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1. Can I exchange for property of less value?
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5. Will IRS audit a tax free exchange?
6. Can I change the name on the title of the new property?
Flipping Houses is like Being Gay
In the 21st century, everyone knows the word "gay" refers to people that are homosexual, but back in the 1950s, the meaning was contested. The alternate definition was "full of joy and mirth."
Can you imagine the confusion? Tell one group of people that you're "gay" and they'll assume you're happy. Tell another group and they'll reach for a cross and a can of gasoline.
Right now, "flipping houses" creates the same effect. It has two definitions:
1) The process of *legally* selling a property for a fast profit, sometimes using little or none of your own money
2) The process of *illegally* selling property for an artificially inflated value, often involving a group of criminal appraisers, loan officers, and investors
Do you see the similarity with "gay?" One definition is upbeat and accepted, while the other is (currently) unacceptable and downright scary. The majority of the world understands "flipping" as an illegal activity, where a small minority are trying to redefine it as a legitimate real estate investment strategy.
The reason: good old Uncle Sam. When the government talks about flipping, they use the second definition. According to the Department of Housing and Urban Development, flipping occurs when:
A recently acquired property is resold for a considerable profit with an artificially inflated value
Being closely related to the government, attorneys, accountants, and the press are hanging on to that definition. So, the next time you visit them, don't be surprised if they "flip out" (pun intended) at your strategy.
The exact opposite is true with real estate investors. You can buy a house and then "flip" it to another investor for a small but fast profit, allowing you to reinvest your money and repeat the process. You can also assign contracts for a fee (another form of flipping), allowing another buyer to close on the property in your place.
Which definition will win? If "flipping houses" follows the etymology of "gay," the more acceptable definition will come out ahead. Who knows? Maybe they'll make a movie about it.
Jon Morrow is the owner of Real Estate... Answered, a web site that answers dozens of questions about flipping houses for free. He also manages over $20 million of real estate investments, focusing on luxury homes and multimillion dollar transactions.
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