Flipping, in regard to real estate, has multiple meanings. As shown on TV, flipping meant buying property that “needs TLC”, investing sweat and money to make it better, then selling for profit. Now flipping is assumed to be something bad for residents and neighborhoods. The original positive definition is lost.
Johnny Northside has posted an explanation of one flipping process which fits the new, negative connotation of the term:
Let's say Mr. Smith is trying to sell his house for $100,000 but for the last six months it hasn't sold. He's desperate to get rid of the house because he has to move. A realtor sees this and says, "I can sell your house in as little as a few days to a few weeks. The sale price will be $150,000 but the fees involved will make your net profit the same as if it sold for $100,000."
Well, why should Mr. Smith care if he can sell his house for the net gain he was looking for? Smith can't pass up the deal.
The realtor next goes to Mr. Jones, an unsuspecting buyer, and says, "How would you like to buy a house and get $10,000?" This may be presented as an owner-occupied deal, but more often it's sold to the buyer this way: "We'll manage the property for you, putting renters in, paying the utilities, etc. We just need your name on the credit to make it happen. Since we're taking care of everything, it's a risk-free investment. Plus, you get the $10,000 and any appreciation in value."
Read the whole story to see how several layers of fraud are required for a successful flip. Although loan requirements are now tighter, and without rapid appreciation, speculative buyers are less abundant, the story ends thus:
This is happening a lot less than it used to, simply because 100 percent loans are going away. But it's still there, if for no other reason than a lot of the perpetrators haven't been caught yet.
Post new comment