• April 6, 2021

How to avoid an investment property scam

This article was first published in May 2006 as a warning to potential investors to be careful when engaging in real estate investments. Hundreds of investors signed up with us and are participating in joint legal action, but many more, including many of the major banks, some now in government hands, got involved in hundreds of bad deals and are counting. costs in millions!

For those of you who saw the Sunday Times cover story ‘Shop to Let Real Estate Fraud Hit Thousands of People’ the week before Christmas 2008, you will have seen the latest results of that misdemeanor, and the losses and anguish that this widespread real estate fraud had on investors and their families.

For many people, taking the plunge and investing in property for their future is a great leap of faith. Imagine how they must feel if their investment turns out to be an investment property scam.

Is there a way out of any investment property scam?

The first thing to realize is that if you feel like you’ve been scammed, you’re probably not the only one. You may feel this way, and you may feel lonely, stupid, cheated, and angry or ashamed – some of the common emotions that are felt right now.

But these are the emotions that crooked-minded developers will encourage you to think about. They expect you to feel “cheated” and don’t want to tell anyone. In fact, with a clever scam, it may seem like there’s nothing to say anyway, other than your instincts, until you start investigating.

But inertia is just what these criminals (and generally are criminals) want you to think. In these circumstances, you should not keep everything to yourself. You should try to find out if other people have been misled in a similar situation. You never know, it may be one of ten, twenty, or hundreds of similar souls, and if you can find and identify with such groups, you will have a much higher chance of retaliation, believe me.

I got caught up in such an investment property scam about 18 months ago (I know, gasp, shock, horror, and I sell investment property!). For a few months I thought I was going crazy, I couldn’t understand why I couldn’t get tenants anywhere near the prices I was expecting, or even get tenants at all. This was the first revelation as I had been promised that the properties would have been fully rented once completed. Well at least that’s what the brochures said, as well as the sales manager at the presentation I attended. And I had bought several of these ‘beauties’, each supposedly rented in its entirety and I was earning around £ 500 each in excess monthly rent.

Then I began to investigate the situation further and soon identified the problem. It is a highly complex real estate investment scam!

So how did I, an experienced real estate investor and investment property reseller, get involved in an investment property scam?

I’ll tell you how, maybe criminal intent?

What I have done is chronicle the events that actually took place with my investments, of which I have since discovered that there were more than 100 similar incidents.

Before making this investment, or even recommending it to others, which consisted of a series of renovated houses converted to student HMOs (Multiple Occupancy Homes), I thoroughly researched the company. (Note that the company and location of these houses are not mentioned in this report for legal reasons.) I reviewed at least 6 of their property conversions, spoke to their rental people, and spoke to several existing investors. I took my business partner with me at the time to verify my findings. I was also comforted by the fact that these people were spending (and still spending) a lot of money on the big national newspapers (Sunday Times, Telegraph, etc.), and had produced a wide range of glossy brochures to support their publications. claim (es.

Some of his larger off-plan developments were also featured on two pages in one of the UK’s leading real estate magazines. Not only that, but they had (and still have) very large display stands at several of the major UK property shows.

Everything seemed to fit, so I bought several and encouraged my friends, close family, and co-workers to buy some as well. I paid my reservation fees and just set out to wait for them to complete and start generating surplus cash each month.

The first event in the chain of things was that the houses were too late to be finished, so we ran the risk of losing student admission for the fall of 2005, but the investment still seemed pretty good and anyway, everyone we had exchanged contracts by then. . And of course we all thought we had at least an 11% equity stake in each property, plus the usual 4-6% growth over last year. Also, when asked if we could inspect them prior to completion, we were told, “Sorry, since you have tenants in them, you need to give 48 hours or more notice.” Then when we tried to make an appointment, no one could find the keys … Where were my alarm bells? I hear you ask – Obviously in silent mode!

But then the dirt really started to rise to the surface …

All these houses were sold under the premise of ‘All contacts for services under one roof for the investor – use our services for sales, recommended attorneys, in-house brokers, mortgages, lease management from our own company’, you know, really good package for the chair inverter.

Issue 1 was that the houses were not fully rented once completed, and in many cases the tenants seemed to “fade away” after the contracts were signed. So far the promises made in developers’ glossaries that tenants would be in place prior to completion, cross-warranted so there are virtually no null periods, no problems with rent, such as a tenant not paying, guarantees crusades. it meant the other tenants would be held accountable.

Also, in some cases (not mine, thankfully) no renovation work had been done, and the developers had the gall to ask for £ 3,000 per property to fix any that hadn’t been done. Then major problems began to arise with construction work. Basements would flood, not because of rain, (although this happened on several occasions where the basements had not been properly ‘tanked’), but because of plumbing failures, but if of course we had a warranty contract of 12 months, right? Wrong?

Even after constant phone calls and emails, the management company did not send us proper records and did not keep us informed about maintenance issues, tenants who left, tenants who did not pay their rent on time, all the standard sorts of things. that one was used to waiting. from a “proper” management company that charged 10% of the rent as fees.

And the annoyance I had when moving the management agreements to another company is another story for another day when it can be told.

Ok so this seemed like dishonest construction work and a complete and utter lack of proper management on the part of the department that handles leases. It’s not the kind of service you’d expect from a company that does so much marketing domestically, but of course, being such a high-profile company, I would have thought they would have fixed the problems. Right? Wrong!

So, due to all these problems, I had already started to do some very intensive research on this company and the methods that were being used to package the sale of these houses.

It later emerged that most of these houses had been bought by the developer some three or four months before selling them, some the morning before, for around £ 90,000 – in the words of the developers – abandoned houses that were totally destroyed; 3 bedroom properties that had open basements or roof conversions so up to 2, 3 or even 4 more bedrooms were added, and supposedly converted to the highest standards for HMO purposes, and these were sold to us for around £ 249,950 up to £ 325,000 and above.

Ding Ding Ding – Alarm bells …

Why were we so happy to buy them? Because they all came up with assessments from RICS (Royal Institute of Chartered Surveyors) on the property’s value and anticipated rental income.

All of which matched the developer’s claims.

But when we noticed that several investors from other groups were taking back some of these similar houses, as they were not receiving the rent and consequently could not pay the mortgage, and all the valuations were between 80,000 and 100,000 pounds. THE VALUE OF THE MORTGAGE!

Our own investigations found that many of these properties had been appraised by the same company and for comparison they had used properties from the same developer in the appraisal form.

We have come across cases in which the mortgages granted to them: –

· They were not valid for multi-occupancy housing, so why was a loan granted?

It would not have been granted if the banks had known that the properties were already leased and were not sold as a vacant possession. So why was a mortgage granted?

It would not have been granted if the rental valuation was unrealistic. So the loans were made with incorrect information. If the investor had entered the rental figures, they probably would have entered it for mortgage fraud.

You would not have granted a loan (especially interest only) if the actual valuation figure had been known.

They would not have awarded 85% of the assumed value if they had known that a Gifted Deposit was being paid (along with legal and other fees from the developer). The attorney was aware, as was the broker, so how come the lender was not informed?

Now, as I like to think of myself as a “ smart investor ”, knowing that deposits, cash backs, etc., are gifted and that quite often they set the real estate market in motion, I had told my lawyers what the parallel treatment was. , the broker told me what the deal was, so no problem, right?

Wrong … Then I discover that neither the attorney (s) nor the broker had informed the lender.

At some point, something was wrong here.

The question is – Was it the fault of: –

· The developer?

· Lawyer?

· The corridor?

· The investor?

In a society where the regulations covering lawyers, brokers, home loans and appraisers seem quite strict, I must say that I think something is wrong here, where the hapless individual investor can fall into such an unregulated trap!

If you think you have been involved in such an investment property scam and would like to see if there are others in the same boat, please visit my blog where you can voice your opinion and even add your name to a structured list if we want so that we can build a database of similar events that can be easily analyzed for trends, or switched to ‘Watchdog’, for example.

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