Flipping houses are also commonly known as wholesale houses. It simply means buying a property at a lower price and selling it at a higher price for a profit.

Just like any other business, flipping houses involves buying houses cheap and then selling them high. Since real estate transactions can be complicated, the real estate investing business is misunderstood. And, of course, some real estate investors have not been honest, so they ended up in trouble.

So is it illegal to flip houses?

First, don’t take this article as legal advice; you should always consult your attorney. Real estate investors who get into legal trouble often break the law in one way or another.

First, what does it mean to flip houses? Although the definition above means buying low and then selling high, the details of the transaction can vary, leading to misunderstandings. We will explore the legality of each method.

1) Assignment of contract

Contract assignment means that you identify a home that is below market value, put it under contract, and then assign that contract for a fee to an investor or wholesale real estate buyer.

In this case, what you are selling is your right to buy the house, but you are not actually selling the house.

You go home with an allowance fee at closing.

This is the simplest method of flipping houses. Please note that you do not represent anyone, including ownership of the property at any time during the transaction. You simply insure a home under contract, then sell that contract to close it out.

2) Simultaneous closing

Simultaneous closing involves putting the home under contract, identifying a wholesale buyer, purchasing it, and then selling the home to the buyer.

Both transactions occur at the same closing table, one where you buy and one where you sell. So you only own the house for a few minutes before you sell it.

There are two sets of closing costs and you walk home with the difference between your purchase price and the sale price.

3) Buy, fix and then sell

Although home remodeling doesn’t usually fit this description, some people buy a home, fix it up, and then sell it for a profit.

There is nothing wrong with this, just buy low, improve value, and then sell high.

What can go wrong when flipping houses?

1) You represent an unlicensed third party

Trading homes is never meant to represent someone else in the transaction. Either you sell your right to buy the property, or you buy the property and then sell it for a profit.

A real estate agent represents a buyer or seller and takes a commission. For this, a license is required.

2) mortgage fraud

Of course, it is against the law to commit mortgage fraud. No matter what type of transaction is involved, this is bound to get you in trouble.

3) Not telling the truth

When buying homes from motivated sellers, it’s crucial to be crystal clear and let them know exactly how you’re handling the sale. All they need to know is how much they are receiving under their agreement and when the deal will close.

I like to go a step further and let them know exactly how I’m handling the transaction so if there are any delays they understand why.

As long as you are clear and never misrepresent anything, then you have nothing to worry about.