I am very scared, and I don't know what I should do!!! - Posted by Anisa Young

Posted by phil fernandez on June 21, 2000 at 13:25:15:


I’m not sure if holding the property for less than 12 months necessarily classifies your profit as ordinary income. If you do enough of them and hold for a short period of time you would have to classify the transactions as dealer property and yes be taxed as ordinary income.

It is my understanding that if you do a deal and take the capital gain tax rate, if the IRS reclassifys that transaction as dealer status, they can come after you for penalties, back taxes and interest. Further if the IRS does not uncover this for say 5 years, the interest could be substantial.

I am very scared, and I don’t know what I should do!!! - Posted by Anisa Young

Posted by Anisa Young on June 19, 2000 at 22:38:52:

I have been into real estate for the past year. So far I have 4 properties. 1 Duplex, and 3 Single Family homes. So far I made $48,000 cash by flipping them. My sister is becoming an appraiser, and she has told me that what I am doing is illegal according to what she is learning in school, and I am facing Federal Jail time. I didn’t know what I was doing was illegal, I basicly learned everything I know from this web-page, and it worked. But now I am being told “FLIPPING” is illegal. I thought I was just finding real good deals. This is what I did…

First Duplex I got a mortgage for, we got it for $65,000. That wasn’t a flip. We use it as a rental property.

Second House was a Hud Home. I bought for $45,000. Sold it for $75,000. It didn’t need any repairs.

Third House was a house a Friend of mine bought for $40,000. And Sold it to me for $85,000 after adding 400 feet of square footage.

Now I bought this Third property with CASH… for only $16,000. We Fixed it. Now it’s worth $50,000. I have a buyer, we suppose to clost this week.

But now that she has told me these things, I don’t know what to do.

She says you can not flip a property for a large amount in a short amount of time, like the same day.

Someone please shed some light on what I should do about what I have already done.

Re: I am very scared, and I don’t know what I should do!!! - Posted by K Greene

Posted by K Greene on June 20, 2000 at 11:12:19:

Congratulations on the deals that you have completed . Now ask your sister if she would like to join you making some money. Maybe you should teach the course!!!1

I really love you guys for your help…and so fast!!! - Posted by Anisa Young

Posted by Anisa Young on June 19, 2000 at 23:58:42:

I had been sitting in bed for the past couple hours not being able to sleep, thinking about what I was gonna do. For the past year, real estate has been my thing, like a drug. Then to hear all that I have been making effort on is illegal was to hard to listen to. I actually left the room. I actually got depressed, and afraid the Feds would be looking for me. See allot of people here had recently got sent to prison for like 15 years for ILLEGAL FLIPPING. And that was not my intent.

I read an artical about seller financing. And that is how I have been funding my properties, and it has worked beautifuly. Fast, no hassle. I have been selling my notes to note brokers. I fix up the property with the money.

ANYWAYS…I just want to thank you all because your responces are like SUNSHINE in darkness. I used to come to this site allot, and I must admit, after I got my first $20,000 check at the closing, I didn’t see much need to continue coming. But after I heard this from my sister…I felt like a teenager running to mom after. It really feels like home.

Re: I am very scared, and I don’t know what I should do!!! - Posted by dew

Posted by dew on June 19, 2000 at 23:57:19:

Ask her specifically what is illegal and on what basis she has come to that conclusion. Then check it out, and you are probably OK unless you are doing something fraudulent.

Then I woudn’t ever tell her a thing about any of my business ever again and certainly not how I report on my taxes!

Re: I am very scared, and I don’t know what I should do!!! - Posted by The Donald

Posted by The Donald on June 19, 2000 at 23:29:39:

Have you ever thought WHY your sister thinks it is illegal? Instead of offering her positive guidance and assistance, she’s all too willing to put the fear of God-almighty into you.

Actually, it’s probably because you’re far more successful than she is - that’s all. If you had legal assistance - an attorney, and the requisite title insurance - don’t worry about it.

Jealous siblings are fun now, aren’t they? Just relax - make sure your legal P&Q’s are crossed, so to speak, and enjoy the cash.

Put quite simply, if she could do it, she would - but she can’t - so her next best option is to drag you down into the gutter with her.

Keep your head, and accept advice from professionals - not a wannabe who wants to derail your hard work in a show of one-upmanship.

Good luck :slight_smile:

If it is illegal… - Posted by B.L.Renfrow

Posted by B.L.Renfrow on June 19, 2000 at 23:18:16:

…to buy low (“wholesale”) and sell high (“retail”) then you’re gonna have lots of company in that Federal prison cell, since just about every retail business in existence does exactly that!

I think your student appraiser-sister is a bit confused. Nothing about flipping is illegal. Flipping has been given a bad rap by certain cases across the country in which FRAUD is committed. FRAUD most definitely IS illegal, and can indeed result in a view from the inside looking out.

What constitutes fraud? Lying on a mortgage application for any federally-insured loan is a big no-no; falsely inflated appraisals, phantom seconds, bidding on a HUD home as an owner-occupant when you’re not, and similar shennanigans are likewise frowned upon.

Because of some well-publicized fraud cases, many lenders are now requiring title seasoning before making a loan…making flipping difficult, if not impossible, when such a lender is involved. Perhaps this is where your sister became confused.

If you are simply finding good deals, as you say, and not committing fraud, you have nothing to worry about. Ask your sister to show you the law she is talking about. I’ll bet she doesn’t come up with anything.

Brian (NY)

Re: I am very scared, and I don’t know what I should do!!! - Posted by Mary

Posted by Mary on June 19, 2000 at 23:15:42:

What you are doing is not illegal. What is illegal is if you are going to do this for a living and intend to do several deals a year, then you should have a dealer’s license. The IRS likes it that way and you of course have some responsibilities that come a long with
being a dealer as would a real estate agent.

Don’t be scared. You sound very successful, without ever buying a course. This is America. If anyone would be in jail it would be Ron Legrand first and foremost because he has made a temendous amount of money doing this and teaching people to do it. Inside edition or 20/20 would have nailed him by now.

Keep on going…

Re: I am very scared, and I don’t know what I should do!!! - Posted by lyal

Posted by lyal on June 19, 2000 at 23:10:38:

“Flipping” in and of itself is NOT illegal. Buying low and selling high is the whole point of what we do. The problem occurs when people get greedy and do foolish stuff like “pump” appraisals or raise the price and create a second mortgage that is forgiven after the sale etc. THAT is fraud and will get you a few years of quiet time to reflect on how dumb (and unnecessary) it was.

Re: I really love you guys for your help…and so fast!!! - Posted by Scott (tx)

Posted by Scott (tx) on June 20, 2000 at 12:57:01:


I assume the HUD home you “flipped” was on the extended bid listing, otherwise it would have been illegal as you are not allowed to bid on the other listings as a non-owner occupant investor (legally).

Scott (tx)

Re: I really love you guys for your help…and so fast!!! - Posted by Jeff (FL)

Posted by Jeff (FL) on June 20, 2000 at 01:27:42:


I’ve read most of the responses to your post and agree with all of those who encouraged you to press on with whatever it is you’re doing that works so well.

What’s happening is that somehow the very term itself, ie., “flipping”, (in some people’s minds) has come to mean some sort of illegal real estate transaction. It’s being defined differently then the way we define it on this board.

Someone mentioned earlier, that we should avoid using the terms flip or flipping when we are talking to individuals who aren’t familiar with the term as we define it here. It tends to have a negative connotation no matter how it’s used. For example, I wouldn’t go to a typical seller, and tell him, “I want to ‘flip’ your house”. But I digress.

Keep doing those “flips”,
Jeff (FL)

confusion - Posted by Laure

Posted by Laure on June 19, 2000 at 23:43:12:

There is no license to get to buy and sell your own property.

As for your deals being illegal… Absolutely, freaking not !!! As others have posted, it is fraud if you falsify documents. But buying low and selling high is the NAME OF THE GAME ! Keep up the good work

Laure F :slight_smile:

Re: I am very scared, and I don’t know what I should do!!! - Posted by phil fernandez

Posted by phil fernandez on June 19, 2000 at 23:40:31:


If you do many real estate deals there is no such law saying you need to get a “dealer’s license”. You have no responsibilities with a “dealer’s license” other than the fact that you might be classified as a “dealer” for tax purposes if you do many deals and sell and not hold as rental property. The IRS considers your property inventory for the purpose of resale.

So there is no “dealer’s license” involved. Just the IRS reclassifying your transactions for tax purposes. And this is even a gray area.

I see nothing wrong with flipping properties the way you are doing it.

Dealer’s License for Single Family Homes??? - Posted by Jim Kennedy - Houston, TX

Posted by Jim Kennedy - Houston, TX on June 19, 2000 at 23:37:55:


I am a full-time real estate investor in Texas and I am aware of no “dealer’s license” required for those of us who deal in single family or multi-unit residential property. Are you referring to a dealer’s license for mobile homes? Or are you possibly referring to an investor being categorized as having “dealer status” for tax purposes? Please clarify!

Best of Success!!

Jim Kennedy,
Houston, TX

Re: I really love you guys for your help…and so fast!!! - Posted by Patti -FL

Posted by Patti -FL on June 20, 2000 at 14:08:38:

Try the term “wholesaling”

Re: I am very scared, and I don’t know what I should do!!! - Posted by ChrisG(OH)

Posted by ChrisG(OH) on June 21, 2000 at 09:13:20:


Aren’t your profits on RE that is held for less than 12 months taxed as normal income?
What exactly happens when the IRS reclassifies your transactions? How much more are you taxed?