Featured News 2012 What you Should Know About “Flipping” a Home

What you Should Know About “Flipping” a Home

Flipping is a common term attached to the act of buying a house and then quickly reselling it for profit. This short-term investment can merit great profits if it is used carefully and constructively. While there are many different assets that can be “flipped,” the practice is most common in real estate transactions. While some forms of “flipping” a property are fine, there are other times that the practice can be targeted as devious. Some people flip homes in order to manipulate the market. Oftentimes people consider “flipping” to be destructive and unethical. The issue has been taken up and debated in many instances in the United Kingdom, but it is allowed in the United States.

There are various types of flipping. Most often, wholesalers will sign a contract to purchase property and then enter into an agreement with a buyer at the same time. Essentially these people buy a home and then automatically transfer it over to another party for a higher price. The purchase contract is assigned to the third-party buyer and then that person pays an “assignment fee” in order to have all the property rights transferred to their name. When a wholesaler engages in this business, he usually makes sure that he can secure an “inspection period” so that he can back out of the deal if he can’t find a buyer to take the property off his hands. Wholesalers never want to actually purchase the property, but they say that they are able to help people buy properties that could make great investments through their transactions.

In some cases, if another buyer is not found prior to the end of the inspection, the wholesaler can cancel the contract and leave the home with the original seller. Homebuyers then go through a wholesaler to obtain their home. The reason that this is a tempting choice for buyers is because of the “no money down” and “no risk” offers. Essentially, the new buyer can put down a deposit as low as $10 in one of these arrangements and the deposit can be retuned if the buyer backs out during the inspection period. There are also times that a wholesaler will engage in wholesaling the property multiple times. When this occurs, the property needs to be assigned to a few wholesalers who transfer the home from person to person until they arrive at a buyer.

The originally wholesaler usually buys the home in question and then sends that home onto another investor. The homes that are purchased and transferred in these transactions are usually sold below market value because of an obvious flaw like fire damage. Other times maybe the homeowner is facing foreclosure and will take whatever money he or she can get. There is not technically anything wrong with flipping a home multiple times. The practice is normally called “Distressed Real Estate Investing” or “Wholesale Real Estate Investing.” Some wholesalers also partake in “fix-it flipping.” In these cases, they purchase a property, fix it up with the necessary repairs, and then sell the improved home for more money.

Sometimes, a wholesaler can be accused of real estate fraud when “flipping” a home. These cases normally involve a collusion between the real estate appraiser, mortgage originator, and the closing agent. If a homebuyer is given a false appraisal report in an attempt to convince the victims to buy a flawed home, then the wholesaler can be prosecuted. Wholesalers who engage in these investments are required to abide by the Department of Housing and Urban Development’s regulations which are included in the Federal Housing Administration documents. Talk to a real estate attorney if you have questions about “flipping” and need more information about how this practice applies to your lawsuit.

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