Ron LeGrand

Flipping is Illegal
by Ron LeGrand

Oh No! All this time youíve been telling me I could make a killing buying & selling (flipping) houses and now youíre telling me itís illegal, Ron?
Well, sort of! But before you get all upset, Iíd better explain. Donít worry; youíre not going to jail. Hereís the deal. Illegal flipping is indeed illegal. But first, lets define flipping because it is a misunderstood term, sort of like the term "nothing down." When I say you can buy houses with nothing down, I mean youíre not using your own money. That doesnít mean the seller doesnít get money. Some-times they donít and sometimes they get cashed out. But, it is NOT your money; itís a "nothing down" deal.

When you take over a loan "subject to" the mortgage, and the seller doesnít want any money, itís a nothing down deal. When you pay all cash but borrow the money from a private lender, itís still considered a nothing down deal. Thousands of people donít believe in the nothing down philosophy and arenít doing real estate because they simply donít understand the term, and therefore theyíre convinced they can't buy houses without their own money. Their loss. A closed mind and an open mouth will keep you broke and working for those who are willing to learn.

Just try and tell my Boot Camp grads (especially those who have become millionaires because they refuse to listen to the morons) you canít buy houses without your own money. The same ignorance seems to be attaching itself to the term "flipping." Totally misunderstood and misrepresented.

Hereís The Shocker.

Every house you buy and sell is a flipper. Whether youíre in wholesale, retail, sell- on-lease-option or owner financing, youíve just flipped a house. Most people use the term when applied to wholesaling, but itís all flipping. Itís either a fast flip or a slow flip, but itís still a flip no matter how you look at it.

Ok Ron, So How Come Itís Illegal?

The Answer Is Itís Not.

The term "flipping" seems to be used by the media in cases where an investor bought a property and sold it a short time later. However in all the cases Iíve read, fraud was a part of all their deals. These investors made a practice of illegal activities and got away with it long enough for the long arm of the law to catch up to them...then they instantly became a news item. Flipping houses is not illegal. Fraud is. So what kind of fraud did these guys get in trouble over?

Hereís A Short List Of Possibilities.

1. Paying appraisers to grossly appraise properties to get bigger loans for themselves or their buyers.

2. Rigging down payments to put unqualified buyers in houses that shouldnít be approved for the loan in which theyíre applying for.

3. Falsifying documents required to get a buyer approved such as pay stubs, verification of equipment, tax returns, verification of deposit, etc.

4. Selling houses to unsophisticated buyers, representing them to be in good condition but covering up obvious problems to get the loan closed. This is the most abused type of fraud, and once discovered it leads to an investigation of all the investorís activities and usually uncovers all other kinds of fraud.

5. Back dating lease agreements to prove a track record of the tenant making payments on time and a year or more occupancy, when in reality the tenant just moved in. This is very common. Iíve had loan processors with large mortgage companies suggest I do it. The last time was on a $600,000 house. I asked the loan agent if he knew that was lender fraud. His reply was, "my boss said it was o.k. We do it all the time."

Just remember this. Anytime the deal is different than the contract presented to the lender, itís lender fraud. The loan is based on the stated facts. If you misrepresent those facts, itís fraud. Regardless of how many other people participate in the process.

O.K., Back To Flipping.

What does lender fraud have to do with flipping and the stigma some of the media have placed on it? Some lenders have had so many loans default on lower priced properties sold by investors itís opened their eyes and made them cautious, and justifiably so, if I were a lender making loans at 80%-100% of the purchase price, Iíd be cautious too. In fact, Iíd be paranoid, but then again Iíd be neither because Iíd never even consider doing it.

I have no way of proving this, but if I had to guess, Iíd say 75% of all loans closed to fund low income homebuyers contain some kind of false statement or fraud.

I know thatís a bold statement, but Iíve been around a long time. Long enough to see numerous loan companies take a dive from bad loans. Itís almost standard practice in the cheap house business to stretch the truth to get unqualified buyers qualified. This creates default and a bad name for those who operate within the law. Thatís exactly what has happened with the term ďflipping.Ē But, Ill say it again. Flipping is not illegal.

Thereís no law against agreeing to buy something at price “A” and then finding a buyer at a higher price. Suppose you had a stereo unit you agreed to sell me for $500, and I told you I would pay you next month when I get my tax refund check (fat chance!). You agree to wait the 30 days it takes me to raise the money. We then sit down and write a letter stating that, and we both sign it.

A couple of days later, Iím talking to a friend who mentions he needs a good stereo. I decide to sell him the one Iím buying for $1,000 and make myself a $500 profit. Obviously I canít deliver his stereo until I give you $500 because you probably wonít turn it loose until you get paid. However that doesnít stop me from searching for a buyer.

Once the buyer agrees, I can collect all the money in advance and pay you, collect a $500 deposit and pay you, or I can pay you first with my money and then collect from him. Thereís no law that says I have to pay you and take possession before I can talk to anyone about the stereo. If they were on Ebay, they'd have a problem. Half the stuff sold on eBay isnít in the possession of the person doing the selling. They agree to buy at a lower price from another auction site and put it up on Ebay. When itís sold, they simply have the old owner ship it to the new buyer.

Thatís called drop shipping and itís very common in any industry that sells products. Thatís exactly what we do with real estate sometimes. You donít have to own it to shop for a buyer. You simply must control it, which is what you do with a contract. The problem comes when lenders see investors buying at deeply discounted prices and selling for two or three times the amount a few weeks later. Some just assume there must be fraud somewhere to make such an unconscionable profit. You see, they havenít attended my Wholesale/Retail boot camp.

If youíre buying and rehabbing houses it would be a good idea to document the work youíve done to the house. Keep a file on everything youíve spent to make a case on how you raised the value so quickly. You should also furnish before and after photos. It is also not a bad idea to create your own album to keep while youíre doing this. It will help with future credibility with everyone you deal with including bankers for a line of credit.

If youíre using private money from a loan broker, you probably have an escrow account for repairs. That means an appraiser may be supplying the mortgage broker with a completion certificate once the work is done. Get a copy and add it to the pile of evidence. Of course some lenders wonít be happy with anything you provide and simply wonít fund the loan unless youíve owned the property for a year or more. I wrote a past newsletter article on six ways to get around that, but the best way to deal with lenders who donít want your business is . . .Whack 'em!

Flipping is not illegal. The length of time you own a house is your business. Making a killing is your right. Providing for your family is your obligation and the smartest thing you can do with people or institutions who want to make life difficult is cut them off at the knees and tell them to take a hike . . . and thatís my final answer. They are the weakest link.

Before you even take a buyer to a lender for a loan, ask them right up front if your length of ownership is an issue. If they give you any indication that itís a problem, move on. The country is full of lenders and there is a ton of money available. They need you more than you need them. Donít take any crap from any lender and donít let them make you believe their rules are the law or even the norm.

Well, Iím getting tired now! Itís been a long day of battling ignorance and skepticism and Iím worn out! I think I am going to go "flip" open the refrigerator and get a little snack, then ďflipĒ on the shower, then ďflipĒ down the bed spread and shut my eyes for the night. Life seems to be one flipper after another. Hope itís legal.


Ron LeGrand
Ron LeGrand is a nationally recognized real estate expert and trainer with 25 years experience in both residential and commercial properties and a 20 year history of hard money lending and brokering. His experiences include personally buying and selling over 1,600 single family houses and completing over $300,000,000 in Commercial Property deals with student partners all over America.

Heís obtained current real estate developments across America with market values exceeding two billion dollars, all under his control. His properties include office buildings, industrial, commercial, mixed use and residential land development, luxury condominiums, marinas, etc.

Mr. LeGrand is a highly sought after platform speaker whose addressed audiences as large as 20,000 and as small as 100 in hotels and convention centers across North America, sharing the stage with leaders such as Donald Trump, Robert Kiyosaki, Rudy Giuliani, Tony Robbins, Larry King, Dr. Phil, Suze Orman, and many others. For the last 20 years heís been helping thousands of ordinary people take their lives back and create financial freedom by implementing his systems for success as real estate investors. Today heís considered the countryís leading expert and is referred to by many as the ďmillionaire maker.Ē

His book is in stores and online and over the years heís created dozens of home study products, held live training events on various real estate related subjects. He spends much of his time passing on his experience at those live training events, held in various parts of the country, while simultaneously running over ten different business he owns and controls.

Ron LeGrand's 41 year marriage to his wife Beverly has produced four children, nine grand children, and two great grand children.



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Copyright 2002-2018 All Rights Reserved. Published with Permission of Author. No part of this publication may be copied or reprinted
without the express written permission of the Author and/or REIClub.com.

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