There are a lot of real estate scams out there and many of them are now offering the bait of making easy money in the foreclosure market.
Scammers like to run with the hot trend — and right now the hot trend in real estate is foreclosures and distressed property.
Of course, there is money to be made by investing in distressed and foreclosed real estate.
But as with any other kind of investing, making money in distressed property and foreclosures requires significant expertise and experience and adequate capitalization.
Before you trust your money to a stranger who tells you he has a sure-fire way to make lots of cash by investing in the hot, once-in-a-lifetime foreclosure and distressed property market, make sure that he has the expertise and experience and the capital (not just yours!) to back up his claims.
Here are 10 tips to avoid being taken in by scammers who promise you quick and easy returns on your real estate investment:
1. Be very skeptical and ask lots of questions.
2. Get the names of the people who will be running the investment fund. In particular, get the names of the people who will be making the investment decisions. Demand that they tell you their business and investment track record and that they provide you with documentation of their claims.
3. Check their qualifications. Make sure that they are licensed securities or real estate professionals and not just telemarketers.
4. Research all the names you get. Use the Internet. Do a google search for the investment fund and for anyone involved in the fund or business. Search for their names and the name of the investment fund on scam.com, the Securities Fraud Search Engine, and other community web sites and bulletin boards, as well as the Better Business Bureau. Also check their names with your state Attorney General and the Securities and Exchange Commission. Carefully read the online material on telemarketing fraud put out by the U.S. Department of Justice.
5. Find out whether the people raising the money for the investment fund are licensed securities brokers. If not, don’t invest. You can check their broker status here.
6. Before you invest, get the advice of people you trust. Ask your attorney, your real estate broker, your financial advisor, and your adult children what they think about the investment. On the other hand, avoid pressure from relatives and friends to invest in “can’t miss” schemes.
7. Get all promises or claims in writing and save copies of the paperwork. Verbal agreements don’t mean anything. Demand documents and then review them carefully. Ask your attorney, your real estate broker, your financial advisor, and your adult children to review them as well. Even when you get promises in writing, remain skeptical, especially regarding revenue projections. At best, these projections are guesses; at worst, they’re outright lies. Be particularly skeptical about projections in a business plan. Remember that a business plan is not a legal document — you can put anything you want in a business plan and scammers always do.
8. Take your time before deciding whether to invest. Scammers use lots of tactics to pressure you to make a decision. Don’t let anyone rush you into an investment. If they tell you, “only a few lucky investors can get in, so you must act right away,” it is almost certainly a scam.
9. Demand to know how much of your investment, or the total fund raise, is actually going to purchase property and how much is going to pay the people who are raising the money. Don’t trust any investment where more than 10-15 percent of the total raise is going into the pockets of the fund-raisers.
10. Live by the rule: If something sounds too good to be true, it probably isn’t. If someone tells you that there is a “guaranteed return on your investment,” it is almost certain that you should invest your money somewhere else. Scammers play on greed and fear. Deals that promise exceptional returns — and deals that must be done now — are the hallmarks of a scam.