Buy a $2 million dollar house for $1.5 million? That's what some con artists would have you believe in a fairly common illegal house flipping scheme that targets novice real estate investors.

Here's how it works. A sham company advertises a FREE real estate investment seminar in your area. All you have to do is register with your name, address, phone number, and social security number. The company uses this information to pull the credit reports of registrants and identifies registrants who have top-notch credit scores -- people who are likely to be approved for big loans. These lucky winners become the targets of the scam.

At about the same time, the company does a little research to find expensive homes that have been on the market for a year or more -- homes that the sellers are probably pretty eager to unload. They approach the sellers with a deal. Say the sellers have had the home listed for $1 million for the past year. One of the company's representatives approaches the sellers and says, "We'll buy your home and pay full price under one condition -- you take it off the market for three months and then re-list it at $2 million." If the sellers agree, the company hires an appraiser willing to value the home at $2 million. At the FREE seminar, the speaker or one of his accomplices approaches an attendee who's been identified as someone able to qualify for a big loan. He tells the would-be investor, "We have an excellent opportunity for you -- a $2 million home you can buy for $1.5 million." Assuming the investor is on board, all of the pieces are in place to execute the scam.

The company helps the investor obtain a loan for $1.5 million payable to the company, pays the sellers $1 million for the property, and pockets the remaining $500,000. The investor ends up owing $1.5 million on a house that's probably not even worth the seller's original asking price of $1 million. In an attempt to score a quick $500,000, the investor loses at least $500,000!

To avoid falling victim to such a scam, take the necessary precautions:

• Don't provide sensitive information, especially your social security number, to any company you don't have reason to trust.

• Avoid registering for FREE investment seminars online or off. They're usually in the business of selling you their investment program or identifying potential marks.

• Question the logic of the deal. If someone knows of a $2 million property they can buy for $1.5 million, why are they telling you about it? Wouldn't they want that sweet deal for themselves?

• Research the property yourself. By looking at MLS listings for comparable properties for sale in the same neighborhood, you can quickly determine whether the price is inflated.

• Remember that if it sounds too good to be true, it probably is.

You can make money investing in real estate, but you have to do your homework. If someone approaches you with a great deal, it may be a great deal, but you can't be sure until you've done some of your own research. Never buy a house you haven't seen with your own two eyes. Have your own, independent Realtor® or appraiser provide a second opinion.

Published: February 27, 2007

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Ralph R. Roberts, CRS, GRI is an award-winning and internationally recognized real estate agent, author, coach, and speaker. Throughout his career, Ralph has proven his commitment to helping other real estate and sales professionals build upon their past and present success, grow and expand their businesses, and provide a rich and rewarding future for themselves, their customers, their employees, and their families. As president and CEO of Ralph Roberts Realty, Ralph has personally helped thousands of consumers realize their dream of homeownership. While selling over 10,000 homes (and buying and selling over 3,000 investment properties) throughout his 30-year career, Ralph has made the time to mentor and coach hundreds of professionals in real estate, sales, and a host of other fields. Ralph is a recognized authority on Real Estate and Mortgage Fraud; Residential Real Estate; Personal Salesmanship; Sales Force and Office Management, Motivation, Design, and Team Building; and Foreclosure Self-Defense and Loan Modification, fields in which he has demonstrated his commitment to preserving the American Dream of Homeownership. Ralph's numerous websites, blogs, seminars, and speaking engagements engage, entertain, and educate both consumers and professionals. Ralph is also an accomplished author with several successful titles to his credit, including: Power Teams: The Complete Guide to Building and Managing a Winning Real Estate Agent Team Financing Real Estate Investments For Dummies (John Wiley & Sons) Mortgage Myths: 77 Secrets That Will Save You Thousands on Home Financing (John Wiley & Sons) Foreclosure Self-Defense For Dummies (John Wiley & Sons) Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership (Kaplan) Foreclosure Investing For Dummies (John Wiley & Sons) Foreclosure Myths: 77 Secrets to Saving Thousands on Distressed Properties (John Wiley & Sons) Advanced Selling For Dummies (John Wiley & Sons) Flipping Houses For Dummies 52 Weeks of Sales Success (John Wiley & Sons) Walk Like a Giant, Sell Like a Madman (John Wiley & Sons) Cross-Cultural Selling For Dummies (John Wiley & Sons) To learn more about Ralph, visit AboutRalph.com, check out his daily insights on real estate and mortgage fraud prevention at FlippingFrenzy.com, or visit his latest blog dedicated to helping distressed homeowners fight foreclosure, KeepMyHouse.com. You can reach Ralph at or by calling (586) 751-0000.