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How to Identify Real Estate Investments that are Bound to Fail

Investing in real estate properties is a very lucrative way of earning money, no doubt. In fact, the goal to generate additional income is the reason why many people are trying their shot at real estate. But getting it right is the key to success for investors, especially with the emergence of different real estate investment scams and failed investments .

As it is with other methods of scams, it is quite easy to fall victim to real estate fraud because it may be difficult to differentiate between a legitimate listing and a fraud.

If you are a real estate investor, you need to understand that it is important and even much easier to prevent falling victim than trying to find a way out later as an investor as you go about your journey of achieving passive income and comfort. Prepare yourself mentally that you might come across scammers who are after your hard-earned money. Hence, equip yourself with the right tools to avoid them by learning some of the traits and signs you need to watch out for.

[READ MORE: HOW TO MAKE AN OFFER ON AN OVERPRICED HOME]

Their Founders Present themselves as Unnecessarily “Flashy” and Wealthy

One of the things that are common with most real estate investment scams is that their initiators/founders present themselves to high-yield-seeking investors as extremely wealthy individuals, and do everything within their means to “show off”. They deceive people with their enthralling lifestyles, living lavishly with exotic collections of clothes and cars. They also pose as “investment gurus” who started with little or nothing but are have now made it big through the same method they are telling people to employ. The irony, however, is that most of them do not have the intention of fulfilling their promises to investors. You are likely to fall for them if you pay too much attention to their glamorous, outrageous widespread media campaigns through social and traditional media.

They often make themselves the ‘focus’ and centre of attraction and not the business, circulating their pictures and videos in palatial mansions, super-exotic cars, frequent high-level travels to different countries of the world in a bid to promote their “business empire”. Using their “If I did it, you can too” mantra, they ensnare people into their “nets” through their many cronies with sugar-coated tongues.

Though it is good to invest in successful companies, the lavish lifestyles of the founders should not be the basis for doing so. In fact, most genuinely wealthy businessmen and founders with highly regarded and popular companies rarely leave that kind of life or show off their wealth. They are too busy overseeing their businesses and creating more opportunities to be found indulging in such frivolities. So, try researching the reputation and antecedent of anyone offering you unbelievable investment opportunities as well as the source of their wealth before you decide to put down your money.

They Act as Though they were Helping You

When you enter any real estate investment deal with anyone, property purchase, rental, or any other investment portfolio either long-term or short-term, it is a business deal that can be a partnership. You drop your money and get the property or apartment. You are not helpless and nobody is helping you. Unfortunately, this is one of the wide range of deceptive practices investment fraudsters use to induce investors to make investing decisions. They come up with grand luxurious fictitious property developments or construction they are planning to embark on – such that the world has never seen before and would yield a sure unimaginable return within a short period of time.

Before you know it, you are already accepting the belief that they are helping you to ‘double’ your money or give you a unique once-in-a-lifetime chance at making it big in life without much ado. The offer is presented in a way that makes it seem you do not need to exert your time or energy – just drop your money and they will handle the rest.

You need to understand how real estate investments work and be leery of people that present themselves as though they were helping you.

[READ ALSO: 10 THINGS TO EXPECT FROM YOUR REAL ESTATE AGENT WHEN BUYING A HOME]

They Offer you Quick Incredible “too good to believe” Investment Returns

There are real investment investments that offer to pay you incredible returns on investment (ROI) within the shortest time frame to convince you to drop your money. Who does not want more money?

Offers like this usually come in different forms. Some ask you to subscribe to a real estate property that will appreciate in little time. The property may not even be in existence yet. Others come in form of pyramid schemes – multi-level marketing schemes, claiming that they can turn a small investment into large profits in a short time if you bring other people to invest in the same property. This sort of investment often crumbles when it becomes totally impossible to recruit new participants. And this happens quickly in most cases.

Real estate investments like this also come in form of a “Ponzi scheme”. They ask people to invest money and advertise certain properties and bring others. In reality, they use the money gathered from new investors to pay earlier-stage investors rather than using the money to acquire, develop and manage properties as promised. The scheme requires a steady stream of incoming cash to stay afloat and crashes when the ‘fraudsters’ can no longer attract new investors or too many investors attempt to get their money out – sometimes during turbulent economic times.

Instead of being attracted to real estate investments that offer incredible ROIs, take your time to get enough capital, study the market for real and rewarding properties, and investment schemes that meet your objectives.

They Create a Sense of Undue Urgency/Pressure

As an investor, be wary of real estate investments that create an unwarranted sense of urgency or put unnecessary pressure on you to invest in a property or subscribe to a building project payment plan.

They tend to pressure you with “limited time offers” to force you to make a hasty decision. Such investments do not give you the time to consider the offers meticulously to know whether or not it makes sense to you. They claim their investment opportunities are “once-in-a-lifetime” or limited to a certain number of investors, and have a deadline triggered by an event that would happen soon. They even share promotional videos that impose a deadline or a fake countdown. This is to ensure you do not have enough time to research the investment.

Some will also try to force you to pay an “advance fee” if they notice their earlier approach is not working. The plan is, once you pay the advance fee, you will be encouraged to pay more and if you cannot, it will be difficult to get your advance payment back.

They Give you Condition-Free/Risk-Free Offers

Most real estate investment scams do not just offer you incredible “too good to be true” investment offers, they also make you believe there is no condition attached to the deals. Real estate purchase offers often include criteria or conditions, that must be met before the sale is final and the title of the property is transferred. Purchase offers also include an exact explanation of the process for meeting the condition and the deadline for meeting the condition.

These conditions, also called contingencies, allow buyers to perform diligent research on a property, like getting a home inspection and properly reviewing all relevant information such as the title or condominium documents, etc.

So when you are given a condition-free purchase contract, that is, an offer to purchase property without conditions attached, you must be very careful and ensure you make an informed decision before dropping your hard-earned money.

[ALSO RELATED: TOP FREQUENTLY ASKED QUESTIONS FROM HOME BUYERS]

They Use Fake Unbelievable Testimonials/Reviews

Real estate investment scammers also convince investors through fake online reviews and video testimonials of supposed ‘investors’ who have been able to ‘cash out’ from the schemes. These fake testifiers appear to be independent and unbiased, claiming to have gotten rich from the same investment opportunity and urge you to take advantage of it for financial freedom. Whereas, the homes advertised are either “invisible homes” or properties that belong to other people.

They also share attractive listing information, appealing photos, and highlight updates, renovations, and other details designed to entice the potential buyer. The interested buyer may feel they’re getting an exclusive sneak peek, but conveniently, nothing can actually be verified with a third party.

Closing

The profitability of real estate investments has given rise to the influx of fraudsters or ‘scammers’ in the industry. These people get creative every day using various means and methods to swindle investors of their hard-earned money. Nevertheless, there are many real and genuine real estate companies out there who are willing to give you lucrative investment opportunities. You only need to be diligent enough to research any investment opportunity you come across and watch out for the signs discussed above.

 

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