Real estate investing is gradually becoming one of the most popular ways to make money. While many invest successfully in real estate when they work with the right team, there are others who are not so fortunate and end up losing quite a bit of money due to real estate investment scams that seek to steal money from investors. This blog post aims to highlight the most common real estate investment scams and provides advice and guidance on how to avoid them.
Related: The Most Common Real Estate Investment Scams
Real estate investment scams: #1: LENDING SCAMS
One of the most common real estate investment scams is lending scams. Many real estate investors turn to lending resources in order to seek investment property financing. Property investors choose this alternative because of the strict requirements for conventional mortgage loans. Many of these alternative lenders do not have the same standards for property condition as a conventional mortgage lender would, for example. Because of this, these types of lenders often offer loans that come with higher interest rates and shorter payback periods.
Scams with these types of loans are more common since most of these lenders do not have to have a license and are not inspected by any state agency. The money they lend is not a conventional mortgage loan that requires licensing. These types of lenders are typically known as private money lenders or hard money lenders. These lenders use money from private individuals to fund the loans they are offering.
Since there are no licensing requirements involved in this type of lending, it is much harder to identify a real lender from a scam artist. The question that you should be asking yourself is how to identify a real lender from a scam? What are signs to look out for?
One common sign of money lending scams is a lender who is ready to lend you money with little to no questions asked. Does the lender know about real estate investing? Can they answer basic questions for you about investing in real estate and lending terms? Is the lender asking for a large up-front lending fee? How did you find this lender? Did you find this lender through social media websites or certified real estate investing websites? Are the lending terms in the contract too good to be true? Depending on your answers to these questions, you may have yourself a scam artist.
Related: What You Need to Know About Investment Property Mortgage Lenders
How to avoid lending real estate investment scams
The best way to avoid this type of investment scam is to only use a lender who you’ve personally met/interviewed or a lender who was referred to you through network relationships who have previously dealt with the lender.
Real estate investment scams: #2: PROPERTY CONDITION SCAMS
This type of real estate investment scam is more likely to happen to a real estate investor who invests in out of state properties. This scam is becoming more prevalent since many investors from all over the country are trying to purchase investment properties in cheaper real estate markets. Since the real estate investor lives far away from the area and barely visits the property, many unethical sellers and real estate agents claim to have property for sale that is in good condition but in reality, it isn’t. When the buyer makes an offer, the sellers insist on using their inspectors or contractors to give the buyer an impression that the real estate investment is in good shape. Since the buyers don’t visit the property and never intend to visit the property, they must rely on those local to the area to be their eyes and ears.
Read Also: When Is Out of State Real Estate Investing a Smart Choice?
In some situations, the seller may not even be the real owner of the investment property. In a situation where the seller was never the true owner of the property and through means of fraud sold the property to an unsuspecting buyer, the buyer could potentially end up losing both his/her cash and the property when the real owner comes to claim it.
How to avoid property condition real estate investment scams
The best way to avoid property condition real estate investment scams is to find real estate listed through the Multiple Listing Service (MLS) or a local real estate agent website with access to the MLS. Plus, you should always make it a priority to visit your potential investment property and the location before making any deals.
Real estate investment scams: #3: RENTAL SCAMS
Real estate investors who are interested in buying a rental property will first turn to the internet for their property search. This is a commonly known fact since the number of investors who turn to the internet is over 90%. Who else turns to the internet? Scam artists! What they do is they select an actual listing that is not theirs, and they will post it on their own website, or even on commonly used real estate investing websites. The computer crafty scammers may even hack the site of the original listing and replace the written information with their own information. The investor is then asked to wire the payment to a third party!
In this real estate investment scam, someone will steal pictures of a home for sale or for rent and advertise it for rent themselves to unsuspecting people. This is done more with vacant properties since no one is around to confirm the reality of the situation. Scammers will tell potential renters that they are out of town and are not able to show them the property. They will tell the renter to take a look at the property through the windows and if the property suits the renter’s likings, he/she will mail them the first month’s rent. Once the money has been sent, the scammer will mail fake keys to the renter! The tenant will then realize that the keys are fake and wonder where the money went!
How to avoid rental real estate investment scams
Often times, the amount of rent offered for these homes by the scammers are well below normal rental rates for such a home. The lower than usual rent should be a red flag warning you that something is not right.
Home sellers should always make sure signs are prominently placed that show that the home is for sale. If a home is in an area where rental scams are more common, it is recommended that the homeowner place signs on the inside on a window so that someone looking at the window can see the house is not for rent or if for rent, they should only contact the correct person.
The bottom line
In real estate anytime money is involved, there are bound to be real estate investment scams that seek to separate that money from its owner. To avoid falling into these scams, always do your research carefully and gain the right knowledge before making any decisions. Mashvisor can help you gain the right knowledge in every aspect of real estate.
To learn more about how we will help you make faster and smarter real estate investment decisions, click here.
