26. BRRRR – How to spot a lender scam
This is the next installment in a multi-post series on financing your rental investment properties using the BRRRR strategy.
Your seeking short term funding to acquire a property to take through the BRRRR process. On the real estate investment Facebook groups, you come across someone offering you financing up to 100% with 4% interest only.
How do you tell if it is legitimate? Before you contact this person, you need to have vetting process in place.
- If you found them on Facebook, go directly to their profile page. If the profile was recently created, about pages list interest from overseas, and they don’t have much content, that’s a flag. Often they will have photos of a 50+ year old male, mostly white. The profile was recently created to add legitimacy to their scam.
- Email – If you receive an unsolicited email, most likely the scammer found your email when you posted it on Facebook. Email is usually short asking you to email them back for details. Most all of them will have Google email addresses. You do not want to respond.
- Communications – If you are communicating with them, they will redirect you to web site to submit your loan application. Never do this until you can speak with someone over the phone. Call them to see if the number works. If it is a Google Voice number, it’s another red flag for a scammer overseas.
- Web site – Often scammers will text you, email, or post on social media a web site for you to review and submit your personal information. Do not provide any personal information until after you speak with them on the phone and fully screen them.
- Upfront fee – Some lenders will require a Due Diligence/Underwriting fee or appraisal costs at the time you agree to the term sheet. They will provide wire instructions with a reputable bank such as Bank of America or Wells Fargo. I recently paid $15,575 for appraisals at the time I accepted the term sheet for a refi a 26 SFR portfolio with one of our lenders. Don’t be put off with an upfront fee from a lender. This shows your commitment to moving forward with the loan. However, if it is a bank you never heard of, is located overseas, or if they ask you to send Western Union or through a cash app like PayPal or Venmo, it’s a scam.
How do you tell the different between a real lender and a scammer? Insist on a phone call. Ask them to discuss the LTV, DSCR, escrows required, points, etc. If they explain in detail their loan process, loan types, general rates, and terms, you are on the right track. If they redirect your questions to completing an online application first, are sketchy on details or hesitate with their answers, they are probably someone you want to avoid.
Most importantly, ask for a reference from an investor who has already completed a loan with them. Often I post Zoom testimonial videos of our closed loans on our web site. Once you have their names, research to make sure they are legitimate investors before calling them.
And remember, if it sounds too good to be true, it probably is.
Got questions regarding financing your BRRRR properties? Please reach out to us at firstname.lastname@example.org
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