Spot a Property Investment Scam

Brett Alegre-Wood
January 1, 2021

How To Spot a Property Investment Scam

Through understanding exactly how property scams and fraudsters work, you can avoid getting caught out with your next investment. While we all like to think that we can easily spot a scam, in reality it isn’t always that straightforward, especially when it involves property investment. 

In this article we will explore the different ways that unsuspecting investors can be conned out of their hard-earned cash through scams, ponzi schemes, bad business models and more. With the right knowledge and research, you will be able to avoid having this happen to you and continue to make smart decisions in your future investments. 

This post isn’t to put you off investing in property or to scare you; the vast majority of investments are not scams or ponzi schemes. Instead it should reassure you that you’ll know how to spot it a mile off if one does appear. Ultimately, the best approach is to carry out as much research as you can upfront, so you know exactly what you are getting yourself into. Part of becoming a great investor is creating a systematic process for investment that covers the possibility of scams, Ponzi's and bad business models in property or any investment.

If you are new to property investment and want to build a thriving property portfolio with a company that you can rely on, get in touch with Gladfish today.

Don't Be An Easy Target

There are plenty of different types of scams, some of which you will have come across in markets and on street corners: the ‘three-card monte’, flipping cups, and finding the coin under one of three cups are all examples of how con artists steal your money. 

If you’ve ever been the victim of one of these games, you’ll have walked away with lighter pockets and feeling a little dumber. That’s bad enough, of course, but small change when compared with how much the big scams can cost you. Property investment scams can quite literally cost you your home.

Anyone who has ever been caught out by a scammer is a person who never knew the scam existed, or could be said to have acted ‘naively’ by placing all their trust – and often all their money – in the hands of the scammer. They were attracted by the promise of huge returns, and the ‘evidence’ of massive profits being made by investors. Follow these two key rules to avoid becoming an easy target:

  • Rule number one, of course, is that if something appears too good to be true, then it probably is.
  • Rule number two, is to become cynical, and investigate every opportunity before investing.

Not All Scams Start As Scams

Some scams start out as scams, with the perpetrator having criminal intent from the off. Others start out as a bona fide business built on a bad business model. Some scams even evolve from a good business model that has turned bad because of bad business decisions or complacency. 

The origins of the scam don’t really matter. What matters is the result: a lot of people losing a lot of money. However, let’s take a few moments to discover how these scams do differ. The classic scam is when the perpetrator deliberately sets out to steal investors’ money. 

You may have heard the term ‘Ponzi scheme’. This type of scam starts with absolutely no more than a promise. Investors’ money is used to feed previous investors their promised return, with the scammer skimming the remainder. The majority of investors in this type of scheme lose everything.

The scam that evolves from a legitimate business is more difficult to detect. The business starts out with good intentions, and its promised returns are made to begin with.Things appear to be going well, but then something happens to upset the apple cart. 

Often, this is because of a lack of experience; but it might also be simply that market conditions alter so dramatically that the original business model crashes. Losses build up, but rather than admit problems to investors, the business controller carries on regardless.

Telltale Signs To Look Out For

Every scam is different, but there are some telltale signs that should set alarm bells ringing if you hear them mentioned in relation to property investment. Get educated in the most common scams and learn to spot them early, and you’ll avoid becoming a sucker for a scam. Here’s some common things to look out for:

  • If you’re paying the agents commission, and it is more than 10% 
  • If you’re promised a return on investment of at least 15% 
  • Guaranteed buybacks 
  • Guaranteed rental income
  • Vendor finance projects 
  • One-close sales 
  • Off plan property in underdeveloped areas
  • Small schemes that deliver and then promote longer investment
  • Slick marketing and ‘no risk’ offers
  • Never invest in an opportunity without an exit strategy
  • Never assume that the developer or promoter is telling the whole truth

Your Next Investment

Hopefully the above has reassured you, rather than scared you away from property investment. The fact that you now have a level of scepticism flowing within your investment thinking is a good thing - This is a healthy attitude to take into your next investment project.  

Every opportunity that has the potential to make a profit carries risk. Mitigating that risk is a skill that the provider should have and you will need to learn. By taking a healthily sceptical approach to property investing, you’ll soon be asking the right questions and doing the right research to make sure that the investment and underlying business is not a property scam in disguise. You’ll make solid investments that provide above-average returns as you build a substantial property portfolio.

If you want to speak to a reputable property investment company about your next investment, speak to Gladfish today. We don’t look for a one-close sale, but instead build relationships, get to know investors, and work together to build a long-term market-beating investment.

The 3+1 Plan Brett AlegreWood
The 3+1 Plan Brett AlegreWood
Get the perfect plan for todays market. Download The 3+1 Plan now!
Get the perfect plan for todays market. Download The 3+1 Plan now!

It's a very different market in Scotland, it's a smaller market. There's some fundamental changes namely oil and gas with all the issues there and that I know Aberdeen and a few of those places house prices have dropped considerably. So, it 

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