Property Investment Scams & How To Avoid Them
The UK property market has long been a path to wealth creation for savvy investors and indeed this next generation are inline to receive generational wealth over the coming years as property prices continue to grow (often outpacing inflation).
Yet alongside legitimate opportunities, a darker side exists where fraudsters operate with increasingly sophisticated schemes. Drawing from two decades of industry experience, this article examines the most prevalent property scams currently targeting UK investors, and how you can avoid them.
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by Robert Jones, Founder of Property Investments UK
With two decades in UK property, Rob has been investing in buy-to-let since 2005, and uses property data to develop tools for property market analysis.
Property Scam # 1 - Inflated Rental Yield
The first one we'll look at is all about risk and reward.
If the return on a property is too good to be true, then that's a sign that the deal is not all that it seems.
Experience has taught us that legitimate property investments follow certain patterns. In the current market, a standard buy-to-let typically yields around 8%, though this can dip to 6% in premium city centre locations (or as low as 4% for buy-to-let in London) where capital appreciation often compensates for lower rental returns.
Student houses of multiple occupation property investments may deliver around 10-12% yields, while professional hmo investment opportunities generally deliver gross yields of 12% or above (slightly higher than students as they can work in lower value asset areas).
For other property strategies like development projects these should target approximately 20% return on investment after accounting for all costs. Providing a higher return for the increased risk.
The first warning sign of a potential scam often appears in the form of yields that significantly exceed these benchmarks. We recently encountered a scheme promising 15% yields on standard buy-to-let properties in Manchester – a clear red flag given the area's market fundamentals. Such inflated projections prey on investors' optimism while masking underlying issues with the investment.
The seller of any property should be able to back up any claims they make for property values and yields, if they can't or refuse to, this is a concern and certainly a potential sign of a real estate investment scam.
Property Scam # 2 - Joint Ventures
Number two is the scams that can come into play when your working with joint ventures.
Certainly, not all joint ventures are bad, far from it. We have had alot of success with joint venture and we also know customers and clients that frequently use joint ventures to grow property portfolios and do so very successfully.
But, some joint ventures aren't structured correctly from the beginning. Others might be structured intentionally to scam you.
There are unfortunately many stories of these going wrong in the national press.
Often this can be because their complexity makes them particularly vulnerable to manipulation. With many ways to structure a joint venture partnership or property purchase it can create unaligned incentives.
The safest approach to avoid a property investment scam like this often places the property in the funding partner's name, securing their investment through direct ownership. Yet increasingly, we're seeing proposals where investors are asked to transfer funds directly to the operator's account – an arrangement that can leave investors dangerously exposed.
If you are seriously considering this property strategy, then you should only do so with the solid advice of a solicitor on your side to provide advice, guidance and to look at any contract agreements to make sure you are secure.
Property Scam # 3 - Avoid Large Reservation Charges
Number three is all about deposits. When you reserve a property you want to buy, whether it's with an investment company or some other source, there will be some process requiring a deposit.
For every deal, this can be different and for every deal, you need to know how it is going to work and how secure your reservation fee is if you require a refund.
The property reservation process naturally involves certain costs, but industry standards exist for a reason. Legitimate reservation fees typically range from £500 to £3,000 to secure an off-market investment property (this is different when buying through an auction or modern method of auction which may require 5-10% deposit to exchange on a property).
When developers or agents demand significantly higher amounts, careful scrutiny becomes essential. As this can lead to other concerns.
New build properties and off-plan properties can be great opportunities, but you must do research on the location, developer and sales agent to ensure they have a track records of successful completed developments for many years.
Property Scam # 4 - Inflated Property Value
Number four is again looking for inflated figures, this time for property market values.
This can happen based on changes to the property or the location
Property
This is very common and can affect those looking at how to buy a HMO property, where a HMO scam is possible by selling the property based on it's strong yield, but the bricks-and-mortar value may be heavily inflated.
This happens when scammers may take a standard house, say a 3-bedroom property (or similar), 'say' it is rented as a HMO and then sell the property with a massive markup.
For example, if someone said to you there is a property opportunity to buy at £400,000 with a 10% rental yield. You may think that rental yield sounds great. But the HMO scam here could be that the property as a traditional rental could be worth significantly less. The property may not have had any work done to it, and neighbouring properties may be worth £250k or £300k (as one example).
It's important to note that where the property has genuinely been significantly converted and developed to a HMO, and the developer has gone to great lengths to undertake a quality conversion including planning (things like sui generis), architects, has created more bedrooms with an extension or significant internal layout change, these properties can honestly be worth more than neighbouring properties and are often sold (and financed) at a higher valuation.
The simplest path here is to ensure you carry out thorough due diligence when buying a house. Speak with local estate agents and letting agents. Make sure there is a HMO market with demand from tenants and this isn't simply a HMO scam. There are also different types of home surveys, so you can get a specialist survey carried out to confirm it's valuation.
Location
Property valuation scams often emerge in areas experiencing rapid price growth, where determining true market value becomes more challenging. We've witnessed this particularly in emerging regeneration zones, where developers sometimes inflate prices by 20-30% above genuine market values, claiming 'hope' value that the property prices will match that price in the coming months as the market is so 'hot'.
Whilst it can be true that prices are rapidly increasing in an area can mean a big difference in value in such a short period of time, you should always back this up with a house valuation survey. These are now very affordable and you can check how much a house survey typically costs here.
Property Scam # 5 - Refurbishment 'Package Deals'
Refurbishment packages combine a property purchase with renovation work – a legitimate model when properly structured. However, there can be a number of scams in this part of the industry.
Payment terms often reveal underlying issues, as with any significant building work, it can be common to make staged payments and have a building contract, however any demand for complete upfront payment of refurbishment costs should raise immediate concerns.
Legitimate projects operate on stage payments, typically releasing funds weekly or fortnightly as work progresses. This allows for quality verification and protects both parties' interests.
Another major concern is the quality of the company behind the refurbishment. Sometimes these properties can be provided and sourced by very capable property sourcers, however they don't necessarily have the experience required to project manage large scale refurbishments. This can sometimes be less of an out and out scam, and more of a concern and issue with capabilities. If you have the wrong person or team carrying out the building work and overseeing the project it can be costly and cause issues.
This can even happen with large new build property developers, so it is not always your smaller businesses. Extensive due-diligence on your property sourcing company and refurb team is a must to avoid any real estate development scams.
Property Scam # 6 - Land Deals
You may be asking, are land-buying companies legitimate?
Well yes of course they can be. Genuine large PLC developers buy land all the time. This is often known as a land banking strategy.
Yet, there are plenty of companies that aren't legitimate in this space too.
Land investment scams typically surge during property market transitions, targeting investors seeking alternative opportunities and pushing the boundaries to get higher returns. The classic approach involves selling greenfield plots without planning permission at prices that would only make sense for development-ready land.
Recent years have seen sophisticated variations emerge, with promoters creating elaborate planning feasibility studies and architectural visualisations to support inflated valuations. Yet the underlying land often faces insurmountable development restrictions, rendering it virtually worthless as an investment.
The advice here is unless you are an experienced property developer, you should not buy land without planning permission without understanding there are significant risks and gaining permission isn't guaranteed.
Property Scam # 7 - Phishing
Last on this list of property investment scams is phishing. It's a more recent scam to arrive in the property investment industry but it's serious.
The rise of cyber fraud has introduced new risks to property investment, specifically conveyancing fraud.
Solicitor email compromise has become particularly concerning, with fraudsters intercepting property purchase communications to redirect payments. Several investors continue to lose substantial sums when hackers infiltrat conveyancing email chains to provide false bank details.
This threat demands strict verification protocols. Never rely solely on email for payment instructions, regardless of how authentic they appear. Direct telephone confirmation with your solicitor before any transfer remains essential and always, always trip;e check payment details before sending funds to your conveyancing for your property purchase.
How to Avoid the Scams
Successful property investment requires balancing opportunity with prudent risk management. Consider these essential protective measures if you are looking for your next property:
- Verify all companies through Companies House and established industry networks.
- Maintain direct communication with professional advisers throughout transactions.
- Research thoroughly, comparing all figures against verified property market data.
- Question any unusual payment arrangements. Document everything meticulously.
Most importantly, when working with property professionals, check their membership in recognised industry bodies. Legitimate operators often belong to organisations such as:
- The Property Ombudsman (TPO)
- National Association of Property Buyers (NAPB)
- Royal Institution of Chartered Surveyors (RICS)
- National Residential Landlords Association (NRLA)
- Association of Residential Letting Agents (ARLA Propertymark)
These memberships require adherence to strict codes of conduct and provide additional protection for investors. You can verify membership claims directly through these organisations' websites.
Most importantly, develop relationships with trusted industry professionals who can provide objective guidance when opportunities arise. Property investment offers genuine wealth-building potential, but sustainable success demands constant careful research and due-diligence.