This means the profit is taxed as ordinary income (not capital gain) and subject to self-employment tax.If, however, you're portfolio shows a history of rentals, you intended to get into this property as a rental but ultimately decided to sell for whatever reason, and this "flip" is not a regular occurrence, you may be able to avoid classifying it as a flip subject to ordinary income and SE tax.Definitely make sure to speak to your CPA to get specific advice on your personal situation.

I'd be happy to talk through your specific scenario to give you an idea of the different ways you can structure your coverage, as well as discuss any potential claim questions you may have.

I'm sure there are plenty of other ones out there, but those are the two that I hear about regularly. 

Require them to list you as a "loss payee" on the insurance policy.That will make sure you get paid if there is a claim and you get notified if they are late on paying their insurance bill.The other option is that you escrow it and add it to the monthly payment and then you pay both these from the proceeds.Make sure you specify that these may go up and they owe the difference when they do go up.

The risk is on the tenant buyer end (you doing a lease option with your tenant and prospective buyer):If I have to evict the tenant, my attorney said that because they have an option agreement, there is a claim of ownership and the case can't be heard at the district justice court.

The agents shown on Zillow, other than one that may be specifically designated as the listing agent, are just regular agents who pay Zillow for advertising. 

Also, there hasn't been any claim, so the mortgage company is not exposed to any risk...i don't understand this.

Problem is I saw the original deal from Criagslist and the poster claims to be a wholesaler from the area. 

As I understand it, if you sell within one year, you are taxed at your regular income tax rate.

You might have to wait for a long time but eventually the bubble will burst and FINALLY you can claim that you saw it coming all along.