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.
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
4 Surefire Signs Your Property Investment Deal is a Fraud
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.
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!