JF1090: Avoiding Lender Scams! #SkillSetSunday with Ross Hamilton

Ross Hamilton Background:
-CEO of Connected Investors ( http://connectedinvestors.com/)
?Aggregator of crowdfunding portals, about 250,000 investors
-Nominated by Entrepreneur Magazine as Emerging Entrepreneur of the Year in 2011
-Based out of Wilimton, North Carolina
-Wrote the book ?Real estate investing in your 20s?
-Say hi to him at: www.cix.com

Listen to his Best Ever Advice here: https://joefairless.com/podcast/jf308-how-to-be-a-social-media-marketing-expert/

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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Joe Fairless, and this is the world's longest-running daily real estate investing podcast. We only talk about the best advice ever, we don't get into any fluff.

Because it's Sunday, we've got a special segment called Skillset Sunday where we talk about a specific skill that by the end of our conversation you will either have acquired a new skill, or honed a skill that you already have, and just getting better at it.
With us today, Ross Hamilton. How are you doing, Ross?

Ross Hamilton: I'm doing fantastic, thanks for having me on the show.

Joe Fairless: My pleasure, and nice to have you back. If you recognize Ross' name, that's because you're a loyal Best Ever listener (virtual fist bump to you). Episode 308 - he gave us his best real estate investing advice, and he's been on the show a couple other times too on Skillset Sunday, so I recommend searching at BestEverShow.com, and you can listen to his previous episodes.

Ross is the CEO of Connected Investors, which is an aggregator of crowdfunding portals. He has been nominated by Entrepreneur Magazine as an emerging entrepreneur of the year in 2011. He's based in Wilmington, North Carolina and wrote the book "Real Estate Investing In Your 20s."

The focus of our conversation today is going to be about how to avoid lender scams, and I'll let Ross take it from here and just give some context for the conversation.

Ross Hamilton: Yes, thanks so much for that introduction. This is a really, really important lesson here, because everyone on the line, as they start to get into real estate investing or to grow their real estate investing, at some point you need to find more money. Even if you're starting off with a lot of money, it doesn't make a lot of financial sense to use all of your money, when you can leverage others' and the return is essentially infinite.

So many real estate investors, when they get started, they get nervous. They don't think they're gonna be able to find access to funding, but when you go online and start searching around a little bit, or you jump on forums, whether it's Connected Investors or Bigger Pockets, or LinkedIn, or Facebook, you'll get flooded with people that say "Hey, I have money. Please, borrow my money. I need to deploy capital quickly. I'm the king of some country and I wanna invest in the United States."

I deal with so many lenders, because outside of Connected Investors, which is essentially like the LinkedIn for real estate investors, we built out a funding portal that matches real estate investors with non-bank, asset-based lenders. We're talking about private money lenders and hard money lenders. So we work closely with all of the real hard and private money lenders around this great country, and Joe, the number one complaint and the biggest competitor of lenders is not other lenders, it's scammers. Joe, have you seen any of this?

Joe Fairless: Yeah, fortunately I haven't come across scam artists. I have come across someone who literally, I'd say 45% of what they said was true about a deal was a lie, and the majority of it they knew was a lie and other parts they just didn't, but literally, at least that percentage was a lie, and it took me a while to realize that. So I have come across people like that, but I haven't been scammed before, fortunately.

Ross Hamilton: Yeah, that's great. Let me go ahead and just kind of frame -- when I say "scam", for the purpose of this conversation, it's going to be people who are actually trying to steal your money, and other people who are just completely and totally wasting your time. These wannabe brokers, these wannabe middlemen... Because there's really no licenses in this world; anyone can just throw up a sign and say "Hey, I'm a broker" or "I'm a lender" and they can start jumping in the industry and filling up your inbox with "I'm gonna fund you."

What will happen is if you had a really good deal and you're dealing with one of these uneducated brokers, you're not gonna be able to get that deal at the closing table and cash that check, and then it can even make you look like a moron when you're talking with partners and buyers and sellers, because you're saying, "Hey, I've got the money lined up", you're repeating what you're hearing, but you really don't.

We're gonna kind of solve both of those problems, I'm gonna show you how to vet lenders, and then also just make sure you have kind of a direct connection to those lenders.

Let me just give you one example of lender scam that is out there. These are the things that you want to stay away from. Number one, if a lender ever asks you to wire them your down payment money - run. You're not wiring any lender the down payment money. This is all gonna be done through an attorney. That's first and foremost.

Also, giving away your social security number or any of that information before you've vetted a lender is very important, because they'll get your bank account information, your social, and they'll just go in there and just empty your bank account. We dealt with this -- we had a lender who tried to become part of our lender network, and we started to vet him, the same way I'm gonna teach you. First thing that we noticed is they were using a Gmail address - red flag. This person's not really in business. Also, their English wasn't very proper. You can kind of hear the accent come across in the e-mail correspondence we were having with them.

Joe Fairless: So no foreigners. No, I'm kidding...

Ross Hamilton: You know, most of the scam artists are from outside of the U.S. The people who will waste your time are inside the U.S., the people who will steal your money are typically outside of the U.S., because it's really tough to track those people down. So those two are huge red flags.

Also, a lender being over eager for giving your rates that are just ridiculously favorable. Anything you see that's just not comparable, doesn't make sense, they're not requiring much money down at all - these are all tell-tale signs that this isn't a real business, this isn't a real lender. You can basically just have one or two e-mails with someone and see if they are a real lender or not.

Let's say they pass all those shnit tests. The very next thing that you're gonna do and that we always do is make sure they have a website. A lot of these lenders have very bad, fake websites (they're easy to see through) or they just don't even have a website. Anyone who's seriously doing this that solicited you online will have some sort of a website where you can go for information.

Now, a big thing you wanna do is you wanna vet the lender and you wanna say "Hey, can you give me some examples of recent deals that you've funded?" What this is gonna do for the brokers who are pretending they are lenders, they're gonna start backpedaling a little bit. And for the scam artists, they're just gonna take off. So you want the property addresses of the last several deals that they have lent on. You can do a simple public records lookup to actually find any of the mortgage information, so you can see who made the loan, how much it was for, and if it's real or not.

Unfortunately, I can't explain how to do that on this call, but there are resources out there; you go online and you can look up that property address and see if there's ever been a mortgage placed on that by the particular lender. Joe, does that make sense a little bit for the first few steps here?

Joe Fairless: Yeah.

Ross Hamilton: Gotcha. So if you do those things, you're going to cut through the clutter of 90% of what's going on. When we did those things to a lender who tried to become part of our lender network, they kept giving us bank accounts, Joe, and they said "Great, we're gonna fund the loan. Send us over the 10% down we need." So we got the bank account number and we passed it on to the Feds, the Feds flagged it, got it shut down. We called the lender back and said "Hey, what's going on? I tried to wire the money and the bank account's not there." He goes "I'm sorry, we gave you the wrong account number. Use this one" and then this same process happened two or three more times, until we had one bank account that he gave us that had $462,000 in stolen money in it.

The Feds saw it, they basically stopped the bank account, and we got this guy shut down. He had stolen almost half a million dollars from unsuspected real estate investors using this scam.

Joe Fairless: That's a lot of money.

Ross Hamilton: It is a lot of money, and these are Ukrainians. With the currency exchange, that is a lot of money. I'm not gonna go into too much detail on this, but it is pretty interesting. What these individuals do is they contact ladies in the United States and pretend that they are marines overseas, and they kind of start a little romance with these people, and they get them to open up bank accounts for them. These poor ladies think they're helping a marine overseas, opening up the bank account... They're not putting any of their own information in, but they're putting in their name, and then all of a sudden the Feds are knocking on their door. It's really sad, but that's how these foreigners are opening up these fake bank accounts they steal your money from.

Joe Fairless: I wanna make sure I understand, when they sent you the bank account information, what was your process that eventually ended up being shut down? How did you know to send the bank account to someone who then said "This is a red flag."

Ross Hamilton: This person was really sloppy, Joe. It was a Gmail address, it was broken English, they were giving us a 4% loan with no points; we just had to pay 10% of the purchase price down and wire it to the bank account. It was very, very obvious that this person was a scam artist, and this is the type of thing that our company does every day. With our network of hard and private money lenders, we're verifying [unintelligible 00:12:03.12] each and every day, so when people use our funding portal, they're talking with real, ready, willing and able direct lenders who can provide capital for their fix and flips, their buy and hold purchase, refinance, even portfolio loans and all that stuff.

So this is what we do all day every day. We're elbows deep in this stuff, and we've made it a real personal mission to shut down as many of these scammers as we can, just to clean up the industry. Who knows, a guy we shut down - we could have saved one of your listeners from losing a bunch of money.

Joe Fairless: Yeah, it's true. So now that you've identified very clearly what the red flags are, is there anything else that you wanna mention as it relates to this topic, just to make sure that we're protecting our capital?

Ross Hamilton: Yeah. The most important thing really when you're working with these lenders is just - I'm gonna say this again - to make sure they have a track record. You just really wanna see that track record. Or if they are introduced from a really reputable source that has done business with them, that has verified them, like we do at CIX.com then you know you're working with someone who's not gonna waste your time. It's not just about losing money, it's about not making the money that you were gonna make on that flip. That's why it's really important to be able to cut through the clutter very quickly.

Joe Fairless: That's a great point. It's not just about losing the capital, but it's about the opportunity cost as well. Well, Ross, where can the Best Ever listeners get in touch with you?

Ross Hamilton: They can go to CIX.com. You can visit that site, and that's where we verify lenders. You can find lenders, and you can even download a 140-page funding book right from that page, that teaches you absolutely everything. Because we wanna make sure that when you're out there looking for funding, your expectations are in line with these business people that are very, very excited about lending you money.

I will say this  - right now there's more capital than there are deals. So if you have a good deal, you can find the capital that you need, as long as you're not wasting your time with scammers.

Joe Fairless: And we won't anymore if we were, because we've gotten the lesson today that you've laid out there... Here are some things to stay away from. 1) A lender who is overeager if their rates are just far and above - or below, I guess - everyone else's...

Ross Hamilton: If it's too good to be true, it is.

Joe Fairless: Yeah. 2) Look at the website, if they have one; make sure they have a website. 3) This is an important one - don't wire them the down payment money. You said that is done through an attorney. 4) This is the big qualifier - ask them to give you examples of recent deals they've funded, and look up the property addresses and make sure that you are speaking to someone who has a track record.

And then ultimately, if you can talk to -- I'll even take that one step further... If you can talk to who they lent money to before and have a conversation with them, and then, if you wanna get super crazy, ask that person for a referral about the original person. This is how to do any referral. The person won't expect that you will ask the referral who they refer, who they recommend you speak to... So you're two degrees away, versus just one degree away.

Ross, thanks so much for being on the show. I hope you have a best ever weekend, and we'll talk to you soon.

Ross Hamilton: Alright, thanks everyone. Bye-bye!

 

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