Although we know that investing in real estate online offers unprecedented access to the many potentially lucrative markets and opportunities, it isn’t a sure thing. Unfortunately, as with any business, there are those out there looking to make a quick buck – even if it comes at the expense of honest investors who worked hard to get where they are.
No one is immune from falling into a real estate investment catfishing situation. Regardless of experience, everyone can let their guard down, ignore the red flags, and fall for a bad investment.
Here’s how you don’t end up the same way!
Step One: Know the Red Flags
Red Flag #1 – It sounds too good to be true.
There’s always going to be a parallel relationship between risk and reward. The higher the risk, the higher the reward. Therefore slow-and-steady, reliable investments take years to really pay off while day-trading stocks can cause swift financial ruin. If you’ve encountered a real estate investment company of any kind that promises big returns for little initial investment or extremely low risk, you want to run far, far away. Know what numbers are and are not realistic for the types of investment you pursue. The averages will give you a benchmark to refer to, whether your potential partner is fudging the facts or not!
Red Flag #2 – They never acknowledge drawbacks.
People want you to use their services. They want you to buy into their investments. It is in their best interests, then, to sugarcoat, obscure or otherwise hide the harsh realities of this business. We’ll be the first to say that our turnkey real estate model comes at a premium price. It’s more expensive than more traditional ways of investing in real estate. (And we would say the peace of mind is well worth that cost!)
If you’re only seeing positives and no indication of tough truths, harsh realities, and honest dealing, be on guard. It might just be misguided marketing, or it might be a scam!
Red Flag #3 – You can’t verify the condition or existence of the properties.
We’ve heard the horror stories. In many cases, we’ll see fake rental listings. This scam typically works by showing potential residents a property, but it is not a property they own or otherwise have the right to rent. When the residents want to sign a lease and move in, they put down a deposit. The scammers then disappear with that deposit, leaving the renters cash poor and without a roof over their heads.
In the digital age, this can happen to real estate investors – particularly those who live overseas. Buying sight unseen is a big risk in the best of circumstances. While you may not be able or need to see the property in person, you can seek out as much information as possible. Ask for a virtual walk-through and check public records for property deeds to verify ownership.
Red Flag #4 – They hide behind jargon.
The real estate industry is a highly specialized space with its own dictionary of terms and jargon. For the most part, your average person isn’t going to deal with real estate transactions all too often. Maybe a few times in their lifetime, and almost always for a personal residence. Because of this, it’s very easy to confuse and mislead people by throwing buzzwords and esoteric jargon at them. Beware of this particularly when it comes to signing contracts, making any sort of deal, or attending “free” seminars that try to upsell you on an expensive curriculum that isn’t revolutionary or all that helpful.
Step Two: Prioritize Due Diligence
Get the word on the street.
What are people saying about the company? Join social media groups or forums of investors and ask around. We recommend BiggerPockets, as it’s a well-known and reputable tool for real estate investors that comes with an active community.
Ask tough questions.
Don’t take anyone’s word at face value. If something doesn’t make sense to you, ask. Be direct. Don’t worry about asking a potentially offensive question if it means safeguarding your hard-earned money.
While verification isn’t always possible, you should do so whenever you have the opportunity. In some cases, you’ll be able to access insightful public records or request copies of company reports that can back up the claims being made.
Make them earn your trust.
Trust takes years to earn and a moment to destroy. Don’t trust a person or company just because you want things to work out. Make them earn your trust – continue to ask questions, scrutinize records, and be an active agent in your portfolio’s growth.
Investing in real estate may be passive in a sense, but it isn’t and can’t be a totally hands-off financial strategy. To avoid being scammed, stay engaged. Read those monthly reports. Ask for updates. Visit HQ or your properties. Some scammers will lure you in and seem fine in the beginning, only to show their true colors when you’ve let your guard down.
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