If you work in real estate law, chances are you'll encounter people interested in pursuing a career as real estate developers. However, some of these individuals may feel intimidated by the term "real estate development" and prefer to refer to it as "house flipping." While flipping houses can be a profitable venture, it's important to note that it involves more than just buying, renovating, and selling a property.
As legal professionals, it's our duty to provide friendly warnings about the legal considerations that house flippers must be aware of to ensure their success. While we support aspiring developers in their pursuit of their dreams, it's crucial to understand the legal implications of real estate development.
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.
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.
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.
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.