Tips on How to Avoid Investment Fraud

Fraud in real estate is a risk that every investor must be aware of. A recent case involving Wells Real Estate Investment serves as a powerful reminder of the dangers. The firm misled its investors, diverting $28 million of their funds into high-risk trades, resulting in nearly $12 million in losses. More than 660 investors are now uncertain if they’ll ever recover their money.

Whether you’re new to real estate or a seasoned investor, protecting yourself against fraud is crucial. These six strategies will help you stay vigilant and avoid falling victim to investment scams.

1. Thoroughly Investigate Before Committing

Before you trust any company with your money, go beyond surface-level research. Don’t just rely on what their website says. Dig deeper into their background. Search for online reviews, check forums like BiggerPockets, and see if they’ve been discussed by other investors.

In the Wells case, many missed a major red flag: the CEO’s husband, a convicted felon, co-managed the portfolio—a fact that was deliberately obscured. Detailed research can reveal crucial warning signs that a quick look might miss.

2. Demand Proof and Verify Claims

Never take a company’s word at face value. Ask for documentation, and verify it independently. Look into the company’s legal history—do they have any liens, lawsuits, or bankruptcies? What does their financial performance say?

Consider the experience factor as well. While new companies can be legitimate, real estate investment is challenging, especially in the early years. Don’t feel obligated to be part of someone else’s learning curve.

3. Stay Alert to Evolving Scams

Scammers are always finding new ways to deceive, so it’s vital to stay aware of the latest fraud tactics. Some scams, like AI-generated documents and photos, are products of modern technology and can be difficult to spot.

Fraudsters have used AI to create fake deeds, title transfers, and even fabricated property photos. Make sure you’re familiar with the latest tricks so you can avoid falling prey to these schemes.

4. Meet the People Behind the Business

With so much business conducted online, it’s easy to overlook the importance of meeting in person. When possible, visit the company’s office and meet their team. This gives you a chance to confirm that their story aligns with reality.

Does the scale of their operations match what they’ve told you? Do their offices look professional and well-maintained? Visiting in person can often reveal inconsistencies that are hard to detect from a distance.

5. Trust Your Gut Feelings

Sometimes, your instincts are your best defense. If something doesn’t feel right, don’t ignore it. Even experienced investors can be misled if they brush off initial doubts.

Ask yourself: Is this investment opportunity consistent with what the company usually offers? If it seems too good to be true, it probably is. Companies that are worth investing in don’t need to rely on flashy promises or unconventional deals. If something feels off, trust your instincts and walk away.

6. Pace Yourself—Don’t Rush

A common tactic of fraudsters is creating a false sense of urgency. They’ll pressure you to act fast, claiming the opportunity will disappear if you don’t jump in immediately. Be wary of any company that pushes you to make hasty decisions.

Take your time and start slowly, especially if you’re new to investing. Build your portfolio gradually and avoid making large commitments until you’re confident in the company and the opportunity.

Conclusion

Investment fraud is a harsh reality in the real estate industry, but you can protect yourself by staying informed and cautious. The strategies outlined here—conducting deep research, verifying claims, being aware of evolving scams, meeting people face-to-face, trusting your instincts, and avoiding rushed decisions—will help you steer clear of fraudsters.

By following these guidelines, you’ll greatly reduce your risk and be well-positioned to make smarter, safer investments.