The difference between “wholesaling” and “fixing and flipping”
As the “flipping” market remains HOT, this article is just as timely as it was when we first wrote and posted it in 2011. There is no doubt that there is a very active market in the Seattle real estate market – the investor market! As defined in Wikipedia, “Flipping is a term used primarily in the United States to describe purchasing a revenue-generating asset and quickly reselling (or “flipping”) it for profit. Though flipping can apply to any asset, the term is most often applied to real estate and initial public offerings. For our purposes, we are looking at flipping as it applies to real estate.”
Types of Flipping
1. Assigning a Contract (or wholesaling) lowers the risk
Generally profits are gained by obtaining a contract to purchase from the seller and then turning around and selling the house for more than the purchase price. When a flipper “assigns” the contract they are in essence “selling” it to another party prior to closing – usually for more than the price they agreed to purchase it. When the contract is assigned, the flipper keeps the difference in price. The contract usually includes the right to access the property and a contingency or two, allowing termination of the contract with little or no risk.
Many times, if a second buyer is not found prior to the closing date, the flipper cancels the contract relying on the contract language to allow return of their earnest money. Because this practice requires little or no money to be secured in escrow, and the flipper never intends to actually purchase the property; this practice is often referred to as “wholesaling.”
Caution must be taken when entering into a contract like this. It is important that no fraudulent misrepresentations be made in obtaining the contract as there is often no benefit to the seller. All parties involved should be very clear as to the expectations – after all a Seller could very well feel taken advantage of when they realize the “profit” that was made by the flipper – money that could have been the Sellers.
2. Multiple investor flipping
This scenario takes “wholesaling” one step further. Under the multiple investor flip, one investor purchases a property at well below-market value, assigns or sells it quickly to a second investor, who subsequently sells it to the final consumer, closer to market value.
3. Real estate flipping
Profits from flipping real estate come from either buying low and selling high (often in a rapidly-rising market), or buying a house that needs repair and fixing it up before reselling.
Under the “fix and flip” scenario, an investor or flipper will purchase a house at a relatively low price- many times deeply discounted from the house’s market value. The discount may be due to the house’s condition (e.g., the house needs major renovations and/or repairs) or due to the owner(s) needing to sell a house quickly (e.g., relocation, divorce, pending foreclosure). The investor will usually perform any necessary renovations and repairs, and attempt to make a profit by selling the house quickly at a higher price or closer to market value.
Read also: Home Improvements That Pay Off When You Sell
Want to learn more about flipping?
If you are the type of person who recognizes a great deal in a fixer upper, you’ll know a good deal when you see one. Are you interested in buying a home? Stay on top of the market! We can send you real-time listings of area homes as they come on the market – find out how. Want to find out what your home is worth? Request a FREE Market Analysis TODAY! Contact the Knowles Team TODAY at (206) 588-8418 to discuss what is happening in today’s Greater Seattle area Real Estate Market. The Knowles Team will be happy to give you a personalized Comparative Market Analysis for your home or assist you in purchasing a home.
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