Avoiding fraud on long distance investment

[Jason Malabute]

I am preparing for my first long distance real estate deal. I am trying to do everything David Greene talks about in his book. I am:

1. Recruiting real estate agent who did most deals and best reviews in the market. (She is referring me to agent on her team that works with investors. He also invests himself in market)

2. I am asking agent to refer me to property management and preferred lender they work with

3. I am checking online reviews

4. I am going to ask agent and property management to provide referrals from past clients

5. I am going to hire lawyer to review my contract

6. There are segregation of duties between real estate agent, lawyer, and property management

What else should I do to prevent any chance of fraud or be taken advantage of as a long distance investor?

[Mitch Messer]

Hi @Jason Malabute and congratulations on approaching your first long-distance deal!

I like the preparation list you've got: It's a terrific start!

That said, I believe most of the potential for fraud and abuse centers around the money, specifically who has access to it and how debits (expenses) are authorized and accounted for.

Here's a common example: Let's say your property manager calls you up to say there's a major repair needed on one of your units. The cost will be $700.

First, how do you know that there really is a repair needed? Next, how do you know the cost is really $700? And, most importantly, who actually verifies that the contractor has done the work and then makes the payment to them?

This is a policies and systems issue, and this is where most landlords fall seriously short. You need to be crystal clear on the process by which repairs are identified, assessed, quoted, verified and paid. 

Write it down.

For example, do you want all repairs over $500 to be competitively bid by three separate contractors? Then, that should be part of the process. Do you want the resident to verify that all repairs have been completed before the contractor gets paid? If so, that goes into the document, too.

Write it down.