How to Identify Investment Scams in Real Estate Before it is Too Late
Financial scams have always been around, but many experts say they have escalated in recent years. The pivotal point, particularly for real estate scams, happened after the economy crashed in 2008. Vulnerable people at risk of losing their homes fell prey to scammers promising them assistance.
With the economy recovering, many real estate scammers have turned to a tried-and-true technique of promising riches for those who invest in their programs. Some of the same people who lost everything in the economic bust are, once again, proving to be targets for scams because they desperately want to regain what they once had before retirement.
Before you think you could never be a victim, statistics show most are between 45 and 70 years old, educated, understand finances and have a curious personality.
Popular Real Estate Scams
Three of the most popular real estate scams involve rentals, loan modifications, and “educational workshops” hosted by gurus.
Many of these scams start online as the Internet is full of people seeking out information. From there, the thieves can target their victim by asking a series of questions to identify their weaknesses.
Rental scams are scenarios where people pose as a rental agent on an online forum, such as Craig’s list, and supposedly find you a house or apartment to rent. All transactions are done online and, when you attempt to move in, you find out someone else owns the home or apartment.
With fraudulent loan modifications, thieves will offer you a chance to reduce your mortgage and save on interest with a quick turnaround to save your home. However, they are not licensed and the outcome can be a loss of money or even signing paperwork that turns over your property with equity over to them.
In the third most popular type of scam, the workshop scam, the guru promises an easy way to make money and then prompts you to spend money on a course with more information that, reportedly, you can’t find anywhere else.
Ways to Protect Yourself
There are ways you can identify a real estate scam and protect the investment you have worked so hard to gain. First, don’t trust anyone you meet on the web. You must assume those you find on the web are automatically lying.
Look for certain clues when communicating with potential investment experts or proposed real estate agent.
Some telltale signs of a scam are:
- You are asked numerous questions that may make you uncomfortable.
- They claim this must be done right now or you will lose the opportunity.
- Overly persistent.
- Highly persuasive.
There are some concrete ways you can check someone out to make sure they are legitimate. Any legitimate investment company will be registered in the Security and Exchange Commission’s EDGAR Database.
Real estate companies will be registered with the state real estate commission. You can ask for their membership number and call the commission to verify the person or company.
Is it Real?
Another way to ward off scammers is to ask for a copy of their license. True investment and real estate professionals will be licensed by the state or the federal government. Those who can’t produce a license are likely thieves pretending to have an investment opportunity.
A clear way to separate legitimate opportunities from scams is simply looking at whether the opportunity is real. The old saying “if it sounds too good to be true, it probably is” holds true. Those promising high yields in short periods of time for those with little to no experience is likely a con.
The best way to protect yourself is simply don’t make a decision until you investigate further. Research the company and opportunity before you agree to anything.
Don’t put any money down until you have a lawyer look over the agreement. Finally, don’t make a decision out of desperation. Desperate people tend to make bad decisions that cost them a lot of money.
For those truly seeking out real estate investments, the place to start is with a local, respected real estate agent. These are people who know the area where you live, the market and the properties.
They can tell you if ideas like house flipping, rental properties, and commercial real estate will be worth it. A trusted expert can also guide you through some of the pitfalls of each of these investment ideas and put you in touch with other trusted professionals if you want to continue your research.
Realize that investing in real estate is not an easy money maker. It takes much work in research and, sometimes, physical labor before you see fruit. Like any business, it can take years. Set your goals and make sure they are achievable before you decide to invest in any opportunity.
David Warren is the senior writer and lead researcher at HardStacks.com. He has been a financial engineer for over 30 years and has been investing in alternative assets since the Great Recession of 2008. He has a true passion for learning about economic cycles and educating others on how to protect and grow their wealth by investing in precious metals, real estate and cryptocurrencies. Follow him on Facebook.