Flipping

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Flipping is a term used in economics. It is used mainly in the United States to describe buying something and quickly reselling (or "flipping") it for profit. It can apply to any asset but is often applied to real estate and initial public offerings (IPOs).

Real estate[change | change source]

Real estate is bought and sold every day. The seller arranges for a realtor to advertise and sell their property. The realtor charges between 4 and 7 percent of the selling price as a commission.[1] The sale is conducted between the owner of the property or house, and the buyer who wants to purchase it.

Flipping is used by real estate investors to describe someone purchasing a property then selling it quickly for a profit. Usually the investor will pay for improvements to make the property more attractive. The investor must have the money to buy the house and pay for the improvements. Realtors neither buy the house or resell it (although a realtor can also be a flipper). They simply broker the sale.

Flipping involves a good deal of risk for investors.[2] They must know the value of a property and not pay too much. They have to be careful not to invest too much in improvements. Very often run-down properties or foreclosures are sold at auctions. The buyer may not be able to inspect the property before buying it. This can lead to additional costs to fix problems that could not be seen. A property needs to sell quickly or there is no quick return on their money.[2]

There are also many risks for buyers of flipped homes.[3]

IPOs[change | change source]

Initial public offerings are when a private company sells shares of stock to the public for the first time (called going public). Flipping is buying stocks and selling within the first 2 to 3 days after the company went public.[4] The hope is the price will go up rapidly. Underwriters want investors want to hold onto stocks. They may blacklist investors who flip too many stocks even though it is legal.[4]

Other forms[change | change source]

In the United Kingdom the term is used to describe Members of Parliament switching their 'second home' between several houses. This was to maximize their taxpayer funded allowances.[5]

References[change | change source]

  1. William Bronchick; Robert Dahlstrom, Flipping Properties: Generate Instant Cash Profits in Real Estate (Chicago: Dearborn Trade Publishing, ©2001), p. 1
  2. 2.0 2.1 Larry Light (21 September 2012). "How to Flip a House. Yes, Even in 2012". Forbes Magazine /Forbes.com. Retrieved 18 June 2014.
  3. United States Senate Committee on Governmental Affairs, Property "flipping": HUD's failure to curb mortgage fraud (Washington: U.S. G.P.O., 2001), p. 1
  4. 4.0 4.1 Greg N. Gregoriou, Initial Public Offerings (IPO): An International Perspective of IPOs (Oxford; Burlington, MA: Butterworth-Heinemann, 2006), p. 159
  5. "Cabinet ministers have made tens of thousands 'flipping' their homes". London: Daily Mail. Retrieved 2009-05-08.

Other websites[change | change source]