Real estate investment, like any other investment, is not devoid of risks. The industry is big and not easily navigable, this gives room for fraudulent people to exploit unsuspecting investors.
It is important to be aware of possible scams and ways to carefully avoid them. Below are 3 common ones and how to avoid being a victim.
1.Ponzi Scheme
One of the oldest scams in history, it occurs when an investor is convinced to invest a huge amount of money in a property with promises of high returns and no risks. This interest is paid with money from new investors rather than actual profits. The ROI is steady for a while, then the scheme collapses, payment stops abruptly and there goes the rest of your money, never to be recovered.
Be wary of people who promises very high return within a short span or downplay the risks. There is no easy way to make money.
2. Fake advertisement
Scammers often pose as representatives of investment companies. They come as realtors associated with the company who have access to market the properties. They place ads with the company’s materials to lure in unsuspecting people and convince them to pay an initial deposit to their own personal accounts to secure the property. Once they received the fund, they suddenly become unreachable.
3. Flipping Scams
Flipping is a legitimate strategy where a person buys a distressed property for a low price, renovates and sell it for a profit.
However, flipping scammers buy a distressed property at a low price, exaggerates the value, and sell it to an investor at an inflated price after covering up major renovation issues and convincing them that all has been fixed. Once the investor has bought the property, they would discover the extensive repairs required or that the property value has been overestimated.
To avoid investment scams, be cautious and scrutinise all claims thoroughly. Keep the following tips in mind.
1. Perform due diligence on both the property and person(s) offering it to you before investing your money.
2. Ask for all the legal documents and be sure that the seller is the legal owner.
3. Read and understand all the terms and conditions of investment to be sure there are no implicating clauses.
4. Seek the counsel of a legal adviser if the need be.
5. Trust your instincts. Remember, whatever seems too good to be true is probably not worth it.
Report possible scams to ReportFraud.ftc.gov.
