Have I got a deal for you. Instead of paying the list price of $400,000 for that house you want to buy, you’ll pay $450,000. You’ll finance the entire purchase. The seller will give me the extra $50,000, which I’ll invest in one of my many businesses, such as automated teller machines, video advertising and other Web-based ventures.
The profits will be enough not only to cover the mortgage, but to actually pay it off in five to seven years. At that time, you can either sell the home or refinance, and we will split the equity 50/50. So with nothing down, you’ll live mortgage free for five to seven years and walk away with 50% of the home’s equity. Oh, and I’ll also donate some of the money to charity, too.
Are you being conned? Is the offer “too good to be true?” This is exactly what a company called Metro Dream Homes is offering in the Washington, D.C. area, according to Elizabeth Razzi of The Washington Post in an article entitled, Something for Nothing Home Deals. I’ll leave it to you to decide if the deal is legit. As for being conned, here are 10 ways to instantly spot a swindle:
1. Common Sense: Many cons just don’t pass the laugh test. At 6.5% interest on a 30 year note, the principal and interest of a $450,000 loan will set you back more than $2,800 per month. (Use this loan payment calculator if it helps.) Add to that insurance and taxes, and there is no way the income from a $50,000 investment will cover the mortgage, much less pay it off in five to seven years.
2. Pressure: Many cons use pressure to get you to part with your cash. Sometimes it takes the form of a limited time offer, other times the con artist will tell you the opportunity is available to only a limited number of participants. Whatever the pitch, the goal is to move you to a quick decision now and to prevent you from thinking about the deal or seeking the advice of your spouse, other relatives or friends.
3. Get Rich Quick: Many cons work because of the victim’s own greed. We all want to make money, and the sooner the better. But get rich quick schemes usually only work for the person who’s peddling the scheme. This is a common theme in real estate, which seems to attract those who promise real estate riches with no money down in just a few months or years.
4. Fear of a Missed Opportunity: The fear of a missed financial opportunity can be a powerful emotion. And con artists know this and use it to their advantage. If you sense this emotion in you, alarm bells should be sounding.
5. Unanswered Questions: Particularly when a lot of money is involved, you should be asking a lot of detailed questions. You should also be seeking verification of the answers to the important questions. In the case of Metro Dream Homes, for example, I wonder if participants have asked for audited financial statements of the businesses that supposedly will generate enough profit to pay the mortgage. The point is, if the person you’re dealing with won’t give you straight, verifiable answers, there’s a problem.
6. New Friends: New friends or acquaintances who immediately begin a sales pitch should raise significant questions. This often happens in churches and other religious settings where we tend to let down our guard. In some cases, the individual is involved in a multi-layer marketing program which may or may not be legitimate. But when new friends are too friendly and asking for your money, put your guard up.
7. Requests for Help: Unfortunately, requests for help from strangers or new friends are frequently part of a scam. Now I’m not talking about someone asking for a few dollars. Often the request is to pay for medical costs of a sick loved one or some other seemingly benevolent need. To distinguish the real needs from the schemes, you must verify the information you’ve been given.
8. Requests for Personal Information: This is simple–don’t give to strangers your personal information, such as your social security number, mother’s maiden name or your birth date. And if you receive an e-mail from what looks like your bank asking for such information, you know instantly it’s a scam. Your bank will never ask for this information in an e-mail because your bank already has this information.
9. Secret Information: Many cons work because the victim is convinced that he or she has been given valuable information that others don’t have. This is a common theme in frauds involving hot stock tips or other investments. Your first reaction may be to question why the con artist is giving you this information, rather than taking advantage of it himself.
A con artist will always have an answer to this question. It may be that he likes helping other people or that he’s only letting you in on the deal, nobody else. In fact, his answer to your question is generally designed to make him look better (I like helping others) or you feel special (you’re the only one I’m telling).
10. Cash Only: Many cons involve cash only, including wire transfers. One such con is where the con artist over pays for something (like the first month’s rent) by money order, asking you to wire the difference back to him (often for traveling money because he’s moving from another country). The money order turns out to be fake, which your bank doesn’t learn until many days after you’ve deposited the check. By then, however, the wire transfer has been processed and you’ve just been scammed.
Anybody can be conned under the right circumstances, even a con artist. But looking for one or more of these indicators will go a long way in spotting the con before it’s too late.