Just like any other commodity, flipping houses is just buying low, then selling high. Due to the fact that real estate transactions can be complicated, the business of real estate investing is misunderstood. And of course, some real estate investors have not followed the law, hence ended up in trouble.

So is flipping houses legal?

First, do not take this article as legal advice; you should always consult your attorney. People who get into legal trouble in real estate investing usually break the law one way or the other.

First you need to understand what flipping houses means. Even though the definition above means buying low, then selling high, the details of the transaction can vary, leading to misunderstanding. We will examine each method and explore whether it is legal or not.

1)      Contract assignment

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

In this case you do not actually sell the house, but you simply sell your right to buy the house to the wholesale buyer.

You collect an assignment fee at closing.

This is the simplest form of flipping houses. Note that you do not own the property at any time during the transaction, and you do not represent anyone in the transaction. You simply put the house under contract, and then sell your right to buy the property.

2)      Simultaneous closing

In this transaction you put a house under contract, identify a wholesale buyer, buy it, and then sell the house to your buyer.

Both transactions take place on the same closing table, one where you buy and one where you sell. So you actually 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 buying price and the selling price.

3)      Buying, fixing then selling

Even though this is not the typical description of flipping houses, some people buy a house, fix it then sell it on the open market for a profit.

There is nothing wrong with this, just buying low, improving the value then selling high.

What can go wrong in flipping houses?

1)      You represent someone without a license

Flipping houses does not involve representing a third party in the transaction. You either 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 in the transaction and walks away with a commission. For this, you need a license.

2)      Mortgage fraud

Of course it is illegal to commit mortgage fraud. No matter what type of transaction is involved this will certainly get you into trouble.

3)      Not telling it like it is

When buying houses from motivated sellers, it is crucial to be very clear and specifically let them know exactly how you are handling the sale. All they need to know is how much they are getting as per your agreement and when the deal will be closed.

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

As long as you are clear and never misrepresent anything, then you do not have anything to worry about.

Be sure to make your wor easier by running your real estate investing business from a real estate investing website that also automates your business.

We will concentrate on this meaning in this article.

Wholesaling houses is the quickest method to produce cash in real estate investing. It also needs the least amount of cash invested in the deal. Occasionally you can wholesale houses without using your own cash.

So what does it involve?

1) Identify cheap houses
The best source of cheap houses is motivated sellers. People with legal problems form the best source of cheap houses. These are people with inherited property, bad tenants, liens on their properties, divorcing and so on.

The easiest way is to send them letters or post cards. In my business, I send them 2 mail pieces a month apart. Each letter or post card prominently displays my real estate investing website URL as the main call to action. My phone number is less obvious. This way, I drive them to my real estate investor website which pre-sells for me.

Chances are the transactions I get are fully pre-screened and pre-negotiated so I need just a few minutes to tell whether it is a deal or not – then make an offer or move on.

Some people wholesale properties that have been foreclosed, but this is not the subject of this article.

2) Sign a contract to buy
As soon as you have identified a good deal whose figures look desirable, you must put it into contract. In each state, there are contracts regularly used by real estate agents, or you can get contracts that can be used countrywide. I prefer to use contracts mandated by our state real estate commission because they are more popular and most people, including title companies and sellers are more comfortable with them.

3) Begin title work
I generally take my contracts to my title company for title work to begin. You must ensure you buy and sell the house free of any liens. This is the work of the title company.  As an investor, you do not need to get too concerned about the technicalities involved. I prefer to let professionals do their work.

4) Identify buyer with cash
I prefer dealing with real cash in the bank. Cash transactions have few limitations and are better. Most real estate investors buying houses may have sold a house or have a line of credit for cash purchases.

Alternatively they have private money investors or get cash from hard money lenders.

Avoid buyers looking for traditional financing. Most loan companies will not lend on houses that need restoration and you could have seasoning issues, meaning you must hold the property for 6 months to 1 year before you can sell it.

5) Sign a contract to sell
The type of contract you sign depends on the amount of money in the deal. First, you must leave enough money in the deal for the real estate investor buyer. After all they will do rehab work.

If I stand to make less than $10,000 I prefer to do a contract assignment.

In contract assignment, you simply assign your contract to your real estate investor buyer. You assign the contract; you do not sell or assign the house. This is perfectly legal all over the country and you do not need a license for it. This contract is usually as little as 2 to 3 paragraphs.

In this case, the real estate investor buyer you wholesale the deal to closes the transaction, not you. You collect an assignment fee once the deal is closed.

If  I am making more than $10,00 or my profits are near or the same as the real estate investor I sell to, then I prefer to do a simultaneous closing, also called double closing. This involves buying the house from my motivated seller, then selling it to my real estate investor buyer.

In a double closing, you buy and sell on the same table, so it involves 2 transactions. In this case, you own the property for a few minutes before you sell it. Of course, you have to incur closing costs that you do not incur in contract assignment.

He  contract for simultaneous closing id just like the one to buy with a higher selling price and more favorable terms for you.

In either case, you must collect earnest money before you sign the contract. I always make sure the earnest money is non-refundable if they do not buy the house. You must make sure the contract expires before your contract to buy and the property reverts back to you.

6) Collect your cash
You must make ensure follow the transaction process until the deal is closed. You collect your check from the title company when the  transaction is completed. It is therefore in your best interest to make sure you close any loose ends and make sure the deal does not fall between your fingers.

How must money must you have to flip houses?
When you sign your contract with the buyer, you may have to put up earnest money, usually between $100 to $500. There is no contract without earnest money. When I sign the contract to sell, I collect an earnest money check which is deposited with the title company.

In simultaneous closing, the first transaction can be closed with cash from your investor buyer so you may not need to use your own money. If your buyer source of funds does not allow you to use his money to close the first transaction, then you might need to get transactional funding to a few points to close the first transaction before you can sell.

When all is said and done, the checks you collect from flipping houses will be easy and fast. You can close a few houses a month.

You can make your money in just two to three weeks. - The profits may not be as big as other real estate investing business models, but you can generate a healthy income just by wholesaling houses. - On average, I take home $5000 to $10000 per deal, with very little effort and work.  You can do 3 to 5 wholesale deals a month part time.

Mainly you must identify good deals below market value and a real estate investor with cash.

I do not rehab anything when wholesaling houses; this is the work of the real estate investor that I flip the deal to.

To be successful as a real estate investor flipping houses, here are a few tips you must follow.

1) Buy at a price range comfortable to you
Most rehab real estate deals fall in the middle price range. - Where I live, this is generally below $150,000. - Some lenders only lend if you buy with defined price ranges.  By going too low, you could be targeting un-attractive neighborhoods.  Going too high can limit the number of buyers you have. It is necessary to have high speed for successful wholesale real estate investing.

2) Avoid wrong neighborhoods
Fairly-priced neighborhoods are most popular with most real estate investors. Notwithstanding the fact that lower prices are always better, most real estate investors would rather buy where they can rent them out easily. Wholesale real estate investing therefore requires you target good neighborhoods.

3) Estimate market value and rehab costs quickly and accurately
Repair estimate is a must when wholesaling houses.  Most are need of fixing up, so repair estimates must be included in the offer you make.  When buying wholesale houses, I buy below 65% of fair market value minus rehab costs. The lower my offer, the more my potential profits when I flip to other real estate investors.

4) Make good offers and buy right
 The most important part of real estate investing is making an offer. When flipping houses, you must make a profit and still leave a profit for the real estate investor buyer.

Obviously, as long as you know the estimated restoration costs and the after repair value after it is fixed up, you will be able to make an offer that both gets accepted and leaves enough cash on the table for both you and the wholesale real estate investor you flip the house to.

5) Get real estate investors who buy wholesale deals with cash
Once you have a contract to buy, you must get a wholesale buyer with cash who will fix it and sell, or hold it.  You must verify where the money is coming from before flipping your houses.  Money in the bank or credit line is always the best source of cash.  This way, you will sell your houses fast with few lending conditions.

 Most importantly, they must produce a sizable non-refundable earnest money before I can sign a contract.

6) Sell quickly
Once you have verified cash, you can close your deals with 2 to 3 weeks including time for title work.  The faster to can sell, the faster you make your money and move on to other deals.

Of course, i always run my business from my real estate investor web site that automates mosts tasks and generally cuts my workload to a bare minimum.

By providing a website explicitly designed to attract and persuade private money lenders and potential investors that your business is the best to invest their money in is therefore mandatory.

But you must have the correct private money investor website in order to achieve this goal a website that is uncomplicated, professionally designed and laid out, and most importantly, one that leaves no doubt in potential private money investors’ minds that you are the best person they can invest their money with.

Identifying such a website is therefore vital. First, why should you have private money??

1) Does it make sense to you? It is funded!

Can you utilize standard funding for a deal with creative financing (such as taking over payments)? Even deals that can net you $100,000? Very fanciful!

No lender will lend you money unless it is a straight standard purchase; at least I do not know even one.

With a ready source of private money you can turn to in at a moment’s notice, you may transact all the real estate deals you can get; if you like it, you got it.

2) Close more transactions

With private money, you call the shots. Therefore you can do deals that other real estate investors would never carry out simply because you have money waiting from your private money lenders.

With private money  you can close on real estate deals any time, even with time limitations. Regular financial institutions generally take at least 30 days to fund a deal, and come with tons of under-writing conditions.

Hard money lenders lend only on real estate transactions under certain conditions (like 70% minus repairs) . Not one of the above conditions will appear in private money real estate loans.

3) Private money is less costly

Hard money loans normally cost about 16% interest or even more, often with points added. Ordinary lenders may not transact with you on deals that are not  traditional.

4) You need not risk your personal funds

Hard money sources demand  the first month  interest as well as additional points before. Hard money lenders will not advance rehab funds, so you need a good bank balance even for a small real estate deal.

Conservative lenders will ask for counterpart funds from you, most times about 10%-20% . Private money does not have those preconditions.

Real estate investor websites for attracting  private money

With a professional real estate investing private money lender website presenting you as a successful real estate investor, private money investors can trust you with their money. As a result, you can tap private money resources to finance your real estate deals others can only wish for.

With a professionally designed private money lender website purposely made to appeal to private money sources, you can interest them to fund your deals. You would, as a matter of course, will not desire to look careless especially to your prospective investors who will back up your business.

The private money lender web site should project you as an accomplished investor who is a leader in the real estate investing business. Your projected image should not leave any reservation in the private money sources’ minds that you can be trusted with their funds.

The content of the private money investor website should be professionally written to persuade private money lenders that you are the best real estate investor for their investment. It should also be fully optimized for search engines.

Choosing the appropriate private money lender  website to achieve this goal is thus a critical component of your real estate investing business.

 As such it is typical to appear in search engines within a few days to a few weeks.

 In addition, the real estate investor websites now inform search engines whenever new content is posted, inviting them to index the websites. In addition, they also automatically notify websites that re-print people’s content of fresh information, so that they may reprint that content linking back to the website thereby boosting search engine rankings automatically.

 With the recent introduction of real, life-like video speaking models who instantly capture prospect’s attention with a down to earth message designed to convert leads into sales, the websites will deliver more closed deals to real estate investors.

 “We designed the websites to attract leads, tell your story and convert those leads into close real estate deals.”

 The websites require a one-time low payment that all real estate investors can afford, yet deliver features, adaptability and ease of use un-equaled in the market.

 For more information, please visit http://www.RealEstateInvestorsWebsites.net

Private money is  the type of mortgage obtained from private individuals who have money to invest and are looking for higher returns than they can get in traditional investments such as banks or CDs. The investment is usually secured by the real estate property being purchased and not you as the borrower.

So why is private money the way to go in real estate investing?

1) No credit restrictions

The credit of the borrower does not arise in private money lending – the investment is secured by real estate. The terms and conditions of the loan depend on you and the lender

2) Easier and faster to obtain

It is easier to get a private money loan than it is to get a traditional mortgage or hard money. There are no tough under-writing procedures, and in most cases, the lender is the only under-writer. As such, you can have the money in a few days.

As long as the real estate investment makes sense to the private money lender, your deal will be funded. If it will make enough residual income to make interest payments and it secured by a real estate property worth more than the money invested in it, your deals will most likely get funded.

3) Less expensive

Private money is much less expensive than a business partner. While most partnership transactions will be split 50/50, private money lenders will ask for 8% to 15%. There are no points or origination fees that you get in hard money.

4) Few restrictions

No traditional or hard money lender will lend you their money if it involves creative financing. This is where most real estate investors get stuck. For example, if you take over existing mortgages, your real estate investing deals can only be funded with private money.

How do you convince private money lenders?

First, it is important to understand that nobody will trust you with their money if they do not trust your capabilities. As such, it is important to have a real estate investing website for seeking private money. The website should be simple and serve to convince potential private money lenders that your real estate deals are the best to invest their money with.

The website should also offer a way for them to sign up to become a private money lender.

Secondly, a business plan and success kit is important for convincing private money lenders. Any private money lender will want to see the type of deals you have done. If you do not have an impressive credibility in past deals, you must prepare a precise business plan for each deal showing all the numbers such as comparable sales, inspections, repairs cost estimates, rents, profit potential and so on. The clearer you can make this information, the more likely that your deal will get funded.

Ultimately your real estate investing business will flourish with more supply of readily available, cheap cash for your deals with private money.

Such motivated sellers are driven by circumstances beyond their control, and sometime they can lose the house if they do not sell. Such circumstances include

Foreclosure

• Bankruptcy
• Divorce
• People with liens
• Burned landlords with defaulting tenants
• Job transfer – hence they own more than one home
• Expired listings – homes that just don’t sell
• Inherited property (and sometimes debt)
• Property that needs repair, so is not marketable
• And so on

The key to locating motivated sellers is locating people in trouble who own real estate.  Identifying sources of these leads will give you an almost unlimited number of leads that could become profitable deals.

There are several sources of such leads that exist in most places:

1)  Subscription newsletters

In my surrounding counties there are subscription newsletters that list every record in the local county court system. Even though these may not exist in your local market, they are valuable sources of good leads.

I check people in bankruptcy, divorce, liens, probates, etc, then check if they own real estate. If they do, they get into my mailing list

2) County records

From most counties, you can get information such as filed notice of default, foreclosure notices, probate notices, etc. These are valuable sources of leads for your real estate investing business

3) MLS listings

People trying to sell their houses for a long time unsuccessfully quickly become motivated sellers. These expired listings can be valuable source of leads for your real estate investing business

4) Burned landlords

Landlords filing for eviction in the local courthouses are fed up with their tenants and properties, and may be looking to sell as motivated sellers

 5) Compiled leads

Even though these might be over-shopped, you may find people that compile lists such a foreclosures, bankruptcies, etc for sale. Sometimes these can yield good leads for your real estate investing business

6) Absent home owners

People that own property, but their mailing address is different from the property address means they have more than one home. It’s likely these can be motivated sellers for your real estate investing business

Once you have identified the best leads for your real estate investing business, the next step is to send them marketing mail pieces whether post cards of letters.

Preferably, send them more than one mail piece spaced maybe 30 days apart. This will drastically increase response rate.

Always make sure that you provide a web address for your real estate investing website as well as a phone number. Your website should take the role of convincing them that you are the best buyer for their property and pre-screen and pre-negotiate the deal for you.

If they call instead, make sure you have a scripted series of pre-screening questions that will tell you if it is a deal or not quickly without wasting time.

It is also the business model that requires the least amount of cash invested into any deal. Sometimes I spend no money of my own at all. Here is how it works.

1)      Identify houses well below market value

The best way to get houses below market value is to target motivated sellers. These are people who really need to sell their houses. People in some kind of trouble and own real estate always get into my mailing list of motivated sellers. I target people going through divorce, have liens, have inherited properties, in foreclosure, etc. I also target expired listings from the MLS – these are really looking to sell but they are not successful.

Secondly, I try to target only those people who have owned their house for at least 6 years, meaning they probably have some equity. This is necessary in wholesale real estate investing.

2)      Mail out marketing pieces to your leads

I generally send two postcards spaced 30 days apart to each of my motivated sellers. If they have inherited property, I send them a series of letters for about 8 months. This is because the probate process can take time and I need them to think of me first when it is time to sell.

In my marketing pieces I always include my website address more conspicuously than my phone number. I want them to visit my website so they can find out about me and my business without having to ask so many questions. My real estate investing website is built to convince motivated sellers that I am the best person to buy their house and solve their house needs.

It also convinces them to submit their house information right there on the website so that I get a fully pre-screened and pre-negotiated deal that only needs a few minutes of my time to decide of it s a deal or not.

3)      Make reasonable offers

All my offers for wholesale deals are less than 65% of the full market value minus estimated repair costs. This is why this business model needs houses with equity.

4)      Sign contract to buy

Once we have an agreement, we execute the contract. I then fax it to my title company so they can begin title work.

5)      Identify a wholesale buyer

This is the fun part of wholesale real estate investing. I have built a big lists of real estate investors looking for wholesale deals in my area.

I usually list my property on my real estate investing website, then send out an email to my buyers list. They can view all the pictures and video virtual tours along with all any documents (like comparable sales, etc) right from my website. They can also share these deals with their friends on social networking media like Twitter, Facebook, etc. The website always offers them and their friends the opportunity to join my investor buyers list so that they will be notified when new deals become available.

I also target real estate investor buyers from Craigslist and the local newspapers. In all cases, I always send them to my real estate investing website instead of a phone number.

6)      Sign contract to sell

Once I identify a buyer with cash, we then sign the contract. This can be a simple assignment of contract where I assign my contract for a fee, say $5000. It could also be a full contract just like I own the property if there is enough money in it for me. The title company closes both transactions on the same table where I buy from motivated seller then sell to my investor buyer and cut me a check for the difference.

I walk home with a check without spending any of my money. This process usually takes 2 to 4 weeks from the time you get the deal to the time you have a check in your pocket.

I then started sending 2 post cards 30 days apart. My calls (and deals) almost doubled  right away. Over time, I have polished  a  follow-up system that continuously delivers a constant stream of motivated sellers with little input from me.

These results are not typical – most people respond to a sales pitch after several contacts. It’s therefore necessary to have a follow-up system for your real estate investing business in place whether you market on the internet or offline.

1) Set up a real estate investing website
No matter whow you market, you must have advertise a phone number and a website address (URL). Before most people can do business with you, they will want to find out more about you. Since everyone has access to the internet, they start from your website.

Your real estate investing website must be simple, clean and must capture motivated sellers attention within a few seconds. Motivated sellers must be able to sign upand their information easily on your website.

Secondly, it must gask them for their name and email address. A valuable freebie (such as a free report)  will do the trick for you. From this point on, your automated follow up autoresponders will market for you hands-off.

A good real estate investing website must have inbuilt follow-up autoresponders that you can set up and forget. Autoresponders send fully personalized messages in times intervals automatically. You can set up a sequence of such messages to go out to potential motivated sellers for months.

Initially, I send them a nice friendly message every few days. I then space them to once a month. The idea is to make sure they remember me so a not so motivated seller will think about me when they become motivated sellers.

How do you make sure your motivated sellers go to your website?

I advertise a free report (one they must need) offered only on my real estate investing website. I also promise to respond within 24 hours if they submit their information on my website. My real estate investing website then takes up the role of convincing them to submit their information online.

2) Create a follow-up mechanism for direct mail
When I started following up, I simply set up my follow-ups manually. While this is not hard to do, you can use some cheap software in the market to follow up with direct mail.

Mine is set up real simple. My probate leads get a very friendly, personal letter once a month for 8 months. The reason is that the probate process can sometimes take time but you want them to keep you in their mind when it comes time to sell.

All my other leads get 2 postcards 30 days apart.

3) Follow up with a phone call
In both cases, I depend on the fact that if they sign up on my website, my follow-ups just became fully automated, hands-off and free. And if they do not submit their house information, I still have their information, and can follow up with a friendly phone call.

These 3 simple methods of automating follow-ups in your real estate investing business will deliver a lot of motivated sellers and closed deals if you implement it.

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