange for long-term profit.” If there’s a guarantee, there’s no risk, and thus there should be no profit. (A few exceptions exist, such as annuities, but they’re very low payout and none of them are in real estate.)

Requests for Financial Information Up Front

One more-common-than-you-think real estate scam involves offering you a property that seems believable (but good), and then asking you to provide all of your financial information so that the company can vet you and ensure you’re a “good enough” or “qualified” buyer. This actually creates a psychological compulsion to hand over your financials to “test yourself” against the vetting process, in addition to the temptation of getting a solid investment. The reality is, many of the companies doing this are simply collecting your financials for identity-theft purposes, and everyone fails.

Deals That Don’t Include the Future of the Neighborhood

In real estate, “selling out” has a slightly different meaning: It means selling a building so that you can get rid of it before it becomes toxic. It goes like this: You get a deal from a reputable company on a property that looks solid all around. It’s got tenants that have been performing, they’ve just signed a new lease, and all signs are go.

Related: It CAN Happen to You: How to Guard Against Dangerous Real Estate Scams & Squatters

But what you don’t know unless you do your own research is that the city just announced that the former schoolyard across the street is going to be converted into a maximum-security prison — or a landfill. Property values are about to plummet, but because they’re still good now, everything looks hunky-dory on paper, so the current owner is doing the best to sell their way out of there before they have to eat a loss.

Real Estate Investment Seminars

Probably the single biggest racket in the real estate game right now — along with literally any other industry that promises to make you money without working — is education. Basically, any time you see a paid advertisement for a seminar, book, DVD set, e-course, or any other product designed to teach you how to “make money from _________,” real estate investment included, the chances that there is something “too good to be true” on some level is pretty high.

The truth is that 80% of the information you need is free on sites like this one, and the other 20% you can only ever get though experience. There’s no need to pay anyone to teach you their “secret” method for success because there is absolutely, positively someone somewhere online who has posted the entire process, with their experiences attached, on their blog.

This is particularly true for real estate investing, which continues to be disgraced by programs like Zero Money Down. Here is an excellent list of the strategies the “seminar fraudsters” use to bilk money out of you time and again. By the way, you can usually find a local nonprofit real estate investors group meeting to attend and learn about investing much faster than in a classroom or via webinars.

Related: 4 Types of All-Too-Common Real Estate Scams Making Headlines

The good news is that most real estate deals are legitimate. That said, it is still and will (at least in America) probably always be on you the consumer to make sure that you’re getting what you paid for. Put in the effort, and invest safely!

Investors: Have you ever fallen prey to real estate fraud? Any tips to add to this list?

Leave your comments below!

While in the mortgage business, Drew rose to a VP position at the first broker he worked for and then started his own company. In the pursuit of excellence, he obtained several mortgage designations and joined mortgage & several affiliate association Boards. He also did WebX presentations and public speaking. It was during this time he started personally investing in single-family rentals, leading him to also start Royal Rose Property Management with two partners. He also joined the Board of a local real estate investors association, eventually becoming its President. The real estate crash led to an offer from the banking industry to manage a Michigan bank’s failed bank assets they acquired from the FDIC. The bank acquired four failed banks from the FDIC, increasing from $100M in assets to over $2B while he was there. After that, he took over as President of Royal Rose Property Management. Today, he speaks at national property management conventions and does WebX presentations.

    James Gorman IV Investor from Gig Harbor, Washington
    Replied almost 4 years ago
    Many years ago, I was scammed by a request for some up front cash to qualify for a very low interest loan tied to the LIBOR rate and a loan program proposal, the paperwork look good and was even OKed by our service consultant attorney. NO UP FRONT FEES TO LENDERS – IF PAID THEY GET IT AT CLOSING OR IN THE LOAN DEAL !!
    Drew Sygit from Birmingham, Michigan
    Replied over 3 years ago
    James: these were big 10 years ago and now they are back! Also need to be careful to see the loan application for any of these before the “closing”. Many of these “agents” fill out your application with fraudulent info and if you sign without reviewing, you sign for the fraud.
    Pete Krentz IT from Sioux Falls, South Dakota
    Replied almost 4 years ago
    Don’t financials have to be verified ahead of time for many deals? I hear often that people need to be an accredited investor to invest in a lot of the deals but how would they be able to verify you were one if you don’t provide that info. It’s not like I hand my info out because of the reasons you stated in the article. I’m just curious.
    Drew Sygit from Birmingham, Michigan
    Replied over 3 years ago
    PETE: even the term “accredited investor” is dubious at best. IF, IF, IF the SEC or state board investigates they have to prove the company didn’t have tight enough vetting procedures. Not really something a scammer is going to worry about! As to financials in general, who’s going to pay for an AUDITED financial? Financials are easy to fake – see Enron, Madoff, etc…
    margaret smith
    Replied almost 4 years ago
    Don’t sign up for the accredited investor investment- Believe me when I say that people with a lot of money to invest are often not willing, able or educated enough to ask tough questions and do independent due diligence. Even the big gurus – the ones you think you could trust with high level investors- skip out on an investment when the going looks rocky. People may have every intention of doing right by their business partners, but when the going is tough, things change on a dime! Stop by your own real estate attorney before you give your money away. It is HARD to lend money or invest it wisely, so all care must be done. RULE #1- Don’t lose principal!
    Drew Sygit from Birmingham, Michigan
    Replied over 3 years ago
    MARGARET – great advice!
    Drew Sygit from Birmingham, Michigan
    Replied over 3 years ago
    MARGARET – great advice!
    Dora Peter
    Replied almost 4 years ago
    Nice article.Hope you have done good research. The point you explined on the “Deals That Don’t Include the Future of the Neighborhood” suits the scenario of Non-Metros Real estate sales in India.. 🙂 Few of the developers still follow the old tradition of real estate marketing… Overall, Good Read..
    Drew Sygit from Birmingham, Michigan
    Replied over 3 years ago
    DORA – I know nothing of India real estate, but the advice applies anywhere:)
    Teresa
    Replied almost 4 years ago
    Thanks for the words of wisdom, they help for future preparation/caution & prevention to the school of hard knocks.
    Teresa
    Replied almost 4 years ago
    Thanks for the words of wisdom, they help for future preparation/caution & prevention to the school of hard knocks.
    Drew Sygit from Birmingham, Michigan
    Replied over 3 years ago
    TERESA – the school of hard knocks is tough enough to get through without dealing with crooks!
    Ayodeji Kuponiyi Investor from King of Prussia, Pennsylvania
    Replied almost 4 years ago
    Thanks for sharing your wise advice. I haven’t been a victim of real estate fraud & Lord willin’ I never will.
    Drew Sygit from Birmingham, Michigan
    Replied over 3 years ago
    AYODEJI – we hope you never do also:)
    Trey Williams Realtor And Investor from Frederick, Maryland
    Replied almost 4 years ago
    Great post . Short simple and to the point with great facts to back it up. ” there’s no such thing as a “guarantee” in an investment. The very nature of investment is “accepting immediate risk in exchange for long-term profit.”’
    Drew Sygit from Birmingham, Michigan
    Replied over 3 years ago
    TREY – it’s amazing how often investors lose sight of the obvious!
    Katie Rogers
    Replied almost 4 years ago
    But a lot of BP syndicators do promise their lending partners a guaranteed return even if they have to kick in their own equity to make it happen.
    Drew Sygit from Birmingham, Michigan
    Replied over 3 years ago
    KATIE – have I got a bridge and Florida swampland to sell you! Technically and legally. the most an honest person can guarantee on an investment is that the investors will earn their returns before the lead investor earns their part of the deal. Be sure to read the fine print and this is probably the case.
    John
    Replied over 3 years ago
    Great list of red flags to be on the lookout for, particularly the one about the future of the neighborhood. If someone happens to acquire a building that will be dropping in value within a certain amount of time, they may try and paint it up as a deal for the next person looking to buy space in the area.
    Drew Sygit from Birmingham, Michigan
    Replied over 3 years ago
    JOHN – exactly.