The truth is, there's nothing inherently illegal about buying investment property at one price and selling it for more. But there are plenty of risks. And, if you're not careful about what you're doing, you could lose a lot of money, wreck your credit, and even wind up committing fraud. One of the chief concerns about the dramatic rise in property values is that the demand for properties has been artificially inflated by individuals who are purchasing condos and townhomes strictly as investments. In downtown Chicago, for example, many new construction projects, like condos and loft renovations, are sold to real estate agents and other investors who see prices moving way out of control and want a piece of the action.
Some investors buy four units in a development right when it opens.
Then, as the developer raises prices for the remaining units, they sit back and count their profits. When the development sells out, desperate home buyers will often pay a premium for a particular unit or location. That translates into even higher profits. While some argue that investors who do this create false demand for the units, thereby jacking up prices artificially, real estate is actually functioning a little like the stock market. If a stock gets hot, and investors swarm to purchase it, the price goes up.