November 5th, 2022 9:45 AM by Judy Chapman
Yes, we all remember the time when there were many people flipping homes. When the number of foreclosures and short sales were going off the charts, the market was ripe for this type of activity! The buyers might have to compete with other buyers, but at that time, there was No such thing as going over List Price to get a property. It was however, a real guessing game, when you went into a multiple buyer situation. Cash helped to move buyers to the top of the stack of offers. Lenders are not too keen on financing a property in distressed condition. Some buyers might be able to help the lender see the improvements they would make to the property in order to get the loan to go thru. In which case the appraiser would probably look at current value and perceived value with improvements. The goal of any "flipper" is to get the contract and the property, close and be able to rehab the property as quick as possible. Built in costs for the time the flipper holds the property are interest charges on the loan and insurance cost for a vacant property. Those premiums can be high. Plus the insurance company knows there will be workers on the property who might be careless. Who knows what kind of risk they are taking. The "flipper" who is able to complete a lot of the work himself/herself will realize the most profits. Even getting a child or grandchild in to help clean and spruce up the landscape can save quite a bit. As a Realtor, I encourage you to apply and get all required permits from the county before you complete the work. That is likely the first question a new buyer is going to ask? Was the work permitted as required??
Once you have completed the work, you will want to seek out the services of a qualified Realtor to walk you through the sales process. He/she will market the property for you and help quickly find you a qualified buyer. If your potential buyer is using an FHA loan, there are things you want to take into consideration. Why would your potential buyer want an FHA loan? Smaller down payment. An FHA loan might be the difference in the buyer being able to get the loan and affording the house, or not. IF you as a seller do not offer the FHA loan as a option for your purchaser, you are blocking out a good segment of the buyers you want to attract. According to Chris Wolfe, Integrity Mortgage Group, speaking on FHA Property Flipping, the property that is being resold 90 days or fewer following the seller's date of acquisition is not eligible for an FHA Insured Mortgage. What does this mean? The "flipper" needs to wait at least 90 days before the property is resold or find a buyer who is not using FHA. Even if the property is marketed prior to the 90 day period, an appraisal should not be performed prior to the 90 day period. If it is, another appraisal will be required, and the cost of that second appraisal cannot be borne by the buyer. Either the seller, list agent, buyers agent, or some other party will need to be able to cover that cost.
Will we see "flipper" opportunities again? The opportunities in the current market are few. Even the distressed properties are selling at such a high price, building materials cost has increased, making it hard to realize the kind of profits you need in order to take the risks. However, our market is like a living, breathing thing. It is constantly evolving. There is a chance we will see the time, once again, when "flippers" can make a nice profit at this activity. Be Ready!! Contact Chris Wolfe at Integrity to get all the important details on FHA Loan Restrictions on Resale for Property Flipping. Contact me, Judy Chapman or Angie Eubanks at Appleseed Realty for "Flipping" and All Your Real Estate Needs.