You may have seen the shows about flipping houses on television or heard about seminars scheduled for your area.
Given the profits you can make, the concept is appealing, but you wonder if it is really legal. If you complete a successful project and have money in the bank, could you be in trouble with the law?
House-flipping basics
The practice of flipping houses may seem too good to be true, and you wonder if there is something illegal about it. The basic idea is to buy a property for a discounted price, renovate it, then sell it at fair market value and reap the profits. If everyone involved is above board in their dealings with one another, there should be no problems on the legal front. If you follow simple rules, house flipping is an entirely legitimate way to make money.
How bank fraud can happen
On the other hand, a house-flipping transaction can indeed be illegal, and here is an example. Let us say that an investor buys a fixer-upper, then engages a contractor to make subpar improvements—just enough to make the property look attractive. Next, the investor finds accomplices in an appraiser who inflates the value of the home, plus a mortgage broker and an agent who is willing to close the deal once a naïve but willing buyer is found. Once that happens, the whole house-flipping transaction appears to be headed for a successful conclusion. However, the partners, all of whom expect to profit, misrepresent the facts to a lender, and this constitutes bank fraud.
Going forward
If you are interested in the idea of flipping houses, it is important for you to keep accurate records. You want to be able to prove that you have purchased and renovated a particular property in a legitimate manner. Carefully kept records will assure the lender that you are honest and reliable and have not engaged in fraudulent activities in any way. In fact, if your first project meets with success, you may feel encouraged to continue the exciting practice of flipping houses indefinitely.