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Instead of the Flip, It’s Now the Flop

While recent media coverage was centered around the Phoenix area, the new investor strategy of "flopping" a home can be found in any markets where there are short sale opportunities.  Real estate investor flipping, buying, doing some work on the home, then selling at a profit, has been around for years.  However, flopping is a relatively new tactic used by real estate investors to take advantage of a tough housing market.

Flopping via short sales is the strategy.  There's a homeowner who needs to sell and can't.  They're frequently either behind in their mortgage payments, underwater owing more than their home is worth, or both.  In a normal short sale, a buyer who wants to live in the home would make an offer to the lender to buy at a price below the loan value.  If the lender accepts the offer, the deal can move through to closing.  The buyer gets a deal on the home they want, and the seller gets out from under it with less damage to their credit than a foreclosure.

Lenders and banks are finding that short sales can be a better way to move a property than a foreclosure, so they've become more willing to entertain short sale offers.  This has created a new niche for real estate investors, "flopping."  Basically, the investor will actually line up a buyer for a property at a specified price, then make a short sale offer for less to the lender.  If the deal can be made, they immediately re-sell the home to their buyer not long after closing the short sale deal.

Though unethical, and perhaps worse, there are also cases reported where real estate agents will over-list a home at a price it will not sell.  They wait while it builds days on the market, then work the bank into a short sale deal in conjunction with an investor client, allowing the investor to accomplish the same flop technique. 

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