Beginner’s Guide: Scams to Avoid in Real Estate Investing by William Bronchick

For beginners, real estate investing is never a walk in the park. It has a lot of risks. There are numerous companies that sell property investments for novices but the question would strike you with the trust that they impose. This is a beginner’s investment guide for one to realize the things that he or she needs to say “no” to and what should be regarded as false reassurances.

Tip 1 – Scout the Area

Before investing in a property, you must first assess the neighborhood. Is it desirable for a family, a couple or an individual to live in? For beginners, you should stick to ones that are relatively “safe”, that is, don’t have a lot of red flags that pop up. Avoid those areas that have big risks attached to it, such as excessive crime, common structural issues, bad schools, or other problems.  Instead, stick to the neighborhoods with a good reputation that you can resell or rent in a heartbeat. True, you may pay a little more for a property in a desirable area, but you won’t have to worry about whether you can unload it in a hurry.

Tip 2 – Trust No One

The person with a profit or commission incentive selling you a house doesn’t always have your best interests in mind. Double-check every fact, figure, and statistic that is presented to you about the property.  I am not suggesting that someone is outright lying to you, but salesmanship often involves an element of “puffery”, that is, exaggeration.  Real estate investors work on a thin profit margin, as little as 15%! If your figures are off by just a little, your profitable deal won’t be so profitable. As Ronald Reagan used to say, “Trust, but verify”.

Tip 3 – Ask a Lot of Questions

Don’t be afraid to pop out a question or two,  especially at those who are rambling on about how good the deal is. If an agent or a certain individual offers you something, ask the person if he or she has invested in the type of property that he or she is offering. If they haven’t invested in anything that they claim, pop another question: “Why not?”. Sometimes, what companies and agents offer will speak for themselves. Think, if what they offer are so fantastic, then why haven’t they invested in it? Until they have satisfied all of your questions, don’t take the bait.

Tip 4 – Is this Investment Right for You?

There is no “one size fits all” in real estate, since every investor has different needs and different goals.  Just because a property is a good deal, in general, does not mean it is necessarily a good deal for you. The real estate agent pushing a deal on you should be asking you about your goals and needs before offering you an investment. If not, they are likely just interested in earning a commission and little else.  

Tip 5 – Verify that the Deal is Real!

Believe it or not, people are often scammed by people claiming to have an ownership in a property that they don’t actually have! If you are dealing with a real estate agent, they likely have a listing agreement with the owner of the property or have the authority to show the property to prospective buyers.  If you are dealing with someone claiming to be the owner or a wholesaler, ask for verification of their ownership interest. If they are the owner, check the ownership to the property on the county website. If they are a wholesaler, ask for a copy of the contract they have with the owner.

Following these simple tips will definitely guide you into having a more profitable and risk-free deal. These tips will give you a head start.