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By Mindy Jensen

Real estate investing involves finding deals—properties or notes—at a discount big enough to make money. And in this current hot market, you need to find the deal that no one else has found. But how can you tell if it’s a deal or a scam?

Here are common tip-offs that maybe your red-hot deal isn’t such a hot idea after all.

Financing

There are legitimate ways to finance the purchase of a property and fund any renovations outside your traditional institution-based lenders. They will typically have higher rates and charge you points (a point is equal to 1 percent of the loan) and will want you to have “skin in the game.”

Unless you have worked with the lender multiple times before or are close, personal friends with them, be very wary of any of these circumstances.

Upfront Fees

Just about any fee or charge will be collected at the closing table, with the possible exception of an appraisal fee. The lender will give the loan based on the appraised value of the property, and if the appraisal comes in low, you may decide to cancel the loan. The lender doesn’t want to try to collect the fee after the fact—especially if you aren’t getting a loan through them.

But there is no such thing as insurance on a loan. Title insurance is a real thing, but that isn’t insuring the loan, it’s insuring the chain of title to the property in question. Like I said above, most fees are paid at closing, when it’s a sure thing that the loan is being funded. Be very wary about any fees the lender is requesting before you are sitting at the closing table.

4. Extremely LOW Rates

The least expensive way to fund a property is a traditional mortgage. Those rates hover around 4 percent.

hard money lender isn’t going to give you a loan for 4 percent—he doesn’t make any money at that rate. He also isn’t going to loan for 2, 3, or even 8 percent.

Hard money loans are usually around 12 to 15 percent PLUS two or more points. Hard money costs a lot. It’s meant to be a quick fix, not a long-term solution.

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Erik Hatch

Erik is currently invested in projects in Florida, Texas and Kentucky totaling $79 Million. He is an accomplished leader who motivates and inspires action while at the same time, is grounded in business metrics and information that drives successful businesses.