Like in any other business, scams do exist in the real estate industry. Sadly, with the coronavirus pandemic, scam artists are seeking to exploit rising concerns about COVID-19 to line their own pockets by drawing people into investment traps. Last week, the US Securities and Exchange Commission (SEC) issued an alert that cautions people against these coronavirus scams. The alert noted that fraudsters often use high-profile news events and headlines in their pitches to promote sham investments and lure investors into believing them. Here are the top coronavirus investment scams that real estate investors need to be aware of and how to protect yourself from them in 2020.
Coronavirus Scam #1: Stock Investments
The dramatic stock market crash last month is likely to expose long-running investment frauds, as it did in 2008. Investment scams taking advantage of extreme volatility in the stock market were a hallmark of the 2008 housing crisis. According to experts, the Great Recession saw investors flock to fake certificates of deposit, private placements, non-publicly traded real estate deals, promissory notes, and scams involving gold and other precious metals. Many of these turned out to be frauds. Scammers convinced investors – who had just witnessed their wealth evaporate in the stock market – that their investment schemes were both safer and more profitable than the stock market.
The SEC noted that it has become aware of multiple online promotions involving claims that a company’s products or services are used to help stop the COVID-19 pandemic and that this will boost its stock price. These promotions might even use purported “research reports” and predict specific “target prices” for a company’s stock. Those who spread coronavirus scams have also launched phishing attacks via emails and text messages which can appear legitimate – often with prompts like “Click here to get your money now.” But if the links are clicked, scammers can access your phone or computer and steal sensitive information like Social Security numbers and bank account data.
Coronavirus Scam #2: Buy-Low Sell-High
Investing in real estate has always been an appealing option because the real estate market is strong and low-interest rates are increasing the demand. Fraudsters will take advantage of this fact and the unfolding coronavirus pandemic and recent economic developments and then compare it to the 2008 financial crisis to promote real estate schemes. Specifically, real estate investors should be wary of “buy-low, sell-high” recovery schemes. For example, scammers will encourage investors to buy investment properties now so they can recognize significant gains when the market recovers. They could sell you properties at a discount promising that the value of the real estate investment will increase once the housing market strengthens.
These coronavirus scams are often promoted as safe and secure, claiming real estate can be sold and the profits can be used to cover any losses. However, always remember that real estate investments present significant risks and that changes to the economy may negatively impact their future performance. Plus, scammers are promoting that the COVID-19 pandemic is likely to plunge the US into a deep recession and cause a housing market crash like the one we saw in 2008. But, the current crisis and the 2008 crisis are quite different – this one was caused by a pandemic that has infected over 1 million worldwide (as of this writing) and the other by broad and systemic failures in the financial system. So, experts are not predicting a housing market crash in 2020 due to the coronavirus.
For more details, read: Will the Coronavirus Cause a Repeat of the 2008 Housing Crisis?
Coronavirus Scam #3: Get Rich Quick from Home
As the COVID-19 pandemic is forcing people to stay at home and businesses to shut down, there have been emerging coronavirus investment scams related to making money from home. This happened during the financial crisis when unemployment peaked around 10%. Experts warn people that these phishing scams will likely re-emerge in the coming weeks and months. Scammers will take advantage of the increased unemployment rate in the US with false promises of a fast way to make money. They promote that they can offer quick and guaranteed returns that people (who are in desperate financial straits) can use to pay for rent, utilities or other living expenses.
Learn about other scams that real estate investors must avoid at all times: The Most Common Real Estate Investment Scams
How to Protect Yourself from Coronavirus Scams
#1. Research Before You Invest
One of the most important tips we always give to real estate investors is to not invest based on emotions. So a key to avoid falling into coronavirus scams is to not let panic drive your investment decisions. Anyone thinking of making an investment needs to be assertive and level-headed, and this can only be done after doing your research. The alert issued by the SEC reminded investors to carefully research potential investment opportunities. We live in an era where getting access to information is literally at the tips of our fingers – take advantage of that! Make sure you know everything about what you plan to get involved with, whether it’s a property, deal, property data, or anything else. This is the most basic way to avoid real estate scams but it will go a long way.
#2. Check for Certifications
As a rental property investor or a landlord, you would certainly screen potential tenants and qualify them before giving them the key to your rental. Likewise, you should always make sure you’re making a deal with a qualified professional when presented with an investment opportunity. For example, you can protect yourself from email fraud by simply googling the real estate company, agent, broker, or manager who sent the email. Ensure they’re properly certified as scammers go out of their way to avoid showing qualifications. So don’t shy away from checking certifications and questioning anything that comes to your mind about the deal. Being reserved won’t save you if you fall into real estate schemes. If your concerns and questions are left unanswered, then abandon the deal.
#3. Seek Professional Advice
It’s important to have a network of professionals in the real estate market that you trust when investing in real estate. If you’re a beginner investor or thinking of getting into the business, this is a must. Getting advice from a real estate attorney whom you know, for example, is a great way to avoid phishing scams. You can also seek advice by reaching out to a financial adviser or joining a real estate investing club where you can learn from other investors how they experienced or avoided investment scams. Furthermore, you can check investment blogs (like Mashvisor’s) for real estate investing tips on how to protect yourself from coronavirus scams in 2020.
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