How to spot real estate investment scams begins with following the basic investing rules.
But, before explaining the rules, understand that every industry contains scam artists. Remember, most real estate professionals work hard, remain honest, and maintain ethical conduct. However, beware of those only wishing to take your money and run.
Many scam artists use real estate as a cover. For instance, they advertise fake real properties for sale to lure unsuspecting buyers. You won’t find them in Multiple Listing Services (MLS), but rather in online classifieds, by word of mouth, or phony seminars.
How to Spot Real Estate Investment Scams
Now, let’s get into the meat of this blog post.
Learn about Common Real Estate Scams
Real estate scammers often use the same scams. Four popular real estate scams include:
1. Property Condition Scams often used in out of state properties or far away locations. Many investors seek properties in cheaper real estate markets making them susceptible to this scam. Sellers claim the property in good condition and often use their own unethical contractors or inspectors to write phony reports supporting the scam. Hire a reliable local property inspection company to verify its condition.
2. Fake Owner Scam where a scammer advertises properties for sale not owned by him or her. Often used for vacant properties and raw land. They simply run off with the good faith deposit and disappear. Verify who really owns the property.
3. Rental Scams often advertised online. Some scammers hack into a real listing and replace the information with their own. They then ask the investor to wire funds to a third party who disappears after collecting the money. Others advertise old rental listings with nice photos and wait for out of towners to inquire. Then they claim a third party will give them the keys to the rental after wiring money to a third party.
4. Lending Scams entail offering unconventional private mortgage loans. Known as “hard money lenders”. They attract investors unable to qualify for conventional mortgages. These lenders are not licensed and not inspected by any state agency. It’s difficult to know which ones are legitimate or scams. You may end up paying application and inspection fees the scammer runs off with.
Solutions for Real Estate Investment Scams
The four examples of scams above require “due diligence”.
This means researching the property to verify who owns it. In addition, hiring a reliable local inspector to verify the property’s condition.
As for lenders, research the person and the company to verify legitimacy. Lending scammers don’t advertise who they are. You won’t find them on LinkedIn or any professional lending organizations. The local Better Business Bureau (BBB) may have received complaints about them along with the state and federal Consumer Protection Agencies.
Get it in Writing
First of all, scammers don’t like to put anything in writing. Especially, a purchase contract requiring identifying who the scammer really is.
So, always get it in writing.
The law enforces written real estate sales contracts more than oral ones. Only a legally binding contract contains all the oral promises in writing to enforce them.
Rely on Professional Advice
Join a local real estate investment club before you search for properties. The club members provide you with useful advice including how to avoid scams.
When purchasing a home, hire a professional inspector.
In addition, hire an experienced real estate attorney to review any property purchase contracts before you sign it. Especially if you buy directly from a seller without using a Realtor. Experienced attorneys spot loopholes and advise how to change the wording to eliminate them.
How to Spot Real Estate Investment Seminar Scams
Let’s begin with real estate investment guru scams. These people charge large fees to teach you how to make lots of money investing in real estate. Some charge as much as $50,000 to join their group and attend seminars.
The following provide tell-tale signs of a typical real estate investment guru scam:
1. They Always Brag About Themselves
Investment gurus always begin by bragging about their own success.
They claim vast wealth from their personal real estate investments. They especially like to brag about how happy they became through real estate investing.
When hearing this, alarms and bells should be ringing in your mind.
2. They Claim to Share a “Secret” Method Which Works for Anyone
A single “secret technique” to make millions investing in real estate.
How can only one secret method make you wealthy?
Why would a millionaire want to share the one secret to his or her success?
Why does a multi-millionaire need to charge up to $50,000 to share a secret?
3. Pep Talk vs. Lessons
Attend one seminar to find out it’s a pep talk and not a real lesson.
Gurus using poorly explained examples with fuzzy math to pump you up has nothing to offer you.
4. Their Biography Fails to Emphasize Real Achievements
Google the Guru.
What real achievements have this guru accomplished other than being a “leading” expert in real estate investing?
5. Avoids Talking about Risks or Failure
Every investment entails risks.
No guarantees exist in real estate investing. Yet, the guru claims the “secret” method guarantees success.
6. Too Good to be True Testimonials
They always are!
In addition, you never get enough information about the testifier to contact him/her. Ask the guru for contact information only to learn its “private”.
7. Gurus Offer to Invest in Your First Deal
Often, the guru helps the poorer clients with their first deal after they pay for all the seminars, books, videos, podcasts, etc. adding up to thousands of dollars.
Ask yourself, how could a successful investor agree to invest in your first deal sight unseen?
Is the guru stupid?
8. Typical Low or No Money Down Strategy
Most gurus trick attendees into believing they can learn about low-or-no down payment methods.
It’s just a gimmick!
Sure, such methods exist. But, not suitable for beginners, even if “trained” by the guru.
9. The Long Sales Ladder Syndrome
Buy the guru’s book at the first seminar. Then discover it teases you to buy more books, videos, and the expensive “personal coach/mentor” program.
The long sales ladder leads to spending lots of money.
10. Recording Not Allowed
Gurus ban recording devices during their seminars. Not because they want to protect their expensive “secret” from getting out.
In reality, they fear lawsuits where the recordings become evidence against them.
11. Don’t Buy Their Investment Properties
Some of these scammers try to make clients buy investment properties claiming they will result in huge profits in little time.
They love to pressure clients into acting fast without any due diligence or professional advice. Clients make the purchase only to find out later on what a terrible investment they got tricked into.
The solution to Real Estate Seminar Scams
Besides not buying their recommended investment properties.
Don’t waste your money and time with gurus.
Instead, join a national association dedicated to helping real estate investors to learn the industry.
For instance, the National Real Estate Investors Association (REIA) is a non-profit 501(c) 6 trade association. With over 40,000 members nationwide promoting, developing, and supporting local real estate investors organizations. They provide education, networking, and support.
Find a local chapter by city or postal code Here.
How to spot real estate investment scams requires due diligence. In other words, follow these steps:
- Don’t accept verbal promises;
- Get everything in writing;
- Use professional inspectors to verify the property’s condition;
- Verify real property owners;
- When buying directly from the seller hire a real estate attorney to review the contract before signing it; and
- Research private lenders and their company.
How to spot real estate investment seminar scams requires following the 11 recommendations above.
Also, join the REIA to learn about the industry and network with ethical investors and professionals.
Open Escrow can help you with due diligence on your investment real estate purchases.
Contact Us for professional escrow services in the greater San Diego area.
Steven Rich, MBA – Guest Blogger
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