6 Guiding Principles to Avoid Real Estate Investment Fraud

One of the biggest real estate investment fraud schemes in recent history has been exposed. Wells Real Estate Investment promised investors that their money would be used to buy, renovate, and develop commercial and residential properties across South Florida. Instead, they gambled $28 million of $58 million in investor funds on speculative options and futures trading.

Surprise, surprise – they lost almost $12 million in the process.

The 660 investors who trusted Wells with their money are in an undoubtedly tough position. Though the SEC has filed a complaint against the company, who knows if investors will ever see recourse for the crimes committed.

So let this be a cautionary tale – fraudsters are out there. Wells had been in operation since 2017 – not all that long, comparatively, but eight years is plenty of time to scam people.

So how do real estate investors – especially those just entering this industry – avoid fraudsters, scammers, and ne’er-do-wells?

6 Principles Investors Use to Avoid Fraudulent Investment Companies

Principle #1 – Do Your Research 

The first thing investors must do is research. It’s not enough to read through the company website. Truly investigate. What does the BBB have to say? Is the company being talked about among other investors? When problems come up, do you see the company addressing the issues? In the case of Wells, for example, the CEO allegedly obscured the fact that her husband co-managed her portfolio. Notable because her husband is a convicted felon and of financial crimes at that! That’s a glaringly obvious red flag that a lot of people missed.

Further Reading: 6 Green Flags in a Turnkey Real Estate Company

Principle #2 – Verify Documentation

Don’t take a company’s word at face value. Verify their claims. Ask for financial statements, proof of funds, or other documentation to ensure the company is financially stable. What about outstanding liens, lawsuits, or bankruptcies? On the surface, all may seem well. Every company wants to present a competent, trustworthy image. Can they back it up with real data and results?

This is also where experience truly matters. How long has this company been in business? Real estate investment often demands taking lumps in those first fledgling years. Everyone has to start somewhere, but you don’t have to invest in inexperience.

Principle #3 – Know the Latest Schemes

Part of avoiding fraud is simply knowing what fraud looks like. While some scams are tales as old as time, others are capitalizing on modern technology. For example, do you know how to spot an AI image? Listing photos may be fabricated in part or entirely. What about documents? AI is used to forge deeds, title transfers, and other critical real estate documents. Cyberattacks, fake data, and other scams are getting smarter every day. Stay ahead and avoid getting duped!

Principle #4 – Get Everything in Writing

If you decide to partner with anyone – a fellow investor, a company, or a service provider – get the agreement in writing. Have your lawyer review it to see if the contract is enforceable and if any loopholes need closing. As much as we want to be able to take others at their word, that’s not wise in this day and age.

Principle #5 – Trust Your Instincts

Looking at still-existing reviews for Wells Real Estate Investment, you’ll still see recommendations and positive reviews. Looking back now that we know what we know, it’s pretty eerie! People were duped. Here’s the harsh reality: any and every investor is vulnerable. Whether you’re a newbie or a seasoned veteran, you can still fall prey to these scams. If everything seems to check out, but you don’t have peace about it, don’t do it. If you have suspicions, listen to them. Trust your gut.

Principle #6 – Start Slowly

One of the things we often guard against is scaling too quickly. This can overextend your resources. Investors, start slow. If this is new to you, dip your toes in before you go off the high dive! Beware if a company pressures you to act quickly. It means they don’t want you to think about your decisions as closely as you should. Look for a partner that will work with your pace, your risk tolerance, and your needs as an investor.

Ready to invest but worried about risk? Let your REI Nation advisor help!