Real Estate Investing: Is Flipping Illegal
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.
When an investor buys a property, and then sells it later on to make a profit, it’s called flipping. It is a common each day practice in the real estate business, yet there is a negative notion associated with it. Why do some people wonder if flipping is legal? Simply that, in wholesaling, you can flip a property without putting out money, and some people might find it too good to be true and begin thinking that if it’s that simple to make money, there must be something illegal about it.
In wholesaling, when you have a property under contract, you will only need to find an interested buyer who will then finance the property. You don’t have to acquire the home for you to sell it, you can simply put the property under contract, and you will have control over it. Once you find a buyer, the buyer can close with you so you’ll have the money to close on the contract with the seller. It is the buyer who will provide the funding for the property, and you’ll get your profit from your selling price to the buyer. That’s flipping.
Although flipping is legal, there are some investors who go about flipping fraudulently, by not properly representing the property to the buyer and not disclosing correct information to the buyer about the property’s true condition, just to get that contract closed. That’s not legal. It is the investor’s duty to protect the seller’s and the buyer’s interest, if you want to remain in good standing within the business community.
Falsifying documents that are required to get the buyer approved is also fraudulent act.
It is important to know that the loan is based on the facts that are said on the documents, and misrepresenting them is fraud. There are investors who try to manipulate some of the stipulations to get the low income buyers who are unqualified to make loans qualified, just to get that deal closed. Now the problem is that usually the end result would be loan defaults, thus, creating a bad name for other investors who are legally doing the business. That is how some people think flipping is illegal.
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