Only this week we heard news of a real estate attorney in America being jailed for 70 months after stealing $2.3 million from clients in a property scam. This is just one of many scams which are uncovered on a regular basis and we can only estimate the number kept quiet for fear of any unwanted publicity for their victims. This now begs the question, despite all the warnings, why are property scams still happening?
If it looks too good to be true, then it probably is!
In any investment market there is a risk/reward ratio which dictates the level of risk you are willing to take for a perceived level of reward. In many cases the property scams which have been uncovered show investment returns which are inconceivable to the experienced investor and just not possible with the perceived level of risk. Obviously behind the scenes the level of risk is enormous in the event that the scam is uncovered and the property strategy collapses. However, even before any scam is uncovered there should be warning signs that things are not quite right.
Some people will argue that it takes time to get the “gut feeling” that something is not quite right but there are two human emotions which most certainly come into play.
Fear and greed!
Those who read our column on a regular basis will be well aware that fear and greed dictate the direction of many investment markets. There is the fear that you are missing out on a property market which is booming, or the fear that your investment is about to collapse forcing you to sell at any price. However, it is perhaps greed which is the main driver behind the array of scams which are uncovered on a regular basis.
How many times have you read in the press that some form of property scam involved friends of friends telling each other “why not join this property scheme I am involved in, have you seen the returns?”. To those who are perhaps looking for a quick buck or have fallen on troubled times, and are now looking to replenish their funds, this can look attractive. For any investment scam to be successful there needs to be some form of trust between those running the scam and those inadvertently advertising and actively involved in it. The fact that many people will innocently recommend such “lucrative schemes” to their friends immediately overcomes the trust factor because you are dealing on the back of a trusted party recommendation.
Can we blame the authorities?
The simple fact is that the authorities around the world have increased the regulatory burden, are now more aware of unusual investment activity and perhaps most importantly the Internet allows the immediate publicity of such bogus schemes. However, while many of those who are victims of property scams and other similar investment scams tend to blame the authorities, surely we need to take our fair share of the blame?
If you live by this particular saying, if it looks too good to be true then it probably is, you may miss out on one or two legitimate investments but you will certainly avoid the get rich quick schemes which eventually fail.