Real estate investment scams can cost investors thousands in lost assets. Understanding how they operate and how to recognize them can protect investors against financial loss.
Losses Rising
As they take advantage of a recovering real estate market, investors continue to add real properties to their investment portfolios. Offers for such investments abound, but not all real estate opportunities are legitimate. In 2018, more than eleven thousand victims lost $150,000,000 in internet real estate fraud alone, and the losses from these scams continue to rise.
Recognizing the Scams
Fraudulent investment offers will usually contain a number of red flags or indicators. By recognizing these indicators, real estate investors can protect themselves. Following are some of the more prominent real estate scams:
Easy Money Scam
Scammers offer the opportunity to invest in a fund that will lend money to other real estate buyers. In exchange, investors are promised “easy money” through above-average interest returns allegedly secured by the properties. However, the properties offered by the scam-broker either do not exist or are not represented by the broker. The scammer takes the investors’ money and disappears.
Lending Fraud
This scam targets the borrowers seeking funds to buy real estate without going through traditional bank financing. The scammer promises a very low interest rate in exchange for an upfront lender’s fee. After paying the fee, the borrower never receives the promised funds. These private lenders are not required to be licensed and avoid the scrutiny of financial regulating agencies.
Misrepresenting Property Condition
Out-of-state investors and property flippers are frequently targeted by this scam. The scammer misrepresents the property’s condition, sometimes providing pictures of other properties to entice investors. The price is attractive, and investors buy the property without proper inspection only to discover that it is not worth nearly as much as they paid.
Avoiding the Scam
Investors can protect themselves from real estate scams by recognizing a few red flags:
- Financing offers that are far below market rates
- Upfront lending fees
- Unrealistic promises
- Property that is priced far below the market to ensure a quick sale
Knowing the Market
Along with recognition of the scam red flags, conducting due diligence reviews on all lenders, brokers, and properties is imperative. Finally, nothing can replace a solid knowledge of the local real estate market.
