February 11, 2023 • FilesReady
Flipping is a term used primarily in the US to describe purchasing a revenue-generating asset and quickly reselling it for profit.
The term “flipping” is used by real estate investors to describe “residential redevelopment”. Redevelopment of distressed or abandoned properties or neighborhoods has sometimes been linked to malicious and unscrupulous acts in the post housing bubble era. The term “flipping” is frequently used both as a descriptive term for schemes involving market manipulation and other illegal conduct and as a derogatory term for legal real estate investing strategies that are perceived by some to be unethical or socially destructive. In the United Kingdom the term is used to describe a technique whereby Members of Parliament were found to be switching their second home between several houses, which had the effect of allowing them to maximize their taxpayer funded allowances.
Types
Wholesaling and assigning a contract
Wholesalers make a profit by signing a contract to purchase a property from a seller and then entering into an agreement with a third party to resell the same property at a higher price for a profit. All rights to the original purchase contract are assigned to the new buyer and the new buyer pays an “assignment fee” to the wholesaler in order to gain all rights to purchase the property at the original purchase price. The original purchase contract usually has an “inspection period” which allows the original buyer to back out of the contract and not close on it if they do not find a buyer to assign their contract to. Many wholesalers have no intention of actually purchasing the property and simply use wholesaling as a tool to locate properties for other investors.
In many cases, if another buyer is not found before the end of the inspection period, the wholesaler cancels the original purchase contract (through its cancellation clause) and gets back the deposit. Wholesaling requires little or no money to be secured in escrow, and in most cases the wholesaler never intends to actually purchase the property. The practice of wholesaling is often advertised as “No Money Down and No Risk” by many real estate coaching companies and infomercials since the actual deposit can be as little as $10 and often even the deposit can be returned if the wholesaler cancels the contract before the end of the inspection period.
Wholesaling a property multiple times
It is not uncommon for a property to be assigned multiple times and for a few wholesalers to make money in a transaction from the seller to the end buyer. The original wholesaler enters into a contract to purchase a property and then assigns or sells their rights to that contract to another investor. That investor then assigns their rights to said contract to a third investor and so forth. Examples of distress could be a property dar of vehicles a person can flip within each year unless they are a dealer or associate. This number varies from state to state, from 2 to 10. Car flipping has a larger market and requires less investment than flipping real estate.
Source: Wikipedia.
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