Real estate investment is gradually becoming the most popular way to make money. In the real estate sector, there are two types of investors: the one who invests successfully in this sector ends up gaining high profits by working with the right people. The other investors are the ones who are not as fortunate and end up losing their money due to the real estate investment scams like purchasing properties in illegal societies or purchasing shops or plots with low resale demand.
This blog aims to list down the common real estate investment scams in Pakistan and provides guidance on how to avoid them.
Whether you are a businessman seeking out new opportunities to invest their money in or a family person looking for a stable and secure home to live in, there are many reasons why purchasing a property may prove to be a smart play.
If you’re planning to purchase property for investment purposes, you must know that Real estate investment is of three main types:
- Short-term – More than 1 year but less than 3 years
- Medium-term – from 3 to 8 years
- Long-term – More than 8 years.
There are many good investment companies out there that keep the investor’s best interest in mind, but then there are scammers too. Homeowners that are struggling to sell their house quickly just to stay above water usually turn to real estate investment companies for the assistance they need. They want to work with a company they can rely on without question. However, there are a few investment companies who are more interested in lining their own pockets.
Scams are not outrageously common today, but they are lurking around. As an investor, you deserve the best and you may have to carry out a little research to get it. In many cases, scams are easy to spot. There are certain shady practices that easily slip under your radar. Here’s a list of common real estate investment scams you need to watch out for:
- Dealer Cut Scams
This is one of the most common real estate investment scams these days. Searching for a new property to rent or invest can be a tiresome process, especially if you don’t have enough information about the real estate market. If you don’t look into how the real estate market where you’re planning to purchase a property operates, you might end up working with the wrong realtor. A realtor prioritizing his own interests may charge you more than the actual property value and keep the remaining amount as his commission, also known as ‘dealer cut’ in the real estate market.
- False Promises & Assured ROI Scams
It is important to realize that real estate market moves in cycles, sometimes up and sometimes down. Over the years, the real estate sector of Pakistan has consistently appreciated, but this does not mean that there are no chances of depreciation. Never be too trusting while buying a property. Your realtor might be actively lying or hiding something. Look out for red flags in the sales pitch by your investment consultant.
If a realtor is giving assurances on high ROI in property investment, he might be lying. Don’t believe them unless they give you plausible reasons, such as improvement in the location’s accessibility or a new infrastructure project.
- Property Condition Scams
The investors who invest in out of state properties are more likely to face this type of investment scam. It is becoming more prevalent as many investors are trying to invest in properties in cheaper real estate markets. As the investors live far away from their investment property and usually don’t visit the area, many real estate agents and unethical sellers claim to have a property for sale which is in a decent condition but in reality, is in not.
When the buyer seems interested, the sellers usually insist on using their contractors or inspectors to give an impression that the property is in a good shape. As the buyers don’t visit the area themselves nor do they intend to do it in future, they have to rely on the locals of the area to be their ears and eyes.
- Rental Scams
Investors who are interested in purchasing rental property usually turn to interest for property search first. It is a common fact as the ratio of investors who turn to the internet is over 90 percent. Who else turns to the interest? The scammers! What they do is that they select a property listing that is not theirs actually, and they post it on their own sites or other commonly used property listing websites.
In this type of investment scam, the realtors steal pictures of houses for sale or rent and advertise them for sale or rent to unsuspecting people. This is usually done with vacant units since there is no one to confirm the situation’s reality. The scammers may also tell the renter to take a look at the house through the windows and if it suits his liking, they will ask him to transfer the first month’s rent. Once the money is transferred, they will just disappear from the situation, leaving the renter wondering where his money went.
What You Can Do to Avoid Real Estate Investment Scams
- Do your Homework
We would recommend you to perform rigorous research before making an investment decision. Make sure you do your homework before you visit a realtor. What does that mean? Do your research, list down your questions, make a checklist, and get information about the current market value of properties in the area where you’re planning to invest.
- Ask Questions: Scam artists are counting on you to not ask questions before you put your money in their hands. Start off by doing your own research. It is not enough to ask for more details or for references. Take time to do your own digging and then ask questions to get a better idea of what they are offering.
- Know your Realtor: Spend some time to inspect the person dealing with you before you invest – even if you have heard about him before or already know him socially. Always check if since how long he has been in the market and how many properties has he sold successfully. Also, find out whether he is licensed to sell securities in your area. If you work with a well-reputed real estate investment company, then this won’t be an issue as they usually have a skilled and experienced sales team at service.
- Be Cautious of Unsolicited Offers: You need to be extremely careful in case you receive an unsolicited offer to invest in a property. The same is true if you find that property being praised online but can’t find its current financial information from independent sources.It may be a ‘pump & dump’ scheme, so be wary of such offers and keep yourself well-informed of your local real estate market or the market where you’re planning to invest. After something goes wrong, it becomes more difficult to find out what happened and locate your invested money.