One of the biggest real estate investment fraud schemes in recent history has been exposed. Wells Real Estate Investment promised investors that their money would be used to buy, renovate, and develop commercial and residential properties across South Florida. Instead, they gambled $28 million of $58 million in investor funds on speculative options and futures trading.
Surprise, surprise—they lost almost $12 million in the process.
The 660 investors who trusted Wells with their money are undoubtedly in a tough position. However, while the SEC has filed a complaint against the company, who knows if investors will ever see recourse for the crimes committed?
So let this be a cautionary tale: Fraudsters are out there. Wells had been in operation since 2017—not all that long, comparatively, but seven years is plenty of time to scam people.
So how do real estate investors—especially those just entering this industry—avoid fraudsters, scammers, and ne’er-do-wells?
Principle 1: Do Your Research
The first thing investors must do is research. It’s not enough to read through the company website. Truly investigate.
What results does Google return on the company? What do BiggerPockets users have to say? Is the company being talked about among other investors? When problems come up, do you see the company addressing the issues?
In the case of Wells, for example, the CEO allegedly obscured the fact that her husband co-managed her portfolio. This is notable because her husband is a convicted felon, and of financial crimes at that! That’s a glaringly obvious red flag that a lot of people missed.
Of course, you have to research as a piece of the puzzle, not a whole puzzle. People can share sad stories and examples of what they feel are misdeeds when, in reality, it may be more missed expectations and poor experiences. There is a difference between bad service and intent to defraud, and plenty of bad business owners are not committing…