Flipping, also known as the investing in and selling of houses, is not illegal in any shape, way or form. There is absolutely nothing wrong with buying a home cheap and selling it for more then what you bought it for. There is also nothing wrong with investing in real estate, fixing it up, and selling it for way over market value. If your buyer wants to pay you way over market value, and they have the means to pay you, then it is their choice. They can do that and so can you without any recourse.

The problem arises when a lender is involved. What people typically refer to as “illegal house flipping” should be called mortgage fraud. The media has given real estate investing and investors, in general, a bad name because they aren’t focusing on the real problem. Without mortgage fraud, homes could not be sold for more then what they are worth when a lender is involved. Lenders want to lend based off of what a house is worth today. They lend at varying different Loan to Value ratios depending upon the borrowers credit worthiness. The problem with “illegal flipping” is when investors, mortgage brokers, loan officers, appraisers, etc… get together to “create” a better picture of a loan package to a lender. They do things such as inflating appraisals, gifting down payment, drawing up false w-2’s, manufacturing pay stubs, writing credit letters, etc…

If you buy houses low, and sell houses high, but avoid mortgage fraud, then you are not doing anything illegal. You don’t have anything to worry about when flipping houses.