Unfortunately, that is true. The Federal Housing Administration (FHA) insures home mortgages, so those loans can be sold to investors. Recently, the FHA has become concerned about widespread fraud connected with flipping and artificially inflated prices.
To control this type of fraud, Congress passed a rule that affects everyone who flips real estate, not just the criminals. Under the rules, FHA will not insure any mortgage loan for a property that has been purchased and then resold within a 90-day period. In addition, if the home has been purchased and resold within a 91- to 180-day period, FHA will require the lender to obtain two appraisals if the second buyer paid twice as much (or more) as the first buyer.
As a result, if you try to flip a property more quickly than after 91 days, almost no buyers will qualify for loans. If you buy something for $60,000 and try to sell it for $120,000 within six months of your purchase, the additional appraisal fees will make the loan too expensive for many home buyers. As a result, it is more difficult to find buyers for flipped properties.
The answer to this question depends on the type of flip you do, how much time you can devote to it, and how much profit you want to make. Two strategies fit the bill perfectly.
1. Place purchase contracts on under-valued properties, allow yourself a 30-day due diligence period in which you can cancel for any reason, and then find someone to buy your contract at a small profit. You may be much better at finding buyers than the current owner. Everyone wins. If you cannot find a buyer, you cancel the contract. This is fair to the seller only if the property has remained on the market for some period of time. It is unethical to do this in a hot market, tying up property the owner could have sold to someone else.
2. Buy properties cheaply because they need someone to haul out all the junk, clean, and paint the walls before they will bring a decent price. Do all of that relatively quickly and cheaply. Sell immediately at a discount price below the market value. If you could do this once per month and make $5,000 each time, would you do it for a year, or would you stress over one property, trying to make a massive flip profit of $60,000 or more?
They are, indeed, a very low-risk strategy for flipping properties. In addition, people other than flippers use option contracts.
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Note: This article was sent to us by: Jason Sternels at 06292010
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