IS THIS LEGAL
I was going over this with a friend. We are both try to get into REI. We though this idea up and were wondering if anybody knows if there are any leagal problems.
I buy a house (investment loan) for say $200K that is valued at $230K. I then sell it to my friend (primary loan) for $230K pocketing the profit. He lives in it for 6mths.
At the same time he buys a house (investment loan) for $200K that is valued at $230K. He sells it to me (primary loan) for $230K pocketing the profit. I then live in that for 6mths.
Then after that 6mth break we repeat the process again and turn the properties that we bought from each other previously into rental properties with positive cashflow.
This process could continue indefinately.
This sounds too good to be true so the question is IS IT LEGAL?
Everytime you transfer a property you have to pay fees. You can buy and sell a property any number of times. As long as the proper taxes are paid on the property.
Lori
[addsig]
How about this, you each buy your properties for $30k less than market and just take out a 2nd mortgage on them instead of selling them back and forth? As long as your not manipulating values why wouldn't it be legal? What are you worried about?
If its only worth $230k and you sell it to your buddy for $250k because you want some extra cash, and manipulate and falisify mortgage/appraisal data, then it is illegal.
According to Fannie Mae (Correct my if I am wrong), is that in order for you to claim a property as a primary residence, you must live in it for two years.
If you get a property and claim it as an owner occupied, but you rent it out, it is considered loan fraud, and is illegal.
Well, I guess I didn't think about that aspect...Yes, that would be a problem, when you sign as an owner occupant you are telling the lending institution you plan to occupy it for at least a set time, i believe you are right at 2 years. So....just buy them as NOO Investment Properties...?
Buying them as investments in not so much a big deal. I just figure it would be easier to buy something and move into it, making that instant profit from a quick flip, and then rent out the house you used to live in. That way you dont have to worry about selling it and the potential that it takes longer to sell than expected.
Im concerned about getting stuck with a property I cant get rid of and I dont want to tie up my money for long.
If there aren't any legal issue (assuming purchase as an investment). Is there anything else I should think of?
I think you're confused, though. It's not "profit". If you can consistantly buy houses like that, especially if they're listed, then chances are market value is $200k, not $230k. Therefore, when you sell it to your buddy for $230k, technically he is upside down on the property because he could only really get $200-$210k on the resale. The thing to do would be to just buy the property and open up a HELOC.
Quote:
On 2004-11-15 16:16, jermsalerms wrote:
Buying them as investments in not so much a big deal. I just figure it would be easier to buy something and move into it, making that instant profit from a quick flip, and then rent out the house you used to live in. That way you dont have to worry about selling it and the potential that it takes longer to sell than expected.
Im concerned about getting stuck with a property I cant get rid of and I dont want to tie up my money for long.
If there aren't any legal issue (assuming purchase as an investment). Is there anything else I should think of?
Im new at this but isnt the idea of wholesaling buying low and selling at market value. This is what I'm trying to do...but with a twist. I will only be interested in properties that are appraising for substantially more than they are selling for.
You and your friend would only be able to get a loan for the lesser of the two: appraised value or sales price. Maybe you are not aware of that fact. You can sell the property for a higher price but he would have to come to the table with the extra money.
Lori
[addsig]
Here is how you can do what you want to do:
First off we have property X and property Y both valued at $230k but you are able to purchase for $200k
1. You make an offer on property X at $200k
2. Your buddy makes an offer on property Y at $200k
---this gives you both equitable title to be able to resell the property.
3. Now you make an offer to buy property Y from your buddy at $230k
4. Your buddy makes an offer to buy property X from you at $230k.
5. Now you both can "double close" in which you buy and resell your properties (to each other) in the same day. You'll have some fees but will avoid the lender closing costs (points, underwriting fees, etc). In Iowa seller closing costs are about $500 on a standard priced home.
Depending on what each of you do for down payments, you'll likely need to come up with that money. At closing as a separate part of the transaction, you'll get a $30,000ish check which you can "pay yourself back" for any closing costs.
There are ways to do this without using a partner, but they are much more compliated and not for the novice investor. Let me know if you have any questions and GOOD LUCK!!
Thanks everybody. I think I got the info I needed.