New House-Flipping Scam Targets Investors

Have you been offered a home worth $2 million for a paltry $1.5 million? If so, you could have been targeted for a house-flipping scam that focuses on investors, according to an article on Realty Times.

We've been following house-flipping and its demise for some time. With the market how it is, house-flipping in its preferred form (where the investor gets double digit gains just for holding the property for a relatively short time) has generally stopped working. However, this particular scam approach makes it seem like you've found a once-in-a-lifetime good deal. Here's how it's done:

This scam usually starts with a free seminar, hosted by a real estate company. Participants are asked to register with name, address, phone and social security number. If you provide them with your social security number, they have all the information they need to pull a credit report on you! If you have a great credit report and could qualify for a large loan, you'll be approached by someone at the seminar.

Well before the seminar happens, the scam artists have found a property worth around $1 million that's on the market and hasn't sold.  A company rep has approached the sellers and made a deal with them to buy the property at the full list price of $1 million, as long as they take it off the market and re-list three months later at $2 million. Once this deal is made, a crooked appraiser is brought in to appraise the home for $2 million.

Then, at the seminar, the mark is approached by the speaker or some other accomlice to the scam. The "investor" is told of the great deal and how to get in on it. If the investor likes the idea and agrees to invest, the company does all the "work". They get a loan for $1.5 million, pay the seller of the home $1 million, and get away with $500,000 for themselves. The investor is left with a home that is only worth $1 million in reality, and has lost $500,000 in the transaction.

I have to say, it's easy to avoid this problem by following a few simple tips:

1. NEVER give your social security number to anyone except the tax man and your bank.
2. Avoid "free" real estate or other investment seminars. They are usually designed to sell you something -- and may be the fronts for one or more scams.
3. Always get your own mortgage. Make sure the mortgae is directly between you and the lender. This scam could not be completed without someone else getting in the middle of the loan process.
4. If something seems too good to be true -- it likely is! Why would anyone sell you a home that is worth more than you are paying and not have done that themselves?
5. Research any home or property that you intend to buy. MLS listings can be accessed from the internet. You don't have to be taken advantage of if you arm yourself with some information.

Investing in real estate is a great way to build financial wealth and security. Just do it the smart way.

Michael Chantrel
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