Common real estate investment scams often stem from misrepresentation and a lack of transparency. Advisors may exaggerate the potential returns of real estate investment trusts (REITs) or other investments while downplaying the risks, leading investors to make decisions based on incomplete information.
Additionally, fraudulent schemes may involve promoting unregistered investments or failing to disclose conflicts of interest, putting the advisor’s financial gain ahead of the investor’s best interests. AÂ real estate investment scam lawyer can investigate and recover your losses.
Misrepresentation of Investment Risks
Financial advisors may downplay or fail to disclose the potential downsides of a REIT or other investment. Advisors may emphasize high returns while ignoring or minimizing risks like market volatility, lack of liquidity, or declining property values.
They might also omit key details about how economic downturns or changes in the real estate market can impact the investment’s performance.
This can mislead you into believing the investment is safer or more stable than it actually is. An experienced investment fraud lawyer will investigate the circumstances that led to your losses.
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Ponzi Schemes
Ponzi schemes in real estate investments occur when a financial advisor uses funds from new investors to pay returns to earlier investors, creating the illusion of a successful investment. In the context of REITs or similar investments, the advisor may promise high returns or guaranteed profits to attract investors.
These schemes rely on constantly recruiting new investors to sustain payouts, as little to no legitimate income is generated from actual real estate assets. Over time, the scheme collapses when it becomes impossible to recruit enough new investors or when too many investors attempt to withdraw their funds.
If you believe you may be the victim of a Ponzi scheme, an investment fraud attorney can investigate and determine if the advisor engaged in any wrongdoing.
Overstating Potential Returns
Advisors may present overly optimistic projections, use misleading performance data, or highlight best–case scenarios while ignoring realistic outcomes. This can create a false sense of security and entice investors to commit their money without fully understanding the risks or market conditions.
In some cases, advisors may downplay factors like management fees, market fluctuations, or property expenses that can significantly reduce returns. By overstating potential gains, advisors prioritize selling the investment over providing accurate information.
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Selling Non-Traded REITs Without Explaining Liquidity Issues
Non-traded REITs are not publicly traded, meaning they cannot be easily bought or sold on the stock market. Financial advisors may promote these investments for their high potential returns or stability but fail to disclose that investors may need to hold onto them for several years before they can sell.
Additionally, early withdrawals are often subject to restrictions or penalties, making it difficult for investors to access their funds in emergencies.
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Failure to Disclose High Fees or Commissions
Financial advisors may withhold critical information about the costs associated with a REIT or similar investment. These fees and commissions can include upfront sales commissions, management fees, and ongoing administrative charges that significantly reduce the investment’s profitability.Â
Advisors may promote potential returns without explaining how these fees eat into earnings, leaving investors unaware of how much of their money is being diverted. In some cases, advisors may push specific investments primarily because of the high commissions they receive, regardless of whether the investment is suitable for the client.
Recommending Unsuitable Investments for the Investor’s Profile
Recommending unsuitable investments is a common scam. Financial advisors may push REITs or similar investments that do not match your financial goals, risk tolerance, or overall profile.
For example, they may suggest high–risk or illiquid non–traded REITs to someone who needs stable, short–term returns or quick access to their funds. Advisors might also fail to consider your age, income level, or investment experience, focusing instead on products that generate higher commissions for themselves.
This misalignment can lead to significant financial losses or lock you into commitments that do not meet your needs. By prioritizing your own gain over the client’s best interest, advisors exploit trust and put investors at unnecessary risk.
Omitting Details About Conflicts of Interest
Sometimes, financial advisors fail to disclose how their recommendations for REITs or other real estate investments may benefit them personally. For example, an advisor might promote a specific REIT because they receive higher commissions or incentives from the company offering it rather than because it is the best option for the investor.
In some cases, the advisor may have a financial stake in the investment itself, creating a conflict between their personal gain and their obligation to act in the client’s best interest.
By not revealing these conflicts, advisors mislead investors and compromise the trust needed for informed decision-making, often resulting in investments that are more profitable for the advisor than for the client.
Call a Real Estate Investment Scam Lawyer
If you lost over $100,000 because of wrongdoing by a financial advisor or investment firm, our securities fraud lawyers are ready to help. Since 1999, we‘ve recovered more than $350 million for our clients.
Our team can investigate your case, seek to recover your losses through arbitration, and hold those at fault accountable. Contact us today to take the first step toward protecting and rebuilding your financial future.
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