basic flipping question, reposted

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basic flipping question, reposted

William MacBride
Handyman · NY · Member since 2008 · 47 posts · 2 votes

I thought maybe this was too general or basic for the marketing and nobody answered it so I re-posted it here. It may seem general but if somebody could just say a word or two about the topic to give me a better orientation I'd appreciate it.

ORIGINAL MESSAGE:
I really need to get something fundamentally clear here. It seems like most of these posts talk about getting some property "under contract" and then finding a buyer from your buyers list. you then sell it to them in various scenarios at a higher price and make profit.
It seems to me this is essentially whats known as a "flip." I just go done reading an article that said basically that the idea of a flip is the idea of a "no money down" type deal, where you double close and all that, using the money from the resale to buy the house you're selling. It was saying that in the real world this is hard to do and can even get you in legal trouble for acting in one way or another as an agent. I myself am just having trouble seeing how or why there should be a "middle man" in the equation. so: DOES THIS OR DOESN"T THIS WORK IN THE REAL WORLD? How common is it? Why does there need to be a middle man and how easy is it to get a house "under contract" with the entire thing financed (by either a bank or some private lender)?
A case in point: My girlfriend just got hold of some guy in a town a fair distance away trying to sell his house. It's a nice looking victorian but for some reason he hasn't been able to sell it. She said he said he'd "give her 3% if she found a buyer." That definitely sounds like it'd be that illegal brokering concept. So we figured, ok just sign a purchase agreement, then get a buyer to buy it for more, and profit. This just sounds too easy somehow. this is a hosue she found on craigslist. Why does a buyer even need to go through her, having marked it up?
It seems like when people are putting together "buyer's lists" they're mainly talking about lists of investors, not end buyers, falies, etc. Why would an investor want your property when they can just find properties without a middle man? It seems they'd be the savvy ones, wanting to cut costs as much as possible.
I hope you can just get the general idea what I'm asking here. This whole type of deal just doesn't make enough sense to me in a certain way. WHY THE MIDDLE MAN?
Any replies that can elucidate this appreciated.

Will

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  • Matthew Mucker
    Ft. Worth, TX · Member since 2008 · 97 posts · 16 votes
    17y

    Getting a property under contract, and then selling that contract to a third party, is known as 'wholesaling' in the investor's lexicon. The wholesaler charges a fee to the third party for bringing a neatly packaged deal to the table.

    'Flipping' generally means buying a property in need of repairs, adding value to the property by doing repairs or other work, and then re-selling the property as quickly as possible for a profit from the added value.

    The double close you mention can be part of a wholesaling transaction. If I get a property under contract in my name, then find someone else to sell it to, the double closing allows me to take ownership and then immediately sell the property. Many wholesalers write a contract in their name "and/or assigns" and just assign the contract to the third party, which eliminates the need for the double closing.

    Your girlfriend's scenario sounds like a wholesaling deal. If you get the contract in her name "and/or assigns," she can assign the contract to a third party.

    Whether or not this is illegal has been a matter of debate. Technically, in most states, this probably is illegal given a strict reading of the law. (Standard IANAL disclaimer.) In practice, however, I'm not aware of anyone who's been in trouble for wholesaling properties. I'll defer to the more experienced folks on this board to add their wisdom to the issue.

    Your questions about why anyone would pay a middle man are valid questions. Your job as the middle man is to add value to the transaction. If your involvement means the investor doesn't need to spend time or money chasing down the deal, he could be willing to pay you for eliminating those inconveniences. Finding good wholesale deals takes time. Many investors would make more money investing their time in other pursuits; so they're willing to pay someone to do the legwork.

    (Having said all that... I'm a newbie here, too. This is my understanding of the landscape as I've digested things.)

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