Saturday, November 27, 2010

The Truth About Flipping Real Estate

There has been a lot written about flipping houses. 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?

First, let us begin by saying there are many different methods of flipping real estate, including "fix & flip", the double escrow, assigning, and various combinations. Technically speaking, almost any purchase and resale of a property is a "flip", even if the resale occurs years later. But for the purpose of this article, we will concentrate an "quick flips."

Let's take care of the "illegal" claims, first. Flipping houses, if done the way it was meant to be done, is completely legal. But it becomes illegal when unscrupulous investors, working with unscrupulous appraisers or lenders, conspire to defraud either buyers or lenders. This is done when an investor gets an appraiser or lender to over-value a property for the purpose of selling for a higher-than-market value, or for the purposes of getting a bigger mortgage so the investor can pocket more cash. For this reason, HUD issued a policy (not a law) that lenders who provide HUD/FHA or VA insured loans must include a "seasoning clause" in their mortgages, which can make some forms of flipping difficult by requiring a property be owned a period of time before it can be resold. This "seasoning clause" is only a requirement for HUD/FHA/VA insured mortgages, though many lenders have adopted it as policy (which can be negotiated out of the mortgage). But even HUD/FHA/VA seasoning clauses have exceptions, with the most important one being that the clause can be waived as long as the seller can show he is not selling for more than the legitimate market value. In short, the flipping is not what is illegal - what is illegal is the fraud that can be perpetrated when crooked people abuse flipping.

IntelliBiz strongly urges our own clients to always operate in an ethical fashion. Fraud is not necessary. Their program includes details on every legitimate method of flipping houses, and if you use the strategies in our program, not only will you be within the law, but you will profit immensely, and earn yourself a solid reputation as a good person to do business with.

Now, about it being difficult. People like John T Reed claim that in order to flip real estate, 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. Or, you may simply sell your purchase agreement to another investor prior to closing (called "assigning"), so you never need to finance anything because you are not actually buying any property.

The reality is that there are a number of ways to flip real estate. Some methods require financing - others do not. Some methods do not require cash or credit. And most methods are quite simple to do. If Mr. Reed were a true real estate investor worthy of writing about such matters, he would know that.

That said (and proven), let us consider other claims that flipping real estate is very 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, 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 can only assume that the investors who have this fear feel it is 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 35 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. And it, like any other endeavor, can be stressful at times. It is not as easy as many "gurus" would have you believe, but it is not all that difficult, either. The secret lies in 1) knowing which properties lend themselves to flipping (IntelliBiz can show you how to find them), 2) being honest and up front, and 3) using the right contracts, specially designed for flipping, such as the ones in the Intellibiz contract software.

So, now you know that flipping houses is legal, relatively simple and requires no cash or credit. So, what are you waiting for? The future belongs to those who march boldly into it, armed with knowledge. And if you are currently a bit short on the knowledge aspect, that is easily remedied by visiting IntelliBiz.


No comments: