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Flip This House… But Isn’t Flipping Illegal?


Reduced house prices in Canton, Plymouth, Northville, Novi most other Detroit, Michigan suburbs are presenting unusual opportunities for purchasing and flipping houses for profit.

During the housing boom, flipping houses was almost a national pastime. Shows like Flip This House, Flipping Out, and Flip That House attracted huge viewing audiences, and nearly every book in Amazon’s real estate top sellers category had the word “flipping” in its title.

If you mention house flipping to a real estate or law enforcement professional, however, they are more likely to think that you are talking about committing a crime. To them, the word “flip” is a nasty four-letter word. HUD (the U.S. Department of Housing and Urban Development) declared it so when it released its FR (Final Rule)-4615 Prohibition of Property Flipping.

So, is flipping good or bad? Legal or illegal?

Well, that depends which form of flipping you’re talking about. The illegal variety consists of selling a home multiple times over a relatively short period in order to artificially inflate the home’s value and cash out the inflated equity.

To begin, a con artist will purchase a home (typically a dilapidated property that costs very little). He or she will then obtain an inflated appraisal for the property – by finding an appraiser willing to go along with the scam, stealing an appraiser’s identity to forge a fake appraisal, or using a phony appraisal document. The con artist can then apply for a loan for the inflated amount. (Or, the con artist will apply for the loan and then, with the help of a cooperative loan officer, obtain the inflated appraisal to present to the lender.)

In either case, the con artist usually takes out the loan in the name of a straw buyer (someone who owns the home in name only) or by using a fake or stolen identity. Eventually, the house flipper either sells the home to somebody who is unaware of its true value or abandons the home.

That’s illegal flipping in a nutshell.

Legal flipping consists of buying a home for less than its true market value (usually at least 20 percent less), fixing it up, and then selling it at or near its true market value. This fix-and-flip approach is the type of flipping they do on TV shows like Flip This House and Flip That House. It is a shrewd and honorable way to earn a buck in real estate. As a consumer, knowing the difference between the two types of flipping is important.

Know the illegal form of flipping so you don’t break the law or get stuck with an overpriced piece of real estate that’s being used in a flipping scheme. Know the legal form of flipping, so you can fix and flip your way to wealth in real estate.

Author, Ralph R. Roberts, GRI, CRS is an experienced real estate investor and consultant and the author of Flipping Houses For Dummies (John Wiley & Sons).

Looking for a good house flip candidate can be tricky. Typically investors look for foreclosed or distressed houses. This can be dangerous however since such purchases are cash and full of "buyer beware" danger signs. Foreclosures for instance usually come with hidden title defects that the buyer is saddled with. 

To avoid getting into something that turns into a nightmare make sure you hire a good Realtor that is expert in investment strategies. It is always helpful to find a professional who has several properties of his or her own and is personally involved with the house flipping process.

You also want someone who will be a good negotiator. Experience makes the difference when they go to bat for you. This trait in a Realtor can make the difference between making a profit or ending up losing your shirt.

Don’t forget the other side of the equation…selling the house you just fixed up. Marketing is the key. Selling your newly renovated investment can take a long time unless the Realtor you choose has an aggressive marketing plan. Capturing Internet buyers is what’s most important. Before you hire a Realtor ask them to show you specifically how he/she captures buyers and how many they are currently working with. In this market the Realtor who controls the buyers controls the market.