Flipping has a couple different meanings in real estate investing, depending on who you ask. Some say any fast purchase and resale, even if it involves making minor repairs and improvements, as "flipping" a property. The more specific definition that many use defines flipping as simply buying and selling without ever actually taking possession of the property.
Can you make a profit buying and selling property without ever owning it? Yes. It is done commonly in some areas. It is a good way to use your real estate knowledge to make a profit when you have little money of your own to invest.
Flipping Real Estate - An Example
One night, at our local real estate investor's meeting, an investor told me he recently found a fixer upper, but couldn't arrange financing. He had an accepted offer, and there definitely was a profit to be made in improving the place and selling it. Fortunately, he had a financing contingency in the contract, so he would get his $500 earnest money deposit back. But he really didn't want to pass up such a good deal. What could he do?
He found a way to make a profit without actually buying the property. There are always other investors at these meetings that are looking for a profitable project. One of them was willing to pay to take the original investor's place. The original investor sold or "assigned" the contract to him for $6,000. Since all he ever had into the deal was a $500 "good faith" (earnest money) deposit, he made a $5,500 profit. This is "flipping".
Notice that he didn't need a down payment. He didn't even have to buy the property to make money. There was enough potential profit in fixing and selling the property that other investors were happy to pay to take his place.
There are a couple important points here. First, this guy knew how to find a good deal. Then, he put in his offer the right to assign the contract to another investor if he wanted to. This is usually done by writing "or assigns," "or my assigns" or something similar after your name as the buyer. Find out what the most acceptable language is in your area.
Some sellers may take issue with this. Simply explain that this is so you can bring in a partner if you want, or let your partner take your place. All the terms of the contract remain the same in any case. In fact, it means that if your financing isn't approved, as in the above example, you will likely save the seller the trouble of finding another buyer by doing it for him.
Notice that you can do deals like this with no money down. In the example above, if the original investor had put the $500 deposit on a credit card, it truly would have involved none of his own money. Of course, that outrageous 3% cash-advance fee and 18% annual interest for a month would have reduced his profit by $22 or so. Obviously zero down is possible and profitable if you start by flipping real estate.
More About Flipping
Usually buyers of contracts will not pay you until the deal is closed. This is only fair, as there may be issues that show up during inspections, or other things outside of their control that prevent the deal from closing.
Although I use an example of a fixer-upper, any property that can be bought cheaply can be flipped. Even if bought at market value, the right buyer might pay you something to take your place. The main thing you need for real estate flipping is the courage to try it.
