There are probably as many legal approaches to flipping as there are creative people involved in this aspect of the real estate business.  Here are some:

The Quick Buy-Fix-Flip is the most common and easiest type of real estate flip. It involves buying property that needs minimal work, sprucing it up a little, and reselling it as quickly as possible – at a profit.

The “As Is” or Wholesale Flip – no fixing up – works well when there is a high demand for housing in an active market.  You buy at a heavy discount, sell at a less heavy discount, and pocket the difference.

The Pre-Construction Flip is a strategy most commonly used with new condominium developments.  Put a sales contract on a pre-construction condo at a reduced price, secured with down payment/Letter of Credit.  If the market continues to appreciate, sell the property to another buyer for a profit when it is complete.  However, this is one of the most risky flipping strategies.  If the market turns and real estate values fall, you may be “stuck” with the property and end up losing money on your investment.

The Buy-Finance-Lease Flip looks a lot like a rental investment strategy.  Buy the bargain property, fix it up, and lease it to a tenant with the option to buy within a given time.  The time span is longer (typically one to three years) than the traditional real estate flip, but since the tenant’s rent covers the mortgage you have little lose.  If the tenant defaults, sell the property.  When the purchase option is exercised, take advantage of long-term capital gains or 1031 exchange it for another property.

The Option-to-Buy Flip involves finding a seller who will sell their property to you for a fixed amount within a set time frame (usually 60-90 days) in exchange for option money.  The option amount is negotiable; possibly as low as $1000.  The advantage for you is that you are given time to locate a buyer who will pay a higher price than what you agreed to.  The most you have to lose is your option money if the option period runs out before you find a buyer.

All of these flipping strategies are legal as long as the investor adheres to local real estate and tax laws.  Always consult with a qualified professional who can best explain your options when you sell.


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DISCLAIMER: This information is provided for general awareness only and is not intended for the purpose of providing legal, accounting, tax advice or consulting of any kind.  Please consult with a professional in their respective expertise for complete details.