Flipping has been always been a part of the real estate landscape. Investors buy a home for a considerable discount and then sell it immediately for a profit. While there's nothing wrong with this there are a few things to be aware of.
The following tips may or may not be Fannie/Freddie/HUD guidelines, as with most loans today investors have their own overlays and these are the common ones.
-Expect any sale where the property in question has less than 12 months seasoning with current owner to require 2 appraisals and the lower of the 2 values will be used.
-On FHA flips under 90 days many lenders require a lender ordered home inspection. Any items appearing on the report will need to be fixed before close of escrow.
-No multiple flips allowed. Only one change of ownership in a 12 month period.
Why are flips so restrictive?
For good or bad the simple answer is that lenders want to be assured that the buyers of these properties aren’t going to run into issues with the home that will cause them to default on the loan.
Michael Regan (NMLS #275695) specializes in Marin, Sonoma, and Napa counties. You can reach him at 415-672-2499 or online at www.TheReganTeam.com
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Michael they are restrictive to protect the public. And I bet there is some truth to that.
Thanks, all good information. Can you explain the reason for listing defects on the MLS instead of fixing them. Many flippers are small contractors and the improvements are their specialty. Perhaps you are still describing 90 days or less transactions?
Hi Vince...I'm describing the 90 days or less transactions. Recently a flip was listed 2 weeks after acquisition with a 35% increase, and had nothing done to it. In the MLS public comments it said roof needs to be replaced, $5k credit will be given for that.
The two issues that the seller will face is the appreciation is outside of guidelines because they did no work to the property and with noting the roof issue, I don't know of an investor that would take that on. They would require the roof be fixed before COE.
Vince,
Thanks for the clear and concise summary. So many rules its difficult to keep them all straight. I will share this with my clients who are thinking about investment property/flip property.
Cari Gennarelli