Property flipping refers to the process of buying a property, holding it for a period of time, and then selling the property, hopefully at a profit. There are two ways to approach property flipping; one way is legal and the other is both illegal and unethical. This information will help you understand the concept of flipping and protect yourself from fraud.
How Property Flipping Is Done
The legal way to flip property is typically done by real estate investors. An investor may purchase a property that needs repairs. While the investor owns the property, he or she will perform repairs and renovations, or hire someone to perform these tasks. Very often, the market will appreciate during this renovation period. Then the investor puts the house back on the market, expecting to sell the property for more than he paid for it. This typically results in a reasonable profit for the investor.
Fraudulent property flipping occurs when a ring of real estate criminals invades a particular neighborhood. They begin to buy houses and sell the properties to each other at inflated prices, which can also temporarily drive up the perceived value of other homes in the area. After a year or so, the perpetrators take out cash loans against the inflated value of the property, and then disappear, having created false identities. The lender is then stuck with non-performing mortgages on houses that are actually worth less than the note, and other homeowners in the area are left with a group of homes that were valued in a fraudulent manner. This can create excess supply and depress values that can have an adverse affect on the entire local market.
The problem is that these criminals typically look like ordinary neighbors, so how can you identify them? Unfortunately, you often cannot until it’s too late. However, you can protect yourself and your investment by using our HomeSmart Report. For only $6.95, this report will alert you to area risks surrounding a property, or unusual market activity and this information is unavailable from other sources. Additionally, our HomeSmart Value Report can provide you with statistically accurate information about the value of your home.