Flipping

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Flipping

Buying shares in an initial public offering (IPO), and then selling the shares immediately after the start of public trading to turn an immediate profit.

Flipping

1. The act or practice of buying IPOs only to resell them at a substantial profit very quickly. Flipping is a short-term investment strategy that operates on the assumption or existence of liquid markets. Institutional investors engage in flipping at a greater rate than individual investors as they have the most shares available to them at the offer price. Flipping, when done over and over by a large number of investors, can lead to a speculative bubble. See also: Stock jobbing.

2. The act or practice of buying real estate at a low or moderate price with the intent to resell it for a profit in a short amount of time. Flipping takes two main forms. One may buy several properties, intending to sell them in only a few months hoping that that price goes up. This is most common in areas expected to become big developments. On the other hand, one may buy a single property often with improvements already on it and renovate it with the intention to sell it for a much higher price.

flipping

The immediate selling of shares purchased in an initial public offering. Flipping is especially popular in a hot IPO market when newly issued shares can soar in price when they hit the secondary market. Investment banking firms underwriting new issues generally discourage flipping, in large part because it can depress a stock's price in the secondary market.
Case Study In late 2001 UBS PaineWebber issued a memo to its branch offices that the firm intended to fine its brokers whose customers engaged in flipping shares purchased in initial public offerings underwritten by the firm. According to the policy, brokers would be required to pay a fine equal to 200% of their original commission. Following complaints from the firm's brokers, PaineWebber withdrew the proposal but indicated it would monitor the investment activity of clients who participated in new issues and adjust future allocations of shares in subsequent IPOs. Investment banking firms dislike flipping because it tends to destabilize trading and depress the stock's price, both of which are likely to anger management of the issuing company.
References in periodicals archive ?
In 2005, the FBI reported losses of $1,014,000,000 from illegal real estate property flipping schemes and mortgage fraud, up from $429,000,000 in 2004.
Property flipping is a long-time scam, according to the report, but it is becoming more sophisticated, with criminals incorporating identity theft, straw borrowers, and shell companies into their schemes.
Property flipping is not illegal per se; however, when an immediate resale is attended by acts of fraud or misrepresentation, including but not limited to, appraisals with inflated property values and other misleading or fraudulent documentation, it can result in a predatory transaction.
In Dubai in the early to mid-2000, property flipping took on a new dimension whereby investors purchased off-plan properties from developers at reasonably low prices and within hours these properties were resold three to five times, each time at a profit and sometimes even sold to a person behind the buyer in the same queue.
To protect against predatory practices of property flipping where homes are resold at inflated properties to unsuspecting buyers, certain protections remain in place.
In another federal lawsuit, in Eastern District Court, six Brooklyn homebuyers claim they are victims of a property flipping scheme orchestrated by Yaron Hershco, who owns United Homes and allegedly owns or manages about five or six other related companies, which all use 139-27 Queens Boulevard as an office address.
In mortgage fraud, the trends include equity skimming and more sophisticated property flipping Property flipping involves purchasing property, fraudulently appraising it at a higher value, then quickly selling it to an associate, who may sell it to another associate, and so on.
On May 1, the Department of Housing and Urban Development printed its final rule of FR-4615 (Prohibition of Property Flipping in HUD's Single Family Mortgage Insurance Programs) in the Federal Register, setting several new guidelines for mortgage lenders, including making recently flipped properties ineligible for FHA mortgage insurance.
From Atlanta to Baltimore, Los Angeles, Miami, New York, and other metropolitan market areas, predatory lending and property flipping go hand in hand.
Cautious about the need to ward off the pitfalls of another property bubble, as warned by the International Monetary Fund, Dubai has brought in new regulations to deter speculators and property flipping.
"Emaar has looked to curtail this (property flipping) by saying that 35 per cent has to be paid before allowing re-sales, while Nakheel for its recent Jumeirah Park launch has its sales contracts explain that only if 35 per cent has been paid will it issue the pre-title registration or Oqood," said Mario Volpi, head of residential sales and leasing at Cluttons, the property firm.
Like short sales, transactions related to property flipping continue to remain a concern to lenders.

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