Two Part Question
i went to an REI meeting in my area and they was saying that u can put money down to hold a house ($2000 to $5000) before it is even built and once its built u can turn around and sell it. but i also heard that flipping is illegal. IS THIS TRUE? :-x
#1 True, sort of. Many developers are wise to this practice and some discourage it or try to prevent it by putting language in their contracts. Advice is to read the fine print before signing.
#2 Flipping used to mean one thing, but now it means something else. We understand flipping to mean wholesaling.
Let's say you found a bargain antique at a yard sale where the owner just wanted to get rid of it cheap. So, you buy it and discover upon appraisal that it is worth 100 times what you paid for it. Needing cash and having no sentimental attachment you sell it (wholesale it) for a tidy profit.
Now, let's back up and maybe you have a buddy that's an antique appraiser. You and your buddy come up with some bogus certificate of authenticity or some other such scheme so that you will end up with an inflated appraisal. Now you claim that your antique is worth 5000 times what you paid for it, and you convince some poor unknowing sap to buy it.
Wholesaling involves honest principles and neutral third parties.
The term "flipping" is being applied to deals where often phony, inflated appraisals are used, and very often dishonest lending practices are also used to get the buyer their financing. These buyers wind up paying 10's of thousands more than their homes are actually worth. Even with a good appreciation rate, they will be upside down for years and years.
In both cases, no improvements are done by the first purchaser. In the case of wholesaling, the extra value is already present in the deal. In the case of flipping, the extra value is created by fraudulent means.
"but i also heard that flipping is illegal"
Flipping: Buying and then reselling property for a profit within a very short holding period.
Flipping, in and of itself, is not illegal. If you were to complete multiple flips to artificially and fraudulently inflate the perception of value... with the intent to deceive a mortgage lender or another buyer.... than that would be illegal.
[addsig]