A lot of people have the false impression of flipping, on whether or not it is legal. There have been some situations where investors, in their eagerness to close on deals, do some tweaking with the activities involved in flipping properties. However, flipping, in itself, is NOT illegal, but is a very legal, profitable business. When an investor purchases a property, and then sells it later on to make a profit, it's called flipping.
It is a common everyday practice in the real estate business, yet there is a negative notion associated with it. Why do some people wonder if flipping is legal? Simply that, in wholesaling, you can flip a property without putting out money, and some people may find it too good to be true and start thinking that if it's that easy to make money, there must be something illegal about it. How is that legal? Well, what happens is that you find a good piece of property, put it under contract at a price you agree on, you find a buyer, have the buyer close on the contract at the price you and the buyer agree on. Basically, you are only acting as the middleman who locates a property for a buyer.
Now how is that illegal? It's just like charging for your professional fee for your services. Both the seller and the buyer need you. The seller needs you to find a buyer, and the buyer needs you to locate a piece of property he can purchase. There are investors out there who cover up problems and misrepresent the property to be in good condition when it is not just to get that deal closed. That is fraud.
As an investor, it is your duty to provide accurate information, both to your buyer and seller, to maintain credibility. Rigging or falsifying documents to get the buyer approved is illegal. It is important to know that the loan is based on the facts that are stated on the documents, and misrepresenting them is fraud. There are investors who try to manipulate some of the requirements to get the low income buyers who are unqualified to make loans qualified, just to get that deal closed.
Now the problem is that usually the end result would be loan defaults, thus, creating a bad name for other investors who are legally doing the business. That is how some people think flipping is illegal.
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