The practice of “house flipping” (purchasing real estate in need of repair, fixing it up and quickly reselling it for profit) has long been a successful investment strategy—although it has had its ups and downs.  During the past 4 years or so house flipping has been in a down-swing due to the collapse of the housing bubble; but according to a couple of recent articles in the Wall Street Journal and The New York Times, house flipping as an investment strategy is making a comeback.

As a real estate lawyer and a real estate investor myself, I know that house flipping can be an extremely profitable investment strategy; but what interests me is to see what is left out of these articles about real estate investing—namely the importance of having an experienced and knowledgeable legal advisor on your side.

James R. Hagerty’s article in the WSJ mentions the fast pace and perilous nature of buying foreclosed homes at auction, “bidders often haven’t had a chance to inspect the property or determine whether it’s occupied by tenants, who may be hard to evict… Sometimes ‘you have half an hour to make a half-million-dollar decision.’” In addition, “bidders also don’t always know whether they’re buying a home subject to a lien from another lender, which can happen in cases where the borrower took out more than one home loan.” What the article doesn’t mention is that the more experience you have—this includes having an experienced mentor or advisor behind you—the less likely you are to take unnecessary risks.

Another aspect of house flipping that often goes unmentioned is the number of rules and regulations that can go along with it.  Marcelle S. Fischler does write in his article in the New York Times about the 90 day resale waiting period (recently waived) but he mentions it almost in passing. These kinds of things—along with unanticipated income and capital gains taxes—are just a few the things that can trip up a first time investor.

The state of New York has a number of local laws, as well as rules and regulations specific to your county of purchase.  All too often I see investors buying and selling foreclosures without the proper awareness of these local laws. National gurus such as the one mentioned in Fischler’s article make interesting news, but they won’t help you as an investor avoid transactions in violation of  local laws—such as the New York State Home Equity Theft Prevention Act. Working closely with a trusted local attorney will help you stay on the right side of the law.

Even if you are not a real estate investor, but someone merely looking for an affordable home for you and your family, you may have concerns about house flipping.  After all, there is a dark side to house flipping, and buyers need to protect themselves from those who would take advantage of them.  Again, here is where the advice of a knowledgeable real estate lawyer can be invaluable.

Whether you are an experienced investor, new to the game, or simply looking for the perfect home for your family, my goal is to make sure you come out on top.  Call my office with any questions about this or other real estate related topics.

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This entry was posted on Tuesday, August 3rd, 2010 at 10:58 pm and is filed under News and Current Events, Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.