The most common practice in flipping is when you buy a property for a great price, fix it up, and then sell it for a nice profit. While this can be a profitable practice, you should to remember to keep a handle on the repairs. Don't underestimate the repair cost or the length of time it may take you to resell and don't bite off more than you can chew or you may find youself losing money. Remember to factor in real estate fees in case you use an agent to list it.

You can also buy a piece of property and flip it "as is". This is for investors who prefer not to do any fix-up work but the property has to be a reasonably light fixer upper. You can't buy a property in need of extensive work and expect to flip it "as is" for any ind of profit. If the local real estate market is hot, you should be able to sell the property in poor condition just a little below market. With this option you have to make sure that you acquire the property cheap enough so that you can sell it below market quickly and still profit.

Similar to the first option, you can buy a property in need of repairs for a cheap price, fix it up, refinance it, and lease it to another consumer as a lease to own. Once you have finished your updates to the property you can refinance it at its new appraised value. When you decide to lease the property, make sure that you price the monthly payment high enough to cover the mortgage and to keep a little in the bank for repairs and in the event that your tenant decides not to ultimately purchase the property. When it comes time for your tenant to exercise his/her option you reap a larger profit since you don't have to pay a broker's fee. If your tenant exercises his/her option after twelve months, you benefit from a lower capital gains tax rate. 

Pre-construction flipping is another option for investors.  In extremely hot real estate markets, and if your timing is right, you could put a contract on a pre-construction house or condo and then flip it to someone else when the development is complete for a huge profit. What you have to watch out for here is that there is no conflict with "primary property" stipulations in the contract. In other words, many builders in these hot markets have caught on that this is what is happening and they spell out in the contract that the property you are buying must be your primary resident. In some cases they are even stipulating a time frame such as for 12 months. You should be careful with this option because if the market happens to tank, you could end up with a worthless condo that you can't sell for more than you paid.

If you really aren't interested in doing renovations and you are not particular about turning a huge profit, you could try the wholesale approach.  With this option, you buy a cheaper property, in need of repairs or not, and sell it for just a few thousand dollars more to another investor without doing any work. You won't make nearly as much as the rehabber, but you will turn it around quickly and see your profits sooner.

Scouting is another flipping practice where an individual acts as an information gatherer or researcher, not an actual property flipper. He finds potential deals and sells the information to other investors. They find a property for sale, gather the necessary information, and then provide this information to investors for a fee, which may vary depending on the price of the property and the profit potential. These scouts can expect to make between $500 and $1,000 for each lead he provides that results in a sale. Some scouts have taken this one step further by publishing entire lists for consumers, for a price of course. This is a good option for people who are interested in the profitability of the real estate market but don't have a lot of cash to use for purchasing property.  In addition, it does not require prior knowledge to look for distressed properties.

Finally we come to the practice of illegal flipping. I think that most people can figure out what illegal flipping is even with no real explanation but here goes anyway. The schemes work as follows: Dishonest investors buy cheap, run-down properties primarily in low-income neighborhoods. They do less than suitable and satisfactory renovations on those properties and then turn around and sell them to unsuspecting and eager buyers at inflated prices. In these cases the investor, appraiser, and mortgage broker may be conspiring with the investor by submitting fraudulent loan documents and an inflated appraisal. In the end, the buyer has paid too much for the home and may not be able to afford the loan. Of course then they can't get out from under it either because they can't put the house on the market for what they paid since it would not draw an adequate appraisal.

Believe it or not, the government has investigated these situations and has actually arrested parties in some cases. As a result of the negative publicity in these illegal cases, a good portion of the public perceives that all flipping is illegal, when in fact it is not. Where the fraudulent loans and appraisals come in is where it becomes illegal.