Illegal Property Flipping: 5 Red Flags to Watch Out For

Get your money’s worth by investing in legit real estate and steering clear of illegal property flippers. Buying a newly flipped house can be a lucrative real estate strategy, whether you plan to hold it or turn it into a rental property. It’s essential to realize that not every is worth its price tag, and not just because the price is bloated by a greedy seller. Watch out for illegal property flips where owners try to hide structural issues or falsify numbers to inflate their property value and fool unsuspecting buyers. If you want to maximize your investment and save more money, continue reading below as we discuss the top 5 red flags to look for when flipping a property.

What is Considered Illegal Property Flipping?

Picture this, you’re planning to expand your real estate portfolio with an additional single-family unit house. As expected, you shop around desirable neighborhoods and immediately settle for a great deal where the seller offers to quickly close on a high-value house for $100,000 off the market price if you pay within the week. Not wanting to lose out on the deal, you take out a quick hard money loan and sign the title deed to claim your new property.

Unfortunately, barely weeks into ownership, you realize the house has several leaks that require you to replace the roof. In such a scenario, you’d quickly realize that with such significant structural issues, the house is barely worth what you paid for, diminishing the value of your investment. It’s also a great example of an illegal property flip, where a seller buys and sells a property in a short period, at an inflated price, and with fraudulent practices. Considering how damaging this can be for your portfolio, how do you prevent it from happening?

5 Red Flags to Watch Out for in Illegal Property Flipping

Adding Too Much Pressure to Close

Avoid sellers that seem too persistent in getting you to close. If you show interest in purchasing a property, it’s normal for homeowners to follow up on potential leads to see if you’re still interested. However, if they seem hell-bent on getting you to buy the house as quickly as possible, it could be an indicator that something is wrong.

They might even encourage you to skip certain steps like verifying the property’s history and hiring an appraiser to estimate the home’s value. That’s why real estate professionals recommend taking your time to perform due diligence and avoid falling for scammers’ mind games.

Making Unrealistic Promises

Exercise caution when a seller starts making big claims about a property’s potential value. Beyond the smoke and mirrors, you might realize that the property doesn’t match your expectations, and the scammer just wants to hip up the upsides to distract you from the cons. Still, that doesn’t mean every property owner trying to sell their house to you is engaging in illegal flips. The difference is trustworthy sellers keep their sales pitch more realistic.

Facing Difficulty During Verification

Prioritize due diligence by doing your investigation before every property purchase. It’s not a good idea to rely solely on what the seller tells you when you can do your own research and find out the truth. Despite having free resources, you’ll be surprised how often investors forget to verify important information like the property’s previous owners and maintenance records. Also, if a seller is reluctant or dodgy when you ask for further clarification, it could be a red flag.

Identifying Missing Documents

Examine the potential property documents carefully before proceeding with a purchase. Yes, meticulously scanning each official document the seller provides can be tedious, but that’s what most scammers bank on to fool you. This point is one of the surest signs your seller isn’t just trying to be a good salesman, they’re actively trying to scan you by removing or altering essential paperwork. As a result, noticing missing or hastily prepared documents could be a sign of potential fraud.

Focusing on Cosmetic Renovations Only

Use a home inspector or appraiser you trust to look over the property and give the green light. Even with multiple physical viewings, fraudsters can still conceal major structural issues in a house, blindsiding you with multiple problems once you claim ownership. Maryland Hard Money Lenders highly encourages owners to be transparent about the property’s issues, but it would still be best to seek an independent professional for a second opinion.

Importance of Consulting an Appraiser Before Flipping

Get an Accurate Property Valuation

Find out how much a potential property is truly worth by getting an unbiased appraiser to examine its current condition.

These experts can give you an accurate estimate on your home’s market value, as well as its potential value after your renovations. As a result, this step can ensure you don’t overpay for a property or set unrealistically high prices that chase buyers away after your remodel.

Identify Hidden Costs

Uncover potential issues in your property that could increase your renovation costs in the long run. For example, if you plan to flip an old and distressed property, you might have to resolve major structural issues like replacing outdated wiring or installing new pipes. Aside from identifying these costs, appraisers can also help you budget for these renovations and even recommend cost-effective upgrades that increase your profit margin.

Conclusion

Recognizing the red flags of an illegal property flip early on can stop you from throwing money down the drain. Despite sellers sending an occasional follow-up message, if they mention too many unrealistic promises encouraging you to close fast, it could be a sign that something is amiss. It’s also essential to perform due diligence when examining your documents so you can spot any missing details, and verify the property’s history. It would be a great idea to hire an appraiser who can help you identify some of these hidden costs and get a more accurate property valuation.