As part of Scams Awareness Month, we’ve listed some notable scams to make you aware of the potential risks when investing in property.
Despite recent markets stalling, property investment remains one of the most popular ways to invest funds. However, with increased focus comes increased risk and there has been a notable increase in the number, and scale, of scams aimed at potential property investors looking to tap into this lucrative market. The risks aren’t just for investors as ordinary renters may find themselves caught up in a scam as well.
The standard property fraud witnessed across the UK involves fraudsters offering you a ‘get rich quick’ investment scam, claiming it can turn you into a property millionaire overnight. If you haven’t seen these advertisements yet, then keep your eyes open for pop-ups and other unregulated advertisements.
The scam works by inviting you to attend a free presentation about making money from a property investment. The fraudsters may persuade you to hand over money to sign up to a seminar or the ‘property investment course’ promising to teach you how to make money dealing in property. For some scammers, this is the full extent of their con and some will attend and leave with no further loss.
The real money is made when, as special guests of the speaker, you are offered the opportunity to buy properties at a discount that aren’t yet built. You might think property investment is an easy way to get rich quick, so you invest some (maybe all) of your hard-earned savings. What you don’t know is that the land is either agricultural or derelict. In many cases, it isn’t suitable for development or is bound to have planning permission refused. As a result, you may lose all the money you invested.
Another variation is buy-to-let fraud, where companies offer to source, renovate and manage properties, claiming good returns from rental income. In practice, the properties are near-derelict and the tenants non-existent.
The internet has made looking for a property easier and more efficient, but the flip side to this is that the opportunities for scammers increase also. A standard scam on websites like Gumtree (and other listing sites) has been highlighted by the National Landlords Association (NLA).
Unsuspecting potential tenants, who are quite often from overseas, reply to advertisements on the website for rental accommodation in the UK. In a marketplace as competitive as London, properties go quickly so interested suitors rush to enquire on the back of the location and some photos.
After supposed satisfactory e-mails, tenants are asked to send money to the ‘landlord’. Having sent the money, when the tenants attempt to make contact with the ‘landlord’ or collect keys to the property, the ‘landlord’ is unreachable and the potential tenant has been defrauded from the funds (normally one month’s rent).
Scammers have become more sophisticated in their approach, copying details from other legitimate businesses and obtaining websites that (although slightly different) resemble actual businesses.
Experts advise potential renters that, no matter where they are from, they should not send payment to advertisers before they are certain that the advertiser is genuine. Overseas applicants needing to secure accommodation before they arrive in the UK are advised to first seek the help of the employer or university they are coming to who can put them in touch with accredited landlords and letting agents.
Surely if the landlord arranges to meet the prospective renter at the property they can be trusted? Not always according to recent deviations of the above scam.
A scammer will rent a property and then show prospective tenants around it. They will then collect the first month’s rent, security deposits and other fees they can milk out of the unsuspecting victims.
They will then vanish with the money. It makes it important to be wary of turning up to a property and handing over cash – this isn’t standard renting practice.
No, sometimes landlord investors are also the target of scammers. The Nigerian 419 Scam is one of the better known (the reason for the name is that the first recorded cases of these scams came from Nigeria. The ‘419’ part of the name comes from the section of Nigeria’s Criminal Code which outlaws the practice).
The scam works when someone posting as a renter will answer an online posting for a property and ask to pay by Western Union or a similar service. If the landlord falls for this, the renter will ‘accidentally’ pay too much.
They will then apologise and ask for the extra funds to be sent back to them. The original payment will bounce and the payment that the landlord sends will then be used by the scammer.
If landlords want to avoid being caught by the Nigerian 419 then they should remember to always ask for accredited identification. They can arrange to meet the renter face to face and ensure they have knowledge of the local area. If they potential tenant is based abroad ask for details as to when they will be entering the country and why and then request references. Alternatively, insist that no funds are returned until they clear in your account.
This article was written as part of a series of informative snippets for Scams Awareness Month. For more information, or if you are worried about property fraud, contact our Residential Property Department or email us using the form to the right.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of July 2017.