Most real estate investors are reputable and honest. However, there are some who aren’t. Therefore, the need to expose the most common real estate investor scams becomes critical. Exposing real estate investor scam artists is something that’s high on the list of all honest, hard-working real estate investors who want to get the word out. No one wants to fall victim to a scam.
The only way to prevent being scammed by one of these dirty players is to research and learn everything there is to know about real estate investing. Taking a proactive approach and educating yourself on the subject will dramatically reduce your chances of falling for a scam. Below are some warning signs to watch out for.
Here are some things property sellers are going to want to look out for:
- If any investor is not willing to put everything in writing, it’s probably a scam. A reputable investor will want to put every detail in writing in order to protect all parties involved.
- Look out for indications that the investor is not the end buyer. One clear sign of this is an investor who suggests low earnest money, or no earnest money with LONG option periods ranging 10-30 days. Most investors will want a 5-7 day option.
- Some scammers will request a wire transfer for the required funds before actually seeing the property or as a down payment. This is another red flag. Therefore, if there is any mention of a wire transfer before being able to proceed with the contract, stop all further involvement and find another investor.
- In some cases, people will say they can pay cash, but in reality they cannot. These people are hoping to put the house under contract for say $50,000 and then go try and find a buyer for more before the 30 days is up in the contract. Then, they pocket the difference. You can find out if this is what you’re dealing with by asking for proof of funds. DO NOT accept a proof of funds from a conventional lender! You’ll want to see proof of funds from a line of credit, a hard money lender, OR their own operating account.
- Not closing through a title company is a big red flag. We use the largest residential title company in texas because they will reliably protect all parties involved for years to come. The company we use holds a long standing track record, which ensures all parties confidence that the transaction is lawful.
- Look out for property sellers who aren’t using a Texas Real Estate Commission (TREC) contract. Some investors use one-page contracts that are very one-sided and only protect the buyer. Only work with investors that use the 9 page TREC contract, as it is a widely accepted and understood contract for title companies and lawyers. If they refuse to do so, then that could indicate that they have something to hide.
So, ask yourself this, are you speaking with a well-respected investor, or, say, someone who might be making most of their living off of real estate seminars?
Remember the old adage “if something seems too good to be true, then it probably is.”
Above all, just do a simple bit of research. Once you know who you’re working with, working with the right real estate investor will only be easier.