Real Estate Innovation

Real Estate Flipping: Is it legal?

Many have misconceptions about “flipping”, about it being illegal, but “flipping” is a perfectly normal and completely legal activity in the real estate business. However there have been cases where investors do illegal activities to get the result they want while flipping.

Flipping is when you buy a piece of property that you can “flip” or sell to another buyer for a profit. Anytime you buy and sell a house is called flipping. But the term is more associated with wholesaling.

What is wholesaling? Wholesaling is when you control a piece of property and sell it to a buyer for a profit. The difference between wholesaling against other activities in real estate is that you don’t have to purchase the property so that you can sell it. You don’t need to put out your money for you to control it. All you have to do is to find a property that you can put under contract (Contract to Purchase or Option to Purchase), and find a buyer for that house. When you find a buyer, the buyer will finance the property, and you will get your profit. It’s a quick, easy, legal way to earn money.

There are investors out there who cover up problems and misrepresent the property to be in good condition when it is not just to get that deal closed. That is fraud. As an investor, it is your duty to provide accurate information, both to your buyer and seller, to maintain credibility.

Falsifying documents that are required to get the buyer approved is also fraudulent act.

Some investors might do some tweaking on the requirements to get the loans approved, which might be a common practice for the lower income buyers. All loans are based on facts investors provide, and if the some documents are falsified, even when the buyer is not qualified, it would cause loan defaults.