Flipping Houses: Does It Violate The Law?

June 28th, 2010 by Tara Millar

Flipping houses is also commonly labeled as wholesaling houses. It basically implies acquiring a property at a lower price and selling it for a higher price to generate a profit.

Just like any other business, flipping houses calls for buying homes low, then selling high. In view of the fact that dealings in real estate can get complex, the real estate investing subject is confused. And of course, some real estate investors have not been reliable consequently wind up in trouble.

So is it unlawful to flip houses?

At the outset, do not interpret information as legal guidance; you should always check with your legal professional. Real estate investors who get into lawful mess frequently break the law in some way.

First, what does flipping houses signify? Even if the description above means buying low, then selling high, the facts of the deal can vary, leading to misinterpretation. We are going to discover the legitimacy of each method

1) Contract assignment

Contract assignment means you discover a house beneath market value, place it under contract, then assign that contract for a cost to a wholesale real estate investor or buyer.

In this instance, what you sell your right to purchase the house, but you do not in reality sell the house.

You go home with an assignment fee at closing.

This is the simplest process of flipping houses. Note that you do not represent any person, or even own the property at any time for the duration of the deal. You purely get hold of a house under contract, and then sell that contract right to close.

2) Simultaneous closing

Simultaneous closing requires putting the house under contract, identifying a wholesale buyer, obtaining it, and then selling the house to the buyer.

Both dealings happen on similar closing table, one where you buy, and one where you persuade somebody to buy. So you just own the house for a jiffy before you sell it.

One can find two sets of closing costs and you walk home with the difference between your buying price and the selling price.

3) Buying, fixing then selling

Although flipping houses does not usually correspond to this explanation, some people purchase a house, fix it, and then sell it for revenue.

There may be nothing wrong with this, simply buying low, elevating the value then selling high.

What can go wrong in flipping houses?

1) You embody a third party without a license

Flipping houses by no means involves representing a different person in the transaction. You either sell your right to buy the property, or you buy the property, and then sell it for an income.

A real estate agent represents a buyer or seller and walks away with a payment. Because of this, an authorization is required.

2) Mortgage fraud

Of course, it is against the law to commit mortgage scams. Regardless what kind of transaction is implicated this will certainly get you into trouble.

3) Not revealing the facts

When purchasing homes from motivated sellers, it is crucial to be extremely clear and specifically let them know closely how you are handling the sale. All they are required to understand is the amount they are obtaining as per your agreement and when the deal will be concluded.

I favor to go a step further and let them know exactly how I’m controlling the transaction, so if there is some interruption, they understand the main reason why.

So long as you are clear and by no means misrepresent anything, then you do not have anything to be bothered about.

Another great article by Real Estate Guelph Free reprint avaialable from: Flipping Houses: Does It Violate The Law?.

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