Is Flipping Illegal?

Question

Is flipping illegal? Flipping in the form of buying a property and then reselling in the same condition you purchased for a profit. In one city I invest in it looks like it is illegal. Was wondering how this could be illegal when you are dealing with cash sales.

Here is the link that is saying this practice is illegal here:
http://buffaloflipping.org/

Phil Pustejovsky · Answer

In addition to what was already shared, the following Bigger Pockets blog article spells out a very, very detailed answer to the issue of the illegality of real estate flipping: https://www.biggerpockets.com/blogs/3387-real-estate-investing-in-the-real-world It may add some new insight to the discussion.

Michael Quarles · Answer

The word illegal is a huge word. One shouldn't lump all actions into a single definition. As mentioned flipping was at one time defined as acts of fraud. Where buyer sellers appraisers would join forces to defraud lenders. IMHO it's like saying driving the speed limit is illegal. At face value it isn't. Put a drunk driver behind the wheel certainly.

James Vermillion · Answer

Be careful what you wish for Will...you start getting hundreds of calls from people with amazing "deals", maybe even a castle wholesaler! That is a generous offer though. If flipping is illegal I hope the feds don't find BP...it would be the biggest flipper sting in history!

Will Barnard · Answer

Wholesale flipping, short sale flipping, rehab flipping, and all other flipping of RE is totally illegal and you could go to prison and be fined up to a Million dollars. DONT do it. Simply send your deal over to me and I will take care of it and keep you out of the slammer, FREE of charge. No need to thank me either, just looking out for everyone. :)

Jake Kucheck · Answer

From their overview: "The goal of this task force is to address and eradicate unethical real estate practices and illegal activity that lead to neighborhood destabilization." Flipping does the opposite. Fraudulent flipping does not. That's the distinction you need to make. If you are buying a property and reselling it in an arms-length transaction, as well as disclosing all along the way, you are fine.

Will Barnard · Answer

I hear a knock at the door!

Matt Horwitz · Answer

No, flipping is not illegal. There may be some specific requirements in your local market, but I've never heard of it before. Like someone else had mentioned, call an RE attorney. You will most likely be able to figure out your answer in the first 10 minutes of a phone call.

Steve Peterson · Answer

I've been flipping since 2002 and have flipped somewhere around 600 houses. There is not a law that I've ever heard of that says you cannot sell something you bought. That being said, there are strategies which have been used which are considered to be abusive which take unfair advantage of joe public. Some of those strategies are more difficult now, due to lender flipping guidelines etc. At the end of the day, the only thing that matters... will the attorney general FEEL like you took advantage of a retail consumer? If he FEELS you did... then you did... and you will get thrown under the bus and if it's an election year... he/she will make an example of you.

Michael R. · Answer

I have most of my rentals in Rochester currently. I only have 3 units in Buffalo right now. I have not spent much time up in Niagara falls but I know when I was last there I was not really impressed by all the vacant properties. It seemed to me to be much worse than Buffalo. I am planning to go there in January though so maybe Ill take a better look at things there.

Joseph M. · Answer

Michael, I think you touched on an important point. "It seems that if your goal is to flip they will just come down on you with code violations and fines until you get sick of them and give up. " The problem seems to be that there is a hysteria in that area. They want to use flippers as scapegoats when they can actually help the area by bringing up homes prices (if they are successful flippers). I think it is a situation where people are so influenced by propaganda ,even at the highest levels of local government ( Mayor,etc) that they behave in an irrational way. Have you considered other local markets where the cities might be possibly be less hostile towards investors... Niagara Falls or Rochester? I don't really know the current situation in these areas but I don't remember my family member saying that they had as many problems there.