There is new thinking in town! It used to be that those of us who bought, fixed up and sold properties were looked at poorly. With an ever increasing inventory of foreclosures out there, property flippers are now “in vogue” (in style).
How far have property flippers come? Well, quite a distance! So much so that even FHA wants us to get back to work. Now, this is not new news; this has been around since January of 2010 when FHA announced a temporary suspension of HUD’s policy of prohibiting FHA insured financing for properties owned by sellers for less than 90 days (flipping). But this news deserves repeating as most of the investors that I work with still find it hard to believe and are not using this gem.
Here Is The “How To”
First, when and how long? The new rule went into effect on February 1, 2010 and is viable till February 1, 2011. That means that if you are going to buy a property and turn around and sell it, you have to get it done by February 1st, 2011.
What rules are there? There are published guidelines on how this rule can be used…if you are an investor and want some help, leave a comment below and we’ll get you the help you need. In general the 3 biggest criteria are the following:
- All transactions must be arms-length with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
- In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.
- The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.
If you are good on the above, make sure your property meets the following:
- One of the rules that hang a few people up is that the seller must hold title to the property. Seems like common sense, but there are many scenarios where the seller on contract is not the same person that is on title.
- There can be no pattern of flipping within the most recent 12 months for the property. That would essentially mean that the property could not have sold to someone else in the last 12 months. If you are working with a Realtor, it should be easy for them to get this information for you.
- The property must have been actively marketed to the general public via the MLS, auction, for sale by owner or developer marketing.
How much money can you make? Well, the answer is based on what you can sell it for and the 20% maximum (gift really) that FHA will allow. Let’s assume the market will permit you to make the maximum…then you can make 20% of your acquisition value. I know the question you are asking (can I include repairs and renovation in my acquisition value?), and the answer is yes, as long as you can prove it (document it). How do you document it, you ask? Well, you must provide a detailed list of all of the repairs and document the cost. Those items will go into the calculation of the 20%.
Is this working? Yes, we buy and sell properties all the time using FHA’s 90 Day Flipping Waiver. I will work with any Realtor as long as they do their homework and can provide a constant stream of properties to buy. I will generally relist the home with the same Realtor so they have an incentive of sending me everything they can find that makes sense. In fact if you’re in Illinois and want to work with me, let me know…
You need a team! If you are going to do this right, you need a team. I work with experienced Realtors, and as a shameless plug, Ardain Mortgage, because you have to have a lender that knows what they are doing or you will never close on your sale (or purchase). I also have a good attorney, one that understands the foreclosure process and short sales. Lately, because of the market, it seems as though I’m looking at a lot of short sales, and you will too, so you need an attorney that has experience working with banks. At times I could have over 50 contracts in on properties, so I need a team that takes care of me; you are going to want the same.
Resources if you want to see the rules yourself –
[...] I wrote in my previous post last year, the 90 day flipping waiver allows investors to purchase distressed properties [...]
[...] graduated Pepperdine University. He was on the Board of Directors for two large HOA in Las Vegas.My name is D. Sidney Potter and I flip houses. I started in 2002 from a whim with the expectation th… I was passively waiting for about three to four months to be completed at home. After a while, I [...]