Tory Keith Real Estate

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Concord MA 01742


Monday, January 31, 2011

A Teeny Tiny Little Bit of Good News for Investors

The FHA has extended it's flipping waiver through the end of the year to allow properties purchased within 90 days to be resold with FHA financing. This is good news since many buyers are using FHA loans and investors often want to close before the 90 day waiting period. However, in order to do so, the increase from the price at which the house was purchased to the price it sells at cannot exceed 20%, leaving investors very little room for profit after they pay for improvements, closing costs, carrying costs, and commissions. The regulations after 90 days are somewhat more lenient.

For the buyers of a flip to obtain conventional financing, the price increase cannot exceed 20% before 90 days, and after that it can only if the increase is supported by documentation (showing the value of improvements). There are many other requirements as well, depending on the lender and specifics of the situation.

One lender states in their flipping policy,
"Property flip transactions most often, but not always, involve distressed properties acquired at a
discounted price, then resold at an increased sales price to an uninformed buyer."

It is very unfortunate that some rare cases of fraud and dishonesty have caused flipping to be seen in such a negative way. Many distressed homes and other properties are in poor condition, and when an investor purchases one of these properties, they are creating jobs by paying contractors to improve the home, and supporting home values in the neighborhood by taking a property out of foreclosure. Buyers then pay a fair price (often slightly under market value since investors usually want a quick sale) for a property in good condition. Lots of people and the economy benefit here, and I think that this scenario is very common, and probably would be more so if the FHA and other lenders continue to relax regulations that discourage flipping.

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