Question:

If I take a mortgage to buy property in order to resell it with profit – is that illegal house flipping?

Answer:

It depends on the case at hand whether house flipping is illegal.

House flipping in essence is buying a property with the purpose of reselling it for a better price. Why should making profit be illegal? Any time property is bought and later sold constitutes flipping. Whether the sale takes place in the short or the long run is immaterial.

Let's make a point here - when is house flipping illegal? Any time a house is sold with profit shortly after it was bought? Making profit can hardly be against the law. If there are illegal activities and purposeful fraud involved in the house flipping then flipping is illegal.

Harmful Flipping Practices

  • If I am a lender/buyer who bribed the assessor to declare an exaggerated market value for the property in order to get a bigger loan - this is illegal
  • If I am a lender and my borrowers don't meet the criteria for the loan they want and I help them get the loan knowing they cannot afford the monthly payments and soon will default on the mortgage therefore I will soon be able to begin foreclosure and get a new house - this is a very common mortgage scam
  • If I am a realtor and I know the house I am selling has some inconspicuous but serious problems with it - like sewage problems, or termites, and I am misleading the buyers just to close the loan - this is another type of common lender fraud.

However, these abovementioned scams and frauds have nothing to do with making profit with house flipping. If I find a cheap house and a buyer wiling to buy it for more, why shouldn't I make that profit? Or the fact that someone can sell it for two-three times the original price bothers mortgage companies and they assume some kind of a fraud is involved? Well, to make money that way needs some daring. If you are that kind of a brave guy, you could go to a lender and ask for the loan to buy that good bargain you have stumbled on, and ask them if they are ok with short term ownership. If they are not, there must be some other lender out there that will be.

Another approach to house flipping is buying just some old house, or one that comes out cheap on estate sale or is having foreclosure on it - just something that can be bought much cheaper than later can be sold for. A little renovation and some built-in qualities of the property as original design and good location, and it can soon sell nicely. There you go - why should this be illegal house flipping?

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