Not just Detroit real estate — if you’re investing in real estate at all, read this first.
There are a lot of good reasons why international investing is difficult. Generally, we think of it as easier to invest in US stocks, bonds, and real estate than it would be to invest elsewhere. The truth, however, is that the very barriers that make investing difficult — among them language problems, time differences, and disclosure laws that don’t necessarily apply to overseas investors — open the door for amoral individuals to take advantage of overseas investors.
There are quite a number of investment scams out there, but the real estate market in particular is a hotbed of a common kind of scam, the ‘B.S. real estate investment seminar.’ In this scam, the scammers might honestly believe that they’re not scamming you — but they are. Anytime you hear a real estate investor talk about ‘no money down’, ‘risk-free investing’, ‘three-year millionaire’, or promising ‘secret’ or ‘exclusive’ techniques, the chances are approaching 100% that they’re scamming you. If they’re charging you thousands of dollars to teach you these things, they’re absolutely scamming you. Think about this – if it’s so easy to make money in real estate with their methods, then why are they spending their time teaching seminars and not ramping up their systems to become rich? And don’t fall for their, “I want to give back” spiel either – if they wanted to truly give back they wouldn’t charge anything!
Duplicate Listing Scams
It’s also fairly common for a scammer to take a legitimate listing — be it for a property to rent or to purchase — and change just the contact information, reposting the ad elsewhere on the Internet. Because the ad is essentially legitimate, it’s almost impossible to detect unless you see the two ads side by side and notice the difference in contact information.
Once you’ve contact the fake agent, they’ll ask for your personal information (identity theft), for some form of security or deposit, or other funds to be wired to them – which you’ll never get back.
The ‘As-is’ or ‘Quit Claim Deed’ Sale
Seriously? Who would buy a house they never see, don’t get professionally inspected by an unbiased 3rd party and don’t get title insurance for? The answer is foreigners who aren’t familiar with the home buying process in the U.S. and don’t know any better. But, we’ve actually seen investors from other states make these same mistakes. But Detroit houses are so cheap how can you lose, right? Well we’ve seen a lot of investors roll the dice and lose! Their first mistake is buying a property in the wrong area, then they add to their misery by often overpaying and not checking out the condition of the property – only to find out later it will take tens of thousands of dollars in repairs to rent it out. Lastly, because they buy without title insurance, they often get stuck with back taxes and huge water bills. Of course, you can always play “hot potato” with these properties and try to sell them to the next sucker before you get burned…
The Turnkey Rent Guaranteed Home
The sad part about this scam is there are actually a few legitimate companies out there doing this honestly, not many though. Even if they start out honest, the challenge always boils down to deal-flow, meaning the more successful they get the more houses they have to sell. At a certain point, they usually start cutting corners, selling inferior homes, doing subpar repairs, etc. – all to keep their good times rolling. There are even companies that buy homes, for a couple of thousand dollars, put no money or tenants into them, but sell them for $40,000+ with a two year, $800/month rent guarantee, basically giving the investor back some of their own money over time!
The Golden Rules of Scam Avoidance
Too Good To Be True Means Too Good To Be True — Which means it’s not true, plain and simple. If something seems to be selling way under value, or a seminar promises to make you a millionaire at no risk, or you hear any other promises that make you feel like you’re winning the lottery, you’re getting scammed.
Do The Due…Diligence, that is. Most scams have only the veneer of legitimacy. Do even a small amount of poking around online or asking trade organizations about specific individuals, and you’ll often rapidly unravel the entire facade. It’s amazing how often a simple $35 criminal background check will turn up a history of white-collar crime. Also be sure to hire a 3rd party to inspect homes before you but them. Everyone worth anything in real estate has a camera phone these days, but don’t just settle for pictures, demand videos showing the drive down the street, the neighboring houses and all angles of the property inside & out.
Diversify For Safety Most scammers are looking for a rube who can put up a large amount upfront or keep buying & buying homes from them. If actual deals exist, capitalism will cause competition. So, consistently check out competitors and maybe try a deal or two with them. You can also diversify to different cities and states. All of this will give you broader exposure, experience and comparisons to protect yourself to neatly sidestep the crosshairs of most scammers.