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Axis USA WebinarHow To Avoid The Property Scams
In recent years many people have decided to invest in property for the first time. Not surprisingly, with an asset like property large sums of money are involved. And naturally this attracts the scammers!
Let's examine the most common property scams, which will warn you in advance of suspicious activity.
Then I'll provide a simple six point checklist to ensure, so far as possible, that the company you intend to source your property investments through can be trusted with your money.
Property Scam Number One:
Big Fees For Portfolio Building
A number of companies have what appears to be an attractive business model. Here's the pitch; "Give us £25,000, £50,000 or whatever and we will source and buy for you 'XX number' of properties with a substantial discount."
It's attractive because everything is done for you and the idea of ending up with a portfolio of properties in return for one cash payment is alluring.
The scam is simple - the company just can't deliver the properties. In fact the more successful they are at selling the portfolio concept the more difficult it is to find enough deals for their investors.
Does this 'pay us cash for building your portfolio' work? Mostly not. The Government has closed down a number of companies offering this service on the simple premise that they were taking money and not delivering the goods!
Property Scam Number Two
'Landbanking'
Beware of slick salesmen who offer you land with planning potential in the future. Typically land with planning consent is worth 100-300 times more than agricultural land. So find a field on the edge of a town and persuade investors to buy 'plots', in the hope that at some time in the future planning consent can be obtained.
The sales company makes huge profits on the agricultural land they sell as 'building plots'. The investors end up with something almost worthless that is usually unsaleable. Getting planning consent to build on agricultural land is probably the same odds of winning the lottery.
The Government is less than impressed with these schemes too. In December 2009 they petitioned for the winding up of not just one but five land banking companies. A real scam to be avoided!
Property Scam Number Three
Overinflated Market Prices
This scam is more subtle and difficult to detect. You are offered an investment with a generous percentage off the 'market price'. Seems pretty good. You have a big chunk of immediate equity to put in your pocket.
Trouble is, the market price is overinflated and the discount isn't 'real'! This is, in our view, unethical and a bad scam because the investor ends up overpaying. This scam is more prevalent with overseas property where it is far more difficult for the investor to make market value comparisons.
Property Scam Number Four
Bad Property Deals Wrapped Up as Good Property Deals
This is probably the most difficult scam of all to spot. It's may not be a blatant lie. It's just that you haven't been told the whole story. Maybe there is a council estate with a history of violence backing on to the property. Maybe the street is used by local gangs for drag racing late at night. Maybe the public transport is terrible and no-one wants to rent there.
Whether these points were known by the property sourcing company or not, the end result is the same: a bad investment dressed up as a good investment - but you don't know until after you have bought it!
It's possible that the problem wasn't known, in which case this could be bad research but technically isn't a scam. But if the problem IS known... then we are deep in scam territory!
Are there more property scams than I've mentioned here? I'm sure there are but these are the biggest you are likely to come across. Keep your eyes open and your wallet closed until you are sure you have a genuine deal that is deliverable.
Rod's Top Tips For Avoiding Property Scams!
Tip One - Due Diligence
Check exactly what due diligence the property company has completed and take responsibility to complete some yourself if there is the slightest doubt that it was less than 100% satisfactory. You know the saying "caveat emptor" - buyer beware. At Axis we have a due diligence check list that covers five major areas and forms part of our Five Star Guarantee!
Tip Two - Visit The Property Company
A visit works wonders. You get to meet the team personally. You will learn a lot. Spend time with Directors or Senior Managers and ask penetrating questions. At Axis we welcome our clients and will always make time to spend with them.
Tip Three - Ask For Guarantees
What Guarantees does the property company offer, if at all? At Axis most property deals come with our unique Five Star Guarantee that provides peace of mind to our investor clients.
Tip Four - Examine The Property Brochure With Care
How much information are you being provided with? It is sketchy or truly comprehensive. This tends to reflect the research and due diligence that the property company has completed, and also shows transparency and honesty in assessment of the property investment. At Axis we are renowned for the level of detail we provide - frequently running to between 10 and 20 pages of information.
Tip Five - Age and Industry Reputation
Ask around. How long has the company been in existence? Check if they appear at exhibitions on a regular basis. Are the principals of the company renowned in their field and asked to speak at public events? It's not difficult to build up a picture of the company and the people who play a key role there. At Axis, I come from a background as a FCA (Fellow of Institute Of Chartered Accountants) and I value my professional qualification. I am also author of the leading property investment home study course. I get invited to speak across the country and even internationally at property related events. I've got nowhere to hide and I don't need to!
Tip Six - Ask For A Client Account
It's perfectly reasonable for you to be asked for fees in advance. That's normal commercial practice. But what is not reasonable, at least in our view, is where the company immediately pockets the cash before the deal is concluded.
At Axis we place fees in a Client Account. The terms on which the money can be released to the company are clearly defined in our legal agreements. And if the deal doesn't proceed for reasons that are pre-agreed, the fees are refunded. No risk. No argument.
Avoid The Scams - Take Heed Of Dangerous Areas And Follow My Tips!
I hope you have found value in understanding the main ways that property scammers can take your money and not deliver value in return! Take notice of my top tips and you won't be the victim of the next property scam.
Live with Abundance!
Rod Thomas FCA
Posted in Property Essentials
18 responses to 'How To Avoid The Property Scams'
I have deleted the name of the company because we have to be careful not to potentially libel a company unless an accusation is proven in court. If readers want the name of this company they can email questions@axiscontact.com and we will forward their enquiry to the poster of this comment
Added 15-Mar-2010 08:58
This was a pertinent post. An interesting and well written article! Every industry has its scam artists, and real estate is no exception. While most of the professionals who work in real estate are ethical and honest, there are people in the industry who want to take your money and run. Worse, there are scam artists who use real estate as a cover. These fraudsters may know nothing about real estate but simply use properties to extract money from victims. Sadly, properties mean large amounts of cash and this can attract criminals. You don’t have to be a victim, though. Whether you are investing in real estate or buying your own home.
Best Regards,
Charlie
Dan Carlton
Added 30-Jul-2010 16:00
Hi
My wife recently found a Company in the UK called "Property Auction News" that offers incredibly cheap properties for sale. It appears that one has to purchese their property brochure list for 59 GBP, showing one or two UK properties per month, for figures as low as 15,000 GBP for what looks like a three bedroom house and possibly worth 90,000 GBP to 125,000 GBP on the open market. Funders and Loan Companies are apparently recommended natuarlly.
I smelt a rat immediately but need some professional guidance before bursting my dear wife's bubble.
Please could you tell me if "Property Auction News" are a legitamate business or if they are a scam? Their web address is: http://www.propertyauctionnews.co.uk/index.html
I really appreciate your help.
Kind regards
Dan Carlton. Faversham in Kent. UK.
Property Auction News has been running for many years and is a solid company to my knowledge. However there are a number of websites which provide information on upcoming auctions which may be more comprehensive and up to date. You need to do some research.
Bob Bystander
Added 17-Aug-2010 09:10
The biggest scam of all are surely estate agent valuations? First they defy common sense, the land houses are built on is, and never was worth the amount claimed, and if you were to demolish your 'dream home bought lets imagine @ £300k, the demolition rubble is worth as hardcore about £150.00. I've worked in more homes than most, 20 years as a builder in West London, and in the roof spaces you often find old Evening Standard Newspapers showing these home were built for about £200.00, and sold for £350.00, with £5-00 deposit, and repayments of just 10/- per week. The fact is INFLATION was never that much over the years, what did happen is Estate Agents hyped the prices upwards over and over again. Suffice to say what agents did was seen as good business, explained away in a few line, but no one looked at it in terms of compound interest, meaning 'compounded prices'? Lets be realistic a 4 bed semi in London is not worth a £1m. and a mnasion in Surrey is not worth £6m, and the Land Bubble is going to burst again, and again. This is why banks are reluctant to lend on homes, someone should tell investors that 50% of a home is WOOD, [TIMBER] and its not going to last forever?
What a great post that goes to the heart of what an asset is really worth. Actually virtually everything we buy is valued at far more than the cost of the product. Bought a coffee recently? The markup on cost is about 1,000%. In a free society the market price will reflect supply and demand. In the UK the hard truth is that we don't have enough houses for the population and it's getting worse not better. In the short to medium term a free market will reflect that in higher prices, which of course bear no relation to construction or even land cost. We might not like it, but that's the way it is.
t adee
Added 22-Sep-2010 10:25
What is your advice regarding MRI International concerning sale of property in Germany and what are the current predictions regarding these tenement properties?
Thank you.
We never comment about individual companies because we don't have all relevant information. The key is to make sure you are fully protected at every stage of the transaction and to do your own due diligence on both the area and the property concerned.
gill
Added 23-Nov-2010 09:51
Hello. I was a naive downsizer in 2004 and went to a Manchester property investment show. At the show were several landbanking companies..as it was 'the scam' of that time..unwittingly I got involved with two companies..using my credi card to pay £500 deposits. When someone actually got a refund for there claim..my expectations rose. I started 'joint liability' claims citing s. 75 of the CCA 1974. However, one one purchase there is the added complications of no puchase contract (the land they bought for £35,000 was the first, they subdivided it into 139 plots..mine was £11995!) additionally, I gifted the plot to my daughter for university costs as her father has a communicable disease and is not on the scene. I have now caused problems re the debitor -creditor-supplier relationship. It is now with the FOS, who also state that as the other persons refund was by a different credit card company, it was free to interpret s. 75 differently...can they do this? I'll expand on the second case after you advise me about the first...my head is so mashed up..my estranged husband's health is also extremely poor, so supporting my children as well as this is proving an immense strain on me.
I completely understand the difficulties and sympathize. However we are not professional advisors and you need to find the right people with the expertise to help you unravel a challenging situation. Wish you the best of luck.
Paul Brealey
Added 24-Jan-2011 09:43
Hi got involved with a company called Cherry Property Investments/Platinum Investments from County Durham about BMV property to build my property empire.
Seemed really good and i was intrested in 1 property so money in the valuation went well but the lender pulled out last minute due to it being sold for 100k in the last 6 months, they were selling for £125k - 25% discount after this they convinced me to go with another lender and have a second valuation as my money was now in and worried of ending up with nothing £5,640.00 spent i agreed then the lender valued this at £90k and listed defects as to why they had given this figure. This company Cherry Property Investments etc still have this money they cannot deliver the product and the 3 people involved keep passing the blame to each other the so called business is a disgrace and con they also trade with a company no that does not belong to them, most of there phone numbers have dead tones all mobiles now instead.
You have identified an issue which we are well aware of - valuations at market price are always difficult. Axis identifies and justifies the market price, but valuations are only done at the net price which the investor pays. In your case this is about £93,000 which would have been easy to achieve. In our view the approach you have taken is fundamentally open to problems, which sadly you have experienced.
Chauhan
Added 01-Mar-2011 09:50
Hi,
Need your advise,
I am a u.k citizen and invested in a property in Detroit.
I paid an amount for this property,the funds were transfered from my u.k bank to an exchange company,who thereby forwarded the amount to an escrow account within a Title Company.
We recieved our final documents and now find that the documents issued are fraudulant,our property is not even registered on the Wayne County Register.Furthermore the title company released the funds to the so called seller.Now we find that the property that was sold to us did not even belong to the seller.Did not think some thing like this would happen in the states.Should the Title company have done the relavant checks before releasing the funds to the scammer.And who regulates them ?
Yes. The whole purpose of the title company is to check title! You should have received this service and the Title company is at fault.
jill jones
Added 28-Jan-2011 11:36
i would like to complain about 'Property Auction News' using ages old exampes of amazing buys and deals this is surely non-factual advertising i know these examples go back to the days of slumps these propertries are NOT available now they may be relatively genuine but they are treating people like mugs
I can't comment specifically but I would say that for companies to do well in a competitive marketplace we all need to reflect honestly current information.
Andre
Added 24-Mar-2011 10:23
Hello, i have some properties for sale in internet, and i receive a lot of mails of people offering me a lot of money to buy my properties that i think its scam. Can you tell me please what do they usualy do and theyr usual methods to purchase us proprietaires??
This is a back to front question! Normally the issue for property buyers is whether the vendor and the property is 'real'. You are apparently worried about scam buyers. Work through a lawyer specialising in property transactions and this should not be an issue - they are there to protect you.
Added 28-Sep-2011 09:32
I'm thinking in taking a property with propertysecrets anyone has a feedback on them or worked with them before?
Punktlich05
Added 04-Nov-2011 09:20
Reading through your excellent site and some of the comments leads me to offer the following: In the USA the buyer should have his/her own (conveyancing) lawyer. In most states there will be a title insurer (A title "company" can also sell such a policy. If the property is mortgaged the bank will require it. If there's a title defect, a hidden claim, the insurer pays.) Yet there's always room for fraud: Google, for example, 'Royal "Scoop" Daniel', a lawyer who absconded with trust fund money from Sec. 1031 tax-free exchange deals in Colorado. As for land deals in other countries, there is usually a single "notary" (i.e. a civil-law family-law and property lawyer) wording for both sides, and that's risky. The smart buyer will hire his own lawyer who will advise on escrow and who can hold funds as stakeholder. But even due diligence won't protect against all risks: bankruptcy of the agent or developer or stakeholder (unless the money is held in formal trust), exchange rate loss, legal 'catastrophe' (thinking of the Apostolides v Orams case re: Northern Cyprus), bad market conditions. What the buyer can do is get an independent valuation and at least do an Internet search. And visit the property. Who would buy in Detroit or Buffalo after having visited those cities?
Thanks for your comments. Appreciate your point of view. However, we have had MANY clients visit Detroit and Buffalo and have gone ahead very happily and invested in multiple portfolio's there. Our clients buy property for working professionals and families, not holiday resorts. So major northern cities in the USA are well placed to give way above average returns.
MR Green
Added 03-Nov-2011 12:27
HI
I paid a £2500 reservation deposit on a property in Prague that was supposed to be completed in January 2008. The company in question had an office in Prague but was mainly based in Liverpool. In April 2008 I called the company and asked for my reservation fee back as we had not even signed contracts or recieved any information whatsoever and thought better of staying involved as it was taking forever and seemed a little suspect.
I cancelled buying the property which the solicitors said was fine due to the long delay but lost my reservation deposit from the company as they said that it was purely for reserving the property and for extras after it was built. I said to them that they could give me the deposit back when they found another buyer if they didn't want to be out of pocket, but they just point blank refused.
A few months later I mistakenly received documents from the solicitors with a contract for the apartment, I had cancelled.
On one of the first pages it said that the contract did not guarentee the apartment.
These apartments (the Neo Riviera in Prague 4) I can't seem to find anywhere so I dont even think these apartments have been built and the property company still hold my money even though the legal document says that their reservation guarentee means nothing.
If these apartments haven't been built and the reservation fee was not valid. The company should have given me my money back shouldn't they?
Kind Regards
I am not able to comment on your specific situation because I am not a lawyer and I don't have the whole story. However, there are three things that may be helpful to contribute. Firstly, what the legal position is may not matter if the company you gave your reservation fee to is not financially able or willing to repay the fee. So whilst you might be entitled to your fee back, actually getting it may be problematic and you will have to weigh up the time, cost and risk of taking action. Secondly, most reservation fees are refundable if the project doesn't go ahead. Thirdly, the contract usually specifies the 'rules' but as you haven't got a signed contract this makes it even more difficult. You need a legal opinion about whether the fee should be refunded, and then to take a view about whether it is worth persuing. A very difficult situation.
anonymous
Added 22-Nov-2011 15:01
Hey! I just came across a group in Michigan. They're selling properties with a monthly rental of $850. I somehow doubt this scheme and am confused regarding the investment. Please HELP.
Thanks.
Rentals of anywhere from $700 to $900 are the norm in the right areas of Detroit. Mostly the issue is buying at the right price. In general the price points offered are $35K to $55K. Axis offers the same kind of refurbished property in Detroit from $17K to $25K - about 50% of the typical price being asked!
BARRY HARRISON
Added 14-Nov-2011 10:30
Hi, I purchased some properties that were sold to me as no money down deals, all I had to pay was 5k per property and I would be getting a decent size of equity in my new property. Anyway, I now firmly believe that these house prices were over inflated and that the surveyor was in on the deal. Do you have any suggestions as to what action I could take other than contacting RICS?
Valuation is a mixture of art and science and generally you could expect a flucation of +/- 5% from any valuer. On some properties it could be +/- 10%. If you have had a valuation for a building society it is unlikely that the valuer was fraudulent, although not impossible. If your concern is a valuation issue then your correct course of action is to report them initially to the company they work for, and then to RICS. Note that because this was done as a 'no money down' type deal, there could be some question of mortgage fraud which might have implications for you.
diana
Added 22-Nov-2011 14:55
I wonder if you can help me. I am selling my property on bmv basis. It is what they call a back to back deal whereby the introducer pays my legal fees and the introducer makes a profit. The introducer gave me the name of a solicitor in devon who I went with and they appeared very efficient. The introducer is based in the channel islands and is supposedly a limited company. After taking stock, I thought I better check companys register in Jersey and they are not listed. I also checked on companies house in the UK again not listed. My suspicions arose when I requested a copy of the contract. It was not signed or dated The solicitors correspondence with me is such that the introducer can walk away from the deal if they cannot find a buyer. Contracts \\\\\\\\\\\\\\\'exchanged\\\\\\\\\\\\\\\' on2/11 and completion on or before 30/11 if a buyer cannot be found the introducer can walk away. However in the the contract it does not say this, nor indeed does it say I can walk away. I emailed the solicitor to raise these queries and received an email back saying she would call me the following day which did not happen. I \\\\\\\\\\\\\\\'phoned yesterday and was told she was on the \\\\\\\\\\\\\\\'phone. I emailed again today requesting a response, so we will see. Any advice you can give me would be most helpful.
I understand that as you are selling BMV you are likely in some financial distress and that this is a very difficult time. However, please be careful! It is in the introducer's interest to be able to walk away if they don't find a buyer - but is that in your interest? Also if they are passing on your property for a profit if the final buyer needs a mortgage depending on how it is done they could be in breach of the CML '6 month' rule. Ask the solicitor about that. At the very least please get yourself independent legal representation and make sure that everything is above board. I know it costs money, but you could end up losing time, money and ultimately your property if it goes wrong.
Kamlin
Added 23-Jan-2012 10:20
Hi there,
Have you heard of a company called Landhold Capital and their promotional division called SJ Capital?
They are selling plots in the Southampton Bursledon area. The land is to be rezoned for developers. I have been to their offices, checked the profiles of their senior team members on LinkedIn and been to their exhibitions in big shopping centers here in Durban South Africa.
Please can you provide some advise on this company and deal?
I have no knowledge of this company. What I can say in general terms is that buying land that may be zoned for redevelopment is a high risk strategy in the UK. It is extremely rare for this to happen, so you are taking, in our view, a huge risk waiting for this to happen, however good the case seems to be for change of use. Only invest money that you can afford to have no return on for many years, if at all!
trudi sammons
Added 27-Apr-2012 15:42
I have recently become very concerned that myself and my husband have been scammed for our reservation fee of £3000. Handed it over in September, tried to visit site, but no joy, then told in December 2011 application woud not go through. All docs returned, but commitment fee NOT! The company is called Property Global Investment PGI ever hearrd of this company?? Is it their normal practice? i am going to seek legal advuce just wondered if you knew anything?
Sorry but we have not heard of that company. Does not imply good or bad as there are many companies we don't know. However, if the deal is not happening and your fee has not been returned that is cause for concern. Take legal advice and action sooner rather than later.
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NITINBABU VRAJLAL
Added 09-Mar-2010 15:51
Hi,
Why i didn't found this article before? I am a victim of a property sourcing company called XXXXXX (available on request) and i am burning with my hard earned cash handed to them and not receiving my properties a cording to my criteria! Have started court proceedings against them now let see what it takes but here is the warning please dont hand easily your cash to this fraud companies!
thanks for reading my story.