by Guy-Michael Homa

Created on: November 12, 2009   Last Updated: November 14, 2009

Flipping Real Estate For Investment

Investors that wholesale or "flip" real estate accomplish the same basic task that real estate agents accomplish. Specifically, the "flipper" investor buys real estate or places properties under real estate contract with the intention of immediate resale for profit. The flipper connects with motivated sellers of real property, and negotiates a contract to purchase the property at substantially less than the going or "retail" rate. Sellers of such properties are generally FSBO (for sale by owner).

Once under contract, the flipper acts as both principal and intermediary, buying at one price, and then reselling the property contract to real estate investors at a higher price. Investors who purchase such contracts are "hard money" cash buyers. The entire time-frame from contract initiation to sale of the contract to close is generally 30-days. A real estate license is not required for these transactions because the flipper is selling their own interest (as buyer) in the contract to a third party.

Flippers generally fall into three categories: Scout, Dealer, and Retailer.

1. Scouts are basically information gatherers. They locate potential deals and sell the information to other investors. The Scout finds a property for sale, gathers the necessary information, and then provides this information to investors for a fee.

2. Dealers also locate real property deals for other investors. They hunt for bargain property and sign a purchase contract with the owner. The dealer has the option of closing on the property and selling it outright, or just selling the purchase contract to another investor. In this fashion, the dealer is actually controlling the subject property. Dealers will deposit earnest money to secure the property like a normal real property transaction, but there is more risk associated. The risk lies with the fact the dealer will not find an investor buyer in time before the contract expires, thus losing the earnest money. On the flip side, there is greater profit potential than a scout. To minimize risk, Dealers often will pre-qualify investor/buyers for certain property types before executing a purchase contract.

3. Retailers are investors who intend to purchase the property as a 'fixer upper'. They will employ the services of a Scout or a Realtor. The retailers goal is buy low, invest rehab money into the property, then resell the property at a higher price than cost. The downside is the initial purchase money investment,

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