The Big Question about Flipping Houses

In the real estate investing business, the process of flipping houses is simply defined as the act of buying real estate properties with the intent to sell them for profit. It is sometimes used interchangeably with wholesaling houses, another method of investing in real estate wherein an investor finds an undervalued property and then sells it to a bargain hunter.

Buying and quickly selling properties is a great way to build wealth in the real estate business. If done correctly, you can make more money than you earn while doing your current office job. In recent years, however, the term “flipping” has gained a negative connotation, leading many people to believe that it is illegal and against the law.

To set the record straight, the act of flipping houses is not against the law. There is nothing wrong with buying an investment property and then selling it after a short period of time to earn money. In fact, flipping real estate can be likened to buying and selling clothes and people don’t go to jail by doing exactly that.

This method of investing in real estate only becomes illegal when it involves fraudulent activities. To give you an idea, here are examples of illegal activities committed by investors when flipping houses:

• Making a false appraisal of the property. Some investors, homeowners, and even mortgage companies collude with appraisers to grossly inflate or underestimate a property’s market value to earn extra profits from themselves.

• Selling ugly houses to buyers who didn’t know better. Some investors try to take advantage of a person’s inexperience with buying properties by claiming that a house is in a nice condition when in reality, it is not. Then, he will sell that questionable property to an unsuspecting buyer just to get a loan closed.

• Falsifying documents. In this type of fraud, an investor submit fake documents such as pay stubs, verification of deposits, tax returns, and income statement just to get a buyer qualified for a loan.

• Making backward applications. To qualify for a loan, an investor or a buyer tampers with his or her income after indentifying a property to buy.

When flipping houses, always perform due diligence. Never resort to illegal activities because you can make huge profits in this business without doing underhanded tactics. Meanwhile, if you want to improve your understanding of buying and selling properties for profit, log on to www.REIWired.com