There has been a lot written about “flipping”. Real estate these last two years – Much of it is more fiction than fact. Some say it’s great way to make money fast. Some say it’s very difficult. Some even claim it’s illegal. So, just what’s the truth?
Let’s take care of the “illegal” claims, first. Flipping, if done the way it was meant to be done, is completely legal. But it becomes illegal when unscrupulous investors, working with unscrupulous appraisers or lenders, conspire to defraud either buyers or lenders. This is done when an investor gets an appraiser or lender to over-value a property for the purpose of selling for a higher-than-market value. For the purposes of getting a bigger mortgage so the investor can pocket more cash. In short, it’s not the flipping that’s illegal —. Rather, it’s the fraud that sometimes accompanies it that’s in violation of the law.
Such fraud isn’t necessary. You can use any legitimate method of flipping. If you remain within the law and act in an ethical manner, you’ll profit immensely. Earn yourself a solid reputation as a good person to do business with. In the long run, as you gain a reputation for fairness and sound ethics, you’ll actually profit more than if you were to defraud anyone.
Now, as for it being difficult. Some so-called “gurus”. Claim that in order to flip, the investor must first buy the property and only then find a buyer to resell to. Let’s put that falsehood to rest right now —. You can buy and resell at the same closing (called a double escrow. Simultaneous closing) without ever having to finance a single penny, because the buyer’s money funds both transactions. Under the law, neither transaction takes place first or last in a double escrow, regardless of which one actually is completed first. Therefore, the transaction with your buyer can take place first, providing you with the funds to pay off your seller. In such a transaction, the only requirements are a) you contract to buy a property from the seller at one price, then b) contract to sell that same property to another buyer at a higher price. For both contracts to call for closing at the same time and place. Both agreements are placed into the same escrow. The key, of course, is to buy at below market value. Sell at no more than market value, to avoid any possibility of fraud.
The reality is that there are a number of ways to flip properties, the double escrow is only one method. Some methods require financing –. Others don’t. Some methods don’t require cash or credit. And most methods are quite simple to do. In addition to the double escrow, the investor may also flip by way of “assigning”. In this technique, a property is put under contract. Then, instead of reselling the property (double escrow), the investor sells (assigns) the contract to another buyer. The buyer pays an assignment fee —. Usually $3000-$5000 —. To the investor at the time the contract is assigned. The investor doesn’t have to participate in any closing —. He’s out of the deal. A few thousand dollars richer.
That said let us look at claims that it’s very difficult and time-consuming. Since the most difficult part is finding a suitable property, the rest of the transaction consists of negotiating the deal (no different from any other transaction), find a new buyer (also no different from any other sale), then wait until closing when the closing agent takes care of everything else. Personally, I’ve never found laying on the beach waiting for a closing to be all that time-consuming or stressful. And I’ve been using these methods for over 35 years.
Then there are the unfounded fears that for some unknown reason, your seller and/or your buyer will revolt at closing when they “discover”. you’re making a profit.
We can only assume that the investors who have this fear feel it’s necessary to keep it a secret that they’re an investor. I don’t advocate that. I stress ethical conduct. Simply make sure your seller and your buyer are fully aware that you’re an investor –. it’s nothing to be ashamed of! If they know this, they’ll obviously know, up front, that you must make a profit –. you’d not be in the deal, otherwise. At closing there will be no anger because they weren’t deceived. In all my years of doing this, I’ve not seen one case where closing didn’t complete because of such problems, because the problems never arose in the first place.
Yes, flipping is a great way to make a lot of money in a short period of time. And it, like any other endeavor, can be stressful at times. it’s not as easy as many “gurus”. Would’ve you believe. it’s not all that difficult, either. The secret lies in 1) knowing which properties lend themselves to flipping , 2) being honest and up front. 3) using the right contracts, specially designed for flipping.
So, now you know that “flipping” is legal, relatively simple and requires no cash or credit. So, what’re you waiting for? There is a lot of excitement in making money in this fashion!