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.

What is “flipping”? Flipping is when an investor buys a piece of property and sells it a short time later for a profit. In real estate, anytime you buy a piece of property and then sell it, whether soon after or years after, is flipping. However, it is a term more commonly used in wholesaling, which is really wonderful, hassle-free business in real estate where you don’t actually have to buy the property, but you can have control over it and sell it to someone else for a profit.

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 do not have to acquire the house 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 will 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 will get your profit from your selling price to the buyer. That is flipping.

It is a perfectly normal real estate operation; however, there are investors out there who perform illegal practices while “flipping” properties. When investors try to mislead a buyer about the property’s condition or when the deal is not as it seems on the contract, which is fraud.

Rigging or falsifying documents to get the buyer approved is illegal.

It is important to know that the loan is based on the facts that are stated on the documents, and misrepresenting them is fraud. There are investors who try to manipulate some of the requirements 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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