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By: MB McLane
Today, the average real estate investor is aware that the practice of home flipping has an impressive profit potential. At the same time, anyone who is interested in this activity should also be familiar with the various legal issues involved. Here are some practices investors should avoid if they want to stay on the right side of the law:
- In regard to any type of real estate investing, falsification of documents is regarded as a serious legal issue. This happens when dishonest investors, who are anxious to close a great deal, provide false information to financial institutions and private money lenders in order to obtain the funding they need.
- Some investors who earn a living by renovating and flipping homes make the mistake of hiring unlicensed contractors and bypassing the required work permits in order to reduce expenses and increase profits. As a rule, this shoddy practice harms both the investor and the sale, and it may also prove to be quite expensive in the long run.
- One legal problem that any real estate investor should definitely avoid is a "breach of contract" dispute. In these situations, contingency clauses, which are sometimes referred to as "weasel clauses," cause the most problems because the buyer is relieved of any responsibility related to the contract if the deal is never closed. Any real estate investor who is interested in flipping homes should take the time to carefully read their agreements and contracts in order to avoid unforeseen problems.
- Some people who have an interest in flipping homes hesitate to attempt it because of what they have heard about mortgage fraud in connection with the practice. This illegal activity takes place when collaboration with mortgage brokers and appraisers leads to inflation of a property's value in order to realize a greater return on an investment. Like every other issue discussed here, this flagrant violation of the law can result in substantial fines and jail time for the guilty party.
What investors must be prepared to do
Above all, note that earning a living by flipping homes can be both legal and profitable when those who invest in real estate abide by the laws, regulations and rules governing its practice. In addition, keep in mind that it calls for ongoing study and education. To succeed, investors must know what is happening in their area of choice, plan carefully, and be persistent in practicing the art.
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