10 Investor Scams
Please be Very Wary of the investors approaching you. In my opinion, almost every one of them will lie to you to get your family home for pennies on the dollar — and unfortunately, they are really darn good at it. I have learned a lot in 25 years.
- IMPORTANT WARNING – The most critical red flag to watch out for when dealing with Investors is any mention of an “Affidavit of Memorandum” or “Memorandum of Contract” in the offer paperwork. If you see this, please immediately STOP & call me—this allows the investor to place a lien or cloud on your title, usually for $20,000 or $30,000. That means you can’t sell without paying them. We’ve helped 3 sellers get these removed in just the past year, but it cost about $3,000 in attorney fees and delayed closing by 4 months.
- Please protect yourself. The most common tactic investors use to be deceitful is to lie to you just before closing. You agree to a sales price. A month later, when you’re a couple days out from closing (and emotionally committed), THEY suddenly say
“the numbers don’t work” or “the taxes and insurance are much higher” or “Inflation caused my repair prices to skyrocket” or my favorite “my business partner dropped out but I can only buy at this price” hoping you’ll accept out of fatigue or desperation.
The best way to weed out most of these morally challenged people is to require a significant down payment of $10,000. If they truly intend to buy your home, there’s no reason at all for them not put down $10,000. Then if they pull this fraud, you can say “NO!!!!!”. “Not going to happen” “We have a contract, follow it, or go away and I will keep your $10,000”.
- Use a Legitimate title company and manage them. If you do decide to go under contract with an investor it is imperative that the escrow funds are held at the legitimate title company and not by the investor. Look them up online.
- Your ability to claim these funds, when an investor backs out, are almost non-existent unless they are held by a real title company. Never let the investor hold the escrow money.
- Most title companies will NOT reach out to you and tell you the $10,000 was not sent in by the buyer. You must email, if not call them to verify they received the money. Almost half of investors do not send it in.
- Your Home’s True Value – Do you believe the offers presented by investors are a true judge of the worth of your family home? Don’t. They are ALL trying to purchase your home for as little as possible; they are businessmen. They may be pretending to be kind, caring, and helpful but remember, their goal is to get your family home from you for as little as possible.
- Maximize your profit! Your family home is worth as much as the Highest Buyer is willing to pay; that is its True Value. That gives us two options.
A. I can give you a 100% non-biased, objective analysis of the value of your home.
B. I can put your home up on the open market and so that 5000 local, VETTED investors see your home, so you can find the one who will pay you the absolute most.
The average realtors commissions are about $14,000, but I have been doing this for 25 years and there has only been 1 occasion where putting a home on the market did not net the sellers at least $21,000 more, even after paying the commission. (The exception was $12,000 more).
- Wholesalers – The overwhelming majority of investors reaching out to you have no intention of purchasing your home. They are wholesalers: trying to get your home under contract as far Below Market Value as they can push you. They then try to sell your contract to someone else, making an average of $20,000 just by being the middleman. Wouldn’t you rather have the $20,000 in YOUR family’s checkbook? I can make that happen for you!
On the other hand, if they genuinely want to buy your home, demand they put down a $10,000 escrow deposit. If you do, you must call the title company and make sure they receive that escrow. THIS IS IMPORTANT – the majority of them don’t send it in. Their Title company will not inform you if they have not received it. If they have not put the money down, call me, I can help.
- Investors who are wholesalers often offer more for your home than it is worth, just to get your home under contract. This often causes them not to be able to find an end buyer for your home. I have learned from experience to never offer investors extensions EVER, or if you have to, for no more than 7 days and only one time. Otherwise, it is highly likely that you are working with a wholesaler, and they’re trying to sell your contract to someone else but they can’t find a buyer.
- Seller Financing – If you choose to work with an investor who is offering seller financing, what happens if they stop paying? You must go through the expense, time, and effort to foreclose. There are steps you can take to protect yourself. Please call me.
- Non-local investors – I would be extremely wary of any investor that you do not meet in person. If they are not local and have not seen your family home, and they have not been vetted, I would consider their offer 100% worthless. There’s no conceivable way they can accurately determine the value of your home. Do not trust them at all.
- Follow your gut – The more pressure an investor puts on you, the more you should be concerned. The more pressure, the higher the likelihood that they are buying your family home even further below its true value. Pressure is a red flag.
