Clarify some laws for me..

[Swirlaze]

..

[tedjr]

Howdy Swirlaze:

It is not illegal to flip property.  I bought a house for $40,000 and sold it for $45,000. The buyer I found never even knew I had never actually taken title to the house. We did two closings at the same time. I could have saved a few hundred and did one closing where the deed from the  seller went directly to my buyer but this would have been too confusing for the parties involved.

What you are talking about has happened where crooks got phony appraisals and resold to bogus companies or several other ways to defraud the lenders and govt.

A lot of lenders are requiring seasoning of ownership now because of these illegal activities, this is the way I understand the new requirements and the reasons for them from what I have read in the past.

Any false statements would have to be made by your buyer to the loan company. Usually the seller or wholeseller or flipper has little if no contact with the buyers loan officer. You could reccommend a loan company that may be a friend but he should not be discussing their financials with you other than how long have you owned the house and what did you have and what improvements have you done .  Showing the cost of improvements can justify the higher value of the property.

We are doing one now where the listing agent suggested demolition of the existing house and rebuilding. He may be right but we are spending about $60,000 in rehab and plan to sell it for $150,000. Our total costs will be less than $95,000 plus selling costs. We are taking a lot of risk but believe we can sell it for a profit eventually when finished. We probably could have flipped it for a quick $10,000 but I wanted to do more work for the chance to make more money.

[Dave T]

Flipping is legal.  It is the cornerstone of capitalism.  Buy wholesale and sell retail is the norm in every retail store in America.  If you think about it, the car dealer, the department store, and the grocery store are all flipping their merchandise.  Real estate is no exception -- buy below market and resell for a profit.  

It is the mortgage fraud that unscrupulous investors use to facilitate the real estate property flip that is illegal.  Falsified mortgage applications, fake credit reports, and inflated appraisals are part of the generic "false statements" referred to in the article you read.

Does this clear up the issue for you?