Even if you hire a reputable commercial real estate agent there are still plenty of ways for scammers to get to you and cause havoc with your portfolio.
To help you navigate safely through the world of commercial property investment, here are the four most vicious scams that are scarily common in today’s market.
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1. Bait and switch
This scam doesn’t involve any upfront investment, making it an easy one to fall for. What’s on offer here is a workshop, either in person or in the form of a webinar. If you sign up, you will likely be given genuinely useful information. This is the bait, and it works because of the quality of what you’re given, which garners trust.
The switch comes when they offer you pre-vetted properties in which to invest or more in-depth classes that cost an exorbitant sum. If they’re claiming to be able to get you filthy rich in a suspiciously short amount of time, they’re likely a scammer. Another red flag is if they try to pressure you by offering limited-time deals or suggesting that the best properties will be snapped up if you don’t act now. To avoid falling for such scams, always do your own research and never allow anyone to pressure you into a rushed decision.
2. Wire fraud
This is usually perpetrated by hackers who break into email accounts in search of transactions they can intercept. It could be your email account, or it could also be your real estate agent’s, your attorney’s, or anyone else involved. With the necessary information obtained, the hackers will pose as your real estate agent or a representative from the title company.
These scammers are experts at making emails look authentic, right down to faking the sender’s address. They will use professional language to inform you of a change with your transaction. If you follow their instructions without question, then you will be wiring money straight to the scammers. Of course, your agent may genuinely need to change the account to which you send your funds. If you’re uncertain, contact the relevant party using a verified phone number.
3. REIT scams
REITs (Real Estate Investment Trusts) have blown up in the last few years, and they certainly can offer fantastic returns for investors. However, they are also prone to fraud. More and more people are complaining of having been manipulated into buying into an investment that’s far more uncertain than they were led to believe.
To pick the good from the bad, be sure to check any REITs you’re considering with the SEC (Securities and Exchange Commission), hammer them with questions, research them online, and if you’re not confident in your own abilities, hire a securities attorney.
4. Failure to disclose
The seller may fail to inform you of a lien on the property, there may be structural defects, contractors who haven’t been paid, environmental issues, flooding history, or local laws that exclude certain businesses from being allowed to operate in the area.
Though you can usually seek legal recourse for property disclosure issues, it can be a messy, expensive, and time-consuming process with no guarantees. And all the while, you’ll be missing out on the revenue you were counting on from your investment. To avoid falling into this trap, it’s essential to do your due diligence. Hire experts to check every aspect of the property and ensure it matches what’s on paper.
A commercial real estate deal can make or break your financial future, so be sure to keep an eye out for scams, do plenty of research, and always follow your instincts.