Flipping Real Estate

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There has been a lot written about flipping real estate. Some say it is great way to make money. Some say it is very difficult. Some even claim it is illegal. So, just what is the truth?

Let's take care of the "illegal" claims, first. Flipping real estate, if done the way it was meant to be done, is completely legal. But it becomes illegal when unscrupulous investors, appraisers and/or lenders, conspire to defraud either buyers or lenders, such as when an investor gets an appraiser to over-value a property for the purpose of selling for a higher-than-market value, or for purposes of getting a bigger mortgage so the investor can pocket more cash.

We strongly urge our own clients to always operate in an ethical fashion. Such fraud is unnecessary. Not only can you be within the law, but you will profit immensely, and earn a solid reputation as a good person to do business with.

Now, about it being difficult. Some so-called "gurus" like John T Reed 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 - if you will look at these online courthouse docs, you will see that you can, indeed, resell at a double escrow (both transactions occuring at the same time), without ever having to finance a single penny. The reality is that there are numerous methods for flipping real estate, and a comprehensive program would cover them all, in detail. Some methods require financing - others do not. Some methods do not require cash or credit. Some flipping takes place before closing (called "assigning"), some take place at closing (double escrow), and some are flipped only after buying, then rehabbing or fixing the property. And most methods are simple to do.

That said, let us consider claims that flipping real estate is 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 (advertise or list it), then wait until closing when the closing agent takes care of everything else. Personally, we have never found laying on the beach - waiting for a closing - to be all that time-consuming or stressful.

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 are making a profit.

We must assume that the investors who have this fear believe it necessary to keep it a secret that they are an investor. We do not advocate that. Again, we stress ethical conduct. Simply make sure your seller and your buyer are fully aware that you are an investor - it is nothing to be ashamed of! If they know this, they will obviously know, up front, that you must make a profit - you would not be in the deal, otherwise. At closing there will be no anger because they were not deceived. In over 30 years of doing this, we have not seen one case where closing did not complete because of such problems, because the problems never arose in the first place.

Yes, flipping real estate is a great way to make a lot of money in a short period of time. It is not as easy as many "gurus" would have you believe, but it is not difficult, either. The secret lies in 1) knowing which properties lend themselves to flipping, 2) being honest and up front, and 3) using the right contracts, specially designed for flipping real estate.

So, now you know that "flipping" is legal, simple and requires no cash or credit. Now let us look at some of the methods of flipping real estate:

• Assigning: It's as easy as getting a property under contract, then sell the contract to another investor or buyer. Since you are only selling personal property (a contract) as opposed to real property, this method of flipping is one way to get around any mortgage "seasoning clause". It is also much faster and simpler than any other method of flipping real estate.
• Buy/Fix/Resell: As it's name suggests, this requires time and, usually, some cash. You must first buy the property, fix it up, the resell. There will usually be "carrying costs" - a mortgage to pay, for example - while you are fixing and reselling. A good real estate investing program will show you how to avoid carrying costs.
• Double escrow: The "king" of flipping real estate, the double escrow simply involves getting a property under contract at one (lower) price, and reselling at a higher price, with both transactions to close on the same day, at the same escrow. Also known as a simultaneous closing, this method of flipping real estate does not require any cash or credit, because you will not have to finance a property you will not own. Sounds complicated, but it really is not. A good program, the help of a mentor who is an actual investor, and the right contracts (like those provided with "The Simple Man's Guide to Real Estate) would make it as easy as a game of checkers.

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