Is flipping houses illegal?

In a word, NO! Can you flip houses illegally? Sure, but this can be said of most professions (Enron?). There are people that will do anything to make a quick buck, even if it requires breaking the law. First of all, flipping and rehabbing are actually two different methods of investing in real estate, even though you will hear otherwise.

Rehabbing houses

is the process of buying an ugly house that needs repairs, fixing it up and selling for a profit. Rehabbers want to sell the house as fast as possible to cut down on holding costs, and this is why people refer to them as flippers.

Flipping houses

is the process of buying a house well below market that may or may not need repairs, getting it under contract and assigning the contract to another buyer. This is also known as wholesaling. Buy low and sell high.

Both of these methods are 100% legal, however there are people that cheat the system. The typical illegal scenario involves a minimum of 3 people, an investor, a mortgage broker and an appraiser working together. The scam starts when the investor buys a property for less than what it is worth. They will then find a buyer and have the mortage broker "preapprove them" for an amount that is more than what the house is actually worth. The appraiser will then value the property for more than what is worth and the unsuspecting buyer has now bought a house at an inflated number. This is also known as mortage fraud and is a federal offense.

These would be investors are no more than a common con artist. And of course these people are the only investors that you will ever see in the news. This has given the hardworking honest investors a bad name. This will only be countered with determination and getting the word out there that not all investors are like this. Integrity is doing the right thing even when no one is watching you. We are out there.