Once you start making money, the next challenge becomes how to grow it. While Savings is considered important, there seems to be a consensus that it can never make one wealthy. Investment then becomes pertinent. One of the results of globalization is the exponential proliferation of careers. We have people whose job is to help other people find investment opportunities. Now, the money market (E.g: Fixed deposits) seems boring for young ambitious people. Almost all brokers and investment intermediaries use the line: “why leave your money in the bank when you can put it to work”. The capital market though riskier holds so much promise. These days, if you’re not in the stock market, you may be trading cryptocurrencies and if you have an appetite for neither, you’d probably end up in the “Real Estate Market”.
Naturally, this should be encouraged and applauded but the newbie investor should also proceed with caution as there are dangers lurking below the ever turbulent investment waters. Such dangers range from fake agents to fraudulent real estate investment platforms. Consequently, what follows below should serve as a guide to help prevent you from falling for scams and fraudulent platforms when trying to invest in real estate.
First, let’s consider some contextual issues.
Real Estate Investment
Real estate investment is relatively recent compared to stocks or bonds and may be less than 50 years old. It involves the commitment of funds for the acquisition of properties or the acquisition of stakes in real estate (properties) with the hope of benefitting from its appreciation in value. As a system, the real estate market consists of several players, ranging from investors, brokers (realtors) to Real Estate Investment Trusts (REITs). Over time, it has evolved from the simple purchase and sales of properties to including real estate equities. Given the little or no role the investor plays, proceeds are considered passive.
Now, let’s consider real estate scams.
Buyer Beware “Caveat emptor”
Each stage of the real estate purchase process is filled with opportunities to find the best offer. Sadly, this only increases the variety of scams that can be perpetrated at each stage. Real estate scams can be evidenced by suspicious lending schemes, sketchy property condition arrangements, fake ownership claims, and a rushed rental agreement.
Fake ownership is usually characterized by a desperate attempt to force a commitment in the name of “Initial deposits”. The implication is that once you have made a monetary commitment, you become more susceptible to further fraud. Some ‘agents’, take advantage of vacant properties or steal legit property details online and advertise them while making valid excuses of not being able to show clients. They would then ask them to send payment to a third party and the rest is history!
Another common kind of real estate scam is those that occur when purchasing properties in out-of-state locations. This heightens the risk of fraudulent misrepresentation. The condition of the properties on sale may be poor but to give the impression that they are in perfect condition, sellers insist that their own inspectors or contractors be engaged for evaluation. Many investors are attracted by discounts and what seems like incredible offers.
“Things to consider before you commit…”
• Don’t rush: When a market is bullish (appreciating), everyone wants a piece of the pie. People are erratic and irrational. This is called the “Fear Of Missing Out (FOMO)”. Decisions are hurried. Seasoned fraudsters know this and grab the opportunity to relieve unsuspecting newbies of their funds. Those who have made no attempt to study the market place irrational trust on market players and in worst cases, fraudsters. These people in turn try to hasten the process to conceal their illicit acts. Better to miss an opportunity than rush to financial doom.
• Search Responsibly: When searching for properties, one must not do so carelessly. Don’t pick randomly. Seek advice from established professionals and search through confirmed directories. Where you’re looking through the web, don’t just grab the first result of the search. Search deliberately.
• Confirmation of your sources: Where you’re advertised to or referred to, take care to confirm the source. Consider them with the uttermost probity. See beyond what they promise and be more given to knowing who they are.
• Research the property: When considering a property that offers a sweet deal, consider the price of similar properties, and where the discount is significant, dig deeper to know what the take is. Search for encumbrances concerning the property. If the property is in a village, ascertain the customary position to avoid becoming entangled.
• Insist on inspection: The description of the property meets your specifications but don’t take their word for it. Always inspect, preferably in person but if not possible, appoint a trusted person to inspect the property.
• Never make cash payments: If all meets your checklists, you’re expected to make payment to close the deal. If any agent, realtor, or broker requests cash payment, you should be alarmed. This is because cash payments are neither traceable nor confirmable. Insist on making a bank transfer.
• Ascertain the title documents: Title documents vary by location. Your preliminary investigations must have made you aware of what documents cover a legitimate property conveyance in the location. So upon purchase, you must inspect the documents to be sure that all required documents are provided. Carefully peruse the deeds of conveyance and be sure to understand all the clauses before signing. We advise that you hire the services of a property lawyer for proper advice and guidance.
Further things to consider if you’re dealing with a real estate investment platform
• Only invest with players in the real estate sector that are registered under the Real Estate Developers Association (REDAN).
• Every business is managed and run by a team or an individual. It would be proper to run a background check of the individual or directors of the company to determine their credibility. If the team lacks credible or traceable digital details or doesn’t explicitly tag themselves to the investment platform. That is a warning sign.
• Note that high returns are associated with high risk and low returns are associated with low risk. As such, a good benchmark to compare investments in the country is the Monetary policy rate. The Central Bank sets it and usually, government debt instruments like bonds and treasury bills pay interest at this rate. The current rate is 11.5% per year, if you divide that by 12 months you get 0.96% per month. As a rule, any investment platform offering you a figure that is way above this might likely be a scam.
In conclusion, all investment sages have always advised the same thing, “don’t invest in anything you don’t understand” make you “no go fall maga”.
Contributors:
- Chibuike G. Offor
- Ajayi Omoshola
- George Kaduru