Recently, a friend took an interest in investing. while researching he came across an off-plan project on Facebook calling for investors. The rates were great. He got excited and even went to the bank to withdraw money. He planned to use it as a down payment for the property. Before he could, a scandal broke out about the project is a scam. My friend was one of the lucky ones, a lot more people lost money and the conmen were never discovered.
This kind of story is becoming a household name in Kenya. Each month a new real estate developer/seller arises, some legit others just conmen looking to make a quick buck. However, you can never tell the difference, even with big names in the industry. It can turn out big developers are as shady as the small developers.
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Real estate investment scams: Lending Scams
This happens to be the most common of scams. A lot of real estate developer/investors turn to lending resources for investment property financing. This is basically alternative to the conventional mortgage loans. Investors choose the lending because mortgage loans have strict requirements.
These alternative lenders doesn’t have the same property conditions as a mortgage lender does. They could have higher interest rate and shorter payback periods. These type of lenders don’t have a licence and aren’t inspected by any state agency. Hence, it’s prone to scams. The money they will lend you is not a mortgage loan which requires licensing. These lenders are known as private money lenders.
They use money from private individuals to fund the loans they offer. Since there are no licensing requirements with this type of lender, it is difficult to know a lender from a conman. The question that you should bear in mind is how to identify a real lender from a scam and the signs to look out for.
Warning signs:
- The lender is willing to give you money with no questions asked
- Is the lender away of real estate investing?
- Can he answer on lending terms and basic questions to investing in real estate?
- Is the lender asking for a huge amount as upfront fee?
- Did you find the lender through trusted and certified real estate investing websites?
- Are the lending terms in the contract too good to be true?
- Is there a written contract?
Depending on the answers of the above question, you can determine if the deal is scam or real.
How to avoid a scam:
The best way to avoid this type of investment scam is to only use a trusted/recognised lender whom you have met/interviewed.
Real estate investment scams: Rental Scams
As a real estate investor you will most likely turn to the internet to search for property. This common knowledge but guess who else used the internet for this? Yes, conmen. What they do is find a listing then post it on their own website or even on real estate investing websites. Sometimes, they will hack a social platform and fill in their own information. Then they convince you to send the money to a third party.
In real estate investment scam, someone will steal pictures of a home for sale or for rent even land. They will advertise themselves to unsuspecting people, it’s done more with vacant properties since no one will confirm. Take for example, Simple Homes, they used images of properties from South Africa, America and even Australia.
Warning signs:
- They are unwilling to show you the property
- Suggesting you go to the property alone
- No written contract
- Prefer payment in cash or sent to a third party
- Amount of rent is below normal rental rates for such a home.
How to avoid the scam:
You should make sure the home has a for sale sign. In addition, consult with the people around the area if they are aware of the sale.
Real estate investment scams: Property Scams
This type of investment scam can most likely happen to people investing from the diaspora or in rural area. This scam is becoming common as many investors are trying to purchase investment properties in cheaper real estate markets. As an investor, who lives in Nairobi and you barely visit the property which is in Kiambu, many sellers or agents will claim the property for sale is in good condition while in fact it isn’t.
In some situations, the seller might not even be the owner of the project. This would mean the buyer will lose both money and property when the real owner claims it.
Warning signs:
- The developer insists on using their own inspectors or contractors
- There is no update of the project unless you ask
- Site visits are postponed by the agent or seller
How to avoid this scam:
You should make it a priority to visit the project before making a deal. Additionally, find a real estate agency that is trusted such as Kenya Homes.
In conclusion, real estate involves big money and it is bound to have investment scams. Therefore, to avoid falling victim always to your research and gain the right knowledge. Kenya Homes cans help you gather the right information in every aspect of real estate.