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Avoiding Investment Property Fraud

written by: theMallorys•edited by: Donna Cosmato•updated: 6/28/2011

Learn more about investment fraud property scams so you can avoid them. If you know how to spot inflated appraisals or false income statements, you could potentially save yourself a lot of time and money. Here’s a look at three common scams.

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    1150489 74226404 Whether the economy is up or down, investment fraud property schemes never go away. In fact, the worse the economy gets, the more schemes pop up all over the country. The fraud is easy to detect if you know what to look for, but too many unsuspecting individuals lose their entire savings and existing property due to fraud. Here are the key features of investment property fraud schemes to look for:

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    Inflated Appraisals

    One way to spot investment fraud with property is inflated appraisals. You can research home values using websites like Yahoo! Real Estate and to see whether a deal is too good to be true. The operator of the investment fraud property scheme will sell the property to investors for overvalued prices and waive typical down payment requirements for loans. The borrower thinks she’s getting a steal, because she doesn’t have to come up with a large down payment for a property that’s worth a lot of money. What really happens is that the borrower ends up owing more than the property is truly worth.

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    Falsely Stated Income

    It’s easy to make up any numbers you want about how much an apartment, single family home or condominium can rent for when it’s vacant. A typical investment fraud scheme falsely states the income of vacant property. The rental units are often vacant, but all promises are made about the potential for very high rents. Some scammers go as far as to make up numbers about past income. When the units are occupied, some excuse is made as to why the full rent amount is not being charged. The promise is that once you buy the property, you can charge even more. The only way to find out the truth is to ask for copies of cancelled checks or bank statements. Rental receipts can be forged, and aren’t as reliable.

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    Large Number of Properties/Investors

    Avoid real estate club schemes, which require groups of people to buy a large number of properties by pooling their funds. It’s especially problematic when you’re asked to pool funds with complete strangers. The promise in these schemes is that someone will act as a property manager, and collect rent on behalf of the group. The group will receive their portion of the profits on a monthly basis, and the property will appreciate in value much more so than other properties. The best way to buy investment property is buy it as an individual on your own, or with the help of a real estate agent. There are too many risks involved with a group purchase, even when the club is legitimate.

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    When it sounds too good to be true, it usually is. There are no “get rich quick" schemes when it comes to property investment, but you can make money over time by making wise decisions and avoiding scams.

    Image Credit: Svilen Milev