It is inevitable that if you handle real estate law, then you will run into people who want to become real estate developers for a living. But when you call it real estate developing, some of these folks get intimidated because they prefer to call it house flipping.
Ever since cable television made house flipping popular, we have come into contact with a lot of people who think flipping is an easy way to make money. While we are not here to talk anyone out of pursuing their dreams, we do feel that it is our obligation as lawyers to give some friendly warnings about real estate development that can help new developers to become more successful.
Know The Business First
Too many people see 30-minute house flipping shows on television where professionals with years of experience seem to make thousands of dollars in profit on only a few days worth of work. The truth is that knowing what properties to buy, having the right contractor contacts in place, and knowing what will sell in the real estate world takes experience. Before you decide to put your money on the line with flipping houses, you should first spend some time as a real estate agent to get to learn the business.
Assume You Will Lose Money
The story has become familiar where a client pulls together just enough money to buy a property and pay for the initial costs of rehabbing it, but then they come to us because they have become deep in debt. Don’t fall for the lure of what looks like easy and free money on television, because the reality is that there is no such thing as easy and free money. Always assume that your first couple of house flips will lose money, and have your finances in order before you get started.
Hire A Lawyer
As attorneys, we always find it disturbing that not one of those cable television house flipping shows includes a meeting with an attorney. You should never enter into any kind of real estate agreement without having an attorney look it over first. In some cases, such as with auctions, you do not get the chance to consult with a lawyer. That is why you should have years of experience in house flipping before you even attempt to purchase a property at auction that you intend to flip.
Remember That You Own The House
One of the most common reasons new house flippers come to us for help is because of holding costs, tax issues, and property issues with the house they bought to flip. It is extremely important to remember that you own the property that you are flipping and you are legally responsible for every cost and issue that comes with that house. If there is a problem with the property line, then you are on the line for it. New flippers never remember that they are the actual owners of the property until they get a visit from the city with a citation for something very expensive.
We do not want to discourage anyone from chasing their dream of flipping houses for a living. All we want to do is encourage every new house flipper to create a business relationship with an attorney first, and be prepared to use that relationship often.