QUESTION: With home prices increasing lately, I am hearing more about people “flipping“ properties again. How do I get in on the action?
ANSWER: Flipping refers to buying a home at a discount with the intention of quickly selling for a profit. During the housing boom, investors flipped properties in a matter of days, taking advantage of the huge run-up in prices. Today’s investors are more likely to buy and fix up the homes before selling a few months later.
Flipping is a perfectly legitimate business - as long as you aren’t lying to a lender about your intentions or otherwise scamming the system.
Despite what those infomercials and radio spots may lead you to believe, investing in real estate is risky. If it were as easy as the gurus say it is, they would be too busy investing to teach so many seminars.
Be leery of the potential pitfalls. Selling the property may not be as easy as you think. A prospective buyer’s lender may have requirements that the investor (you) own the property for a certain period of time or that the increase in the resale price not exceed a certain ratio. For these reasons, most flips involve an end buyer paying cash. And cash buyers usually are experienced, so you could be stuck with the home for a long time if you don’t purchase it at the right price.
The best way to become a successful investor is by learning the marketplace - maybe as a real estate agent, contractor or appraiser. That will give you experience you need in identifying undervalued properties with profit potential.
Gary M. Singer is a Florida attorney and board-certified as an expert in real estate law by the Florida Bar. He is the chairperson of the Real Estate Section of the Broward County Bar Association and is an adjunct professor for the Nova Southeastern University Paralegal Studies program. Send him questions online at http://sunsent.nl/mR20t7 or follow him on Twitter GarySingerLaw.
The information and materials in this column are provided for general informational purposes only and are not intended to be legal advice. No attorney-client relationship is formed. Nothing in this column is intended to substitute for the advice of an attorney, especially an attorney licensed in your jurisdiction.