In general, the term "flipping houses" merely means buying a property and then reselling it in a short period of time – say from a few weeks to a couple of months. More specifically, the practice of "house flipping" refers to the practice of buying and selling properties either as an investment strategy or to make a quick profit.
While the practice has been around for a long time, the term is only now working its way into the public lexicon. This is partly because the practice has traditionally had a somewhat "shady" reputation and the purchase and quick reselling of houses has been a method for perpetrating mortgage fraud. Nevertheless, there are perfectly legal methods for flipping houses and there are many people who currently do it for a living.
Types of "Flips"
One of the most time-honored ways properties are flipped is by renovators. The hoards of home improvement programs, such as "This Old House" which has been on television since the 1970s, serve as testament to the real estate fad of today. While some of the "This Old House" homes were owned by people who invited the show in so they could renovate, others were purchased, renovated, then resold for a profit.
Other ways to flip houses include buying properties at estate sales and at mortgage foreclosure auctions. In these cases, buyers are hoping to obtain the property at a greatly reduced price, then make a profit for reselling it at fair market value. In these cases, the buyers are not interested in renovating the house, but simply to turn a quick buck.
In some cases, house flippers are using the practice as a form of investment. With the stock market in a period of flux, real estate is a tangible commodity that will not vanish with a bad quarterly earnings report. Still, as with any investment, the price paid up front has to be less than the selling price for the effort to be profitable. This are no more guarantees in real estate than there are on Wall Street.
There also are other considerations that can affect the profitability of house flipping. Some unscrupulous dealers use flipping to artificially inflate the value of a property and skim money from a mortgage company. Because of this the Federal Housing Administration (FHA) and some private mortgage companies have tightened rules for issuing mortgages of "quick turnaround" sales of properties and this can complicate the paperwork for flips.