Flipping / Wholesaling / Buying and Reselling
Although there are numerous terms or ways to describe this action, (Flipping / Wholesaling / Buying and Reselling), the concept is quite simple.
When you flip, or wholesale, or buy and resell a property, what you are doing is getting a property owner to agree to sell you their property.
and then you are reselling the property to a new buyer for more.
The original owner signs a contract with you and then as soon as you have the deal under contract
(whereby you have in writing a contract stating the exact terms of the agreement).
you then find a buyer who will pay more for the property than the agreement you have with the owner.
You, then, make the money, or the spread, in the middle.
Although this is quite simple in concept, the actual process of how you get paid from this arrangement can be somewhat complicated at times.
Flipping / Wholesaling / Buying and Reselling
For example, once you have a contract in place between you and a property owner.
instead of closing on the property the traditional way and then re-selling to another buyer.
in certain situations, you can actually assign your contract to a new buyer.
Then, at the closing, this new buyer will purchase the property from the original owner and you will step out of the way for an assignment fee.
Flipping / Wholesaling
In other scenarios, as in the case of some short sales, you would first buy the property from the original owner.
close on it using transactional funding, and then immediately re-sell the property to the new buyer.
Both of these examples fall under this same category of flipping / wholesaling / buying and re-selling.
but the way in which you obtained the spread, or the money in the middle, were quite different.
The concept is simple but the way in which you get paid can be more complicated.
To avoid confusion, focus on the concept for now.
The foundation for successfully applying this investi approach.
It is being able to find properties that can be put under contract at an amount substantially lower than the current value
(or with favorable terms).
And, the property must also be attractive enough to another buyer that he/she would be willing to pay you more for it than what you have it under contract for.
When these two requirements are met, you can make very good money being the middle person and putting the deal together.
If you are getting paid to buy
(or put under contract)
a property for less than you can immediately re-sell it for, is that immoral, unethical or otherwise bad?
In fact, these deals can be an incredible win-win transaction for all parties involved given the right circumstances.
Unfortunately, the word flipping has actually taken on a very negative connotation.
In fact, the dreadful word illegal has actually been paired with flipping.
To set the record straight, it’s important to recognize that a large portion of the business world has functioned on the wholesale retail model for centuries.
REAL WORLD EXAMPLE :
Look around your home at the many items you purchased from a retail store.
The majority of those items wound up in your home from the following process :
First, the manufacturer created items and sold them to a wholesaler.
The manufacturer made a profit by charging more for the items than it cost him to manufacture them.
Second, the wholesaler sold those exact same items to the retail store.
for more than what the wholesaler bought the items for from the manufacturer.
The wholesaler made its profit by being the middleman; buying low and selling higher.
Third, the retail store sold you the exact same items they bought from the wholesaler for more than what they paid.
The retail store made their profit being the middleman and buying high and selling higher.
Except for the manufacturer.
everyone else made their money buying and re-selling the exact same item for more money to the next customer down the line.
Is it illegal to buy an item at one amount and then resell that same identical item for a larger amount?
If it is, then the vast majority of businesses are built on an illegal wholesale-retail model.
When you flip, or wholesale, or buy and re-sell real estate, you are operating under the same model that many of the most well respected businesses in history have operated.
You are buying and then reselling an identical item for more money to the next customer down the line.
DISCLAIMER: On any legal related issues always
consult a qualified attorney.
The reason why the word illegal appears in conjunction with the word flipping has to do with a very dishonest trick that unscrupulous people have been employing for a very long time.
It is a dirty scam that involves re-selling a property to an unsuspecting buyer for far more than the property’s true value.
That how the crime is conducted.
First, an unscrupulous person finds an equally unscrupulous appraiser to appraise, or value, the property for far more than the true market value.
Second, the unscrupulous person finds a naïve and unsuspecting buyer to purchase the property for an amount that is above-the true market-value.
Third, the buyer obtains a loan that is based on the inflated and higher-than-true-value appraisal.
Fourth, the buyer becomes the owner of a home that is worth far less than what he/she paid for it because the seller and the appraiser operated dishonestly.
That is where the word flipping got paired with illegal.
It was originated from dishonest people selling real estate to a buyer for far more than its true market value.
That is NOT the type of flipping we will be using.
Instead, you will be learning how to morally, ethically and legally negotiate win-win transactions whereby you buy real estate at wholesale prices and sell them at true-market-value retail prices.