While Christina and I have focused our business on flipping houses, we know that a lot of real estate investors enjoy getting passive income on a regular basis from rental properties. Unfortunately, there are a lot of rental scams out there that you really need to be aware of if you’re going to hold rental properties.
When you think of rental scams, you probably think of the ones that target tenants, but they also affect landlords, too. If you’re interested in fixing and holding properties for rent, you should be aware of both of these kinds of scams and how to avoid them. This way, as you list your properties, you can avoid looking like a scammer to good tenants, and you can avoid falling victim to a scam, yourself.
The Out-of-Town Landlord
The most common of those is probably the out-of-town landlord scam. The listing for the rental will be a gorgeous local property, usually with a lot of really great pictures, but the rental rate will be really low, especially for the property and the neighborhood. When you try to contact the landlord or property manager about the house, though, they’ll tell you that they live somewhere else and that you just need to send them a security deposit and the first month’s rent to secure the place for yourself.
What’s really going on? The “landlord” doesn’t own the house. They’ve just found pictures of it online, and they’re running a scam to get as many people to send them those “deposits” as possible. To avoid this kind of scam, you should always insist on seeing the property first and getting a lease in writing before you offer any money. To avoid looking like one of these scams, offer open houses and viewing appointments and always partner with a reputable property management company that will take care of everything for you ethically.
The “Really, Really Popular” Property
Similarly, the scammer will list a property at a really good rental rate. You’ll contact them, thinking that someone else has probably already snatched the property up but you might as well try… Surprisingly enough, you’ll be the first person to respond to their ad! You’ll go look at the property, and everything will look good. You’ll hand over a security deposit and the first month’s rent, but when moving day comes, you’ll see a lot of other people trying to move in to your house, too. And your “landlord” will have left town with everyone’s money.
If you’re ever a tenant searching for a place to live, do some research on the person or company you’re renting from, and always be suspicious of really low rental rates, especially in really nice neighborhoods. If you’re a landlord, again, always do business with a good property management company so your tenants can check you out and know that you’re not running a rental scam.
“Oops! I Paid Too Much!”
Like I said earlier, these scammers don’t just go after tenants, either. In this scam, you’ll list your property for rent, and you’ll get a response from a tenant who’s moving into town and wants to secure a place as soon as possible. Without even meeting you or looking at your house, they’ll send you a check for the deposit and first month’s rent.
After they send you the check, though, they’ll “suddenly realize” that they wrote it for too much money and that they’re about to be in real financial trouble. They’ll ask you to wire the difference back to them ASAP. Seems innocent enough, right? Well, that check they sent you might as well be made of rubber because after you transfer them the difference, you’re going to find out that the check bounced. Then you’ll never hear from your “tenant” again.
You can avoid this rental scam by refusing to send any money back to them until the check clears your bank, or you can ask them to just bring you a check for the correct amount when they get into town and meet you instead of mailing one ahead. Or you could opt to keep flipping houses like Christina and I do and avoid all of these scams entirely.
About Tarek El Moussa
Tarek El Moussa is an experienced real estate investor and the co-star of a popular real estate reality TV show along with his wife and business partner Christina El Moussa. The couple started Success Path Education to teach real estate investment education to students from all over the country. Please visit www.SuccessPathEducation.com for more details.