What is a Real Estate Scheme?

Real estate schemes are sold as short-term loans to buyers, construction loans to companies, or even as shares in a building that will earn income and pay it out to investors. Scam artists offer high, guaranteed rates of return to investors seeking steady income from a tangible asset like real estate.

How Does it Work?

While many people buy real estate as a personal investment or a place to live, sometimes real estate is sold as a security. These situations involve a sale where the purchaser does not own or live on the property, but may earn a return through the efforts of another party in connection with the property.

Illegitimate schemes are often promoted through aggressive advertising (advertisements disguised as news articles) with promises of big profits for investors in only a few years. Investors contribute to a pool of funds that is used, ostensibly, to buy and hold property. Often, investors are charged high fees and are offered little in terms of details or disclosure of risks.

In illegitimate schemes, the property value is sometimes inflated to attract investors; other times there is no property at all. As with many other schemes, communication dwindles or ceases all together once you invest.

Watch out for one or more of these common characteristics:

• Promises to “get rich quick” or live your dream retirement with passive income from real estate.
• Lack of documentation or disclosure regarding a real estate investment or loan.
• A company or investment that does not have a prospectus that is filed with a securities regulator.
• Promoters who are not registered with a securities regulator.