What’s It All About?
Whatever you think, here is an explanation of the reality of the process and some prudent cautions, in case you are thinking of buying a condo and “flipping it out.”

Flipping real estate means buying and selling real estate before closing of the deal and transfer of property, or shortly thereafter, (within days, weeks or months). The purpose is not to add value, but to get in and out in a “hot” real estate market with rapidly rising prices and high demand, without the expense and hassle of carrying the cost of financing the property, or getting renters. Flipping is not real estate investment, but real estate speculation, with all the inherent risks and rewards that go along with speculating in any type of commodity. Speculation always assumes the market cycle will continue going up rapidly. However, as we all know or should know, real estate, business, or investment markets do not keep going up forever, as there is always a buyer price point ceiling, lender financing threshold comfort level, or revenue/expenses numbers that don’t make sense to a real estate investor. Any type of market is always cyclic, what goes up does comes down over time, or at least slows down and plateaus, and then goes up again at a different pace.

Sometimes people who buy property and renovate it or otherwise add value, and then sell it within three to 12 months, use the word flipping. Flipping consists of two main options and variations of them—before closing and after closing.

Option # 1: Before Closing:
In this option you want to find a buyer for the agreement of purchase and sale before you close the deal but after you remove any subject conditions, and assigning your interest to the buyer, who closes the deal. You would receive money for the assignment in this example, which would include the down payment you paid, plus the extra money you negotiate for the assignment. In this example, your plan is not to close the deal and have to arrange financing, but have a buyer already arranged, or know (or think you know) how to find a buyer of your agreement, who wants to take it over. If you have a long closing date, for example, four to six months for an existing property, or maybe a year or longer for an undeveloped presale property, you can try to find a buyer while real estate prices are going up quickly over that time.

Inherent Risks
There are inherent risks in this option. Among them is a difficulty finding someone who will pay to take your position and pay you extra for it because of lack of interest, or they feel uncomfortable with an unortho-dox way of buying real estate; the real estate market slows down and the value in the property is not there for anyone to pay an attractive “bump” assignment price to you; the vendor will not agree to the assignment, or will not let you off the hook; interest rates start to increase and the person buying it from you considers the deal unattractive for affordability reasons if an end user, or for concerns about carrying costs exceeding rental revenue if a real estate investor; or the person wanting to buy your assignment gets cold feet at the last minute, or can’t arrange adequate mortgage financing.

If you can’t find someone to take over your position, you could be forced to close the deal, or risk losing your down payment deposit, and possibly be sued for breach of contract for the financial damages the ven-dor claims they have suffered, or be sued for specific performance, (you would be forced to complete the purchase, rather than just walking away and losing your deposit). Being sued normally does not take place in an increasing market, as the vendor generally can keep your deposit, as “liquidated damages” and then re-sell the property. As you can see, there are lots of risk variables. Flipping is not for the faint of heart.
In my next column, I will discuss flipping property after closing.  CL

Excerpted with modification, from 101 Streetsmart Condo Buying Tips for Canadians, by Douglas Gray, published by John Wiley & Sons in May, 2006. Copyright  2006 by Douglas Gray. All rights reserved. Any reproduction of this material without the author’s advance written consent is prohibited. The author assumes no responsibility whatsoever for any information provided above, as the purpose of the column is for general information only, and not intended to provide professional advice.