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The Southward Group

Southern California and Los Angeles Real Estate

There are a terrible lot of lies going around the world,
and the worst of it is half of them are true. — Sir Winston Churchill

Flippers Beware ..... FHA guidelines

Investors find flaws in FHA anti-flipping rules Restrictions on resale price, same-day closings irk some

"Even if we finished a remodel in four or five weeks," says Barrow, "we had to let the property sit. That slows down the sale and the next acquisition. It also clogs up the market at a time when there is so much demand."

So while this is all well and good for investors, it's not without some minor limitations.

The 20 percent rule.
If your resale is higher than 20 percent of your acquisition price, you'll have to pony up some extra proof that the price was justified. "Most of the time investors are able to add more than 20 percent value to the property from the time they buy it," says Barrow, "so there are some extra hoops you have to jump through." In other words, if you buy a house for $100,000 and try to sell it for $125,000, the house is subject to additional underwriting guidelines, which is like a double appraisal.
Title hold.
Since a seller must hold property, that still means no simultaneous closings. "You can theoretically close on your purchase Monday, go into contract with your FHA buyer on Tuesday, and hopefully close with them in 30 days," says Moses, "but you still can't do back-to-back, same-day closes to an FHA end-buyer.
Short-term funding.
Investors still need to come up with short-term funding of the 30- to 60-day variety if they want to buy, fund and then sell to an FHA end-buyer.
Previous flips.
Basically, the subject property should not display a pattern of prior flipping activity, says Moses. If a property has been, for example, wholesaled in the last 12 months, the FHA may flag the deal and disapprove.

Moses calls himself a wholesale flipper, as differentiated from a retail flipper. The uniqueness being that the retail flipper buys a house, fixes it up, and eventually sells to the end user.

A wholesale flipper is the person who sniffs a deal out and quickly resells to a rehabber or landlord without doing any work on the property. Wholesale flippers get a much smaller commission.

The FHA changes don't matter much to the wholesale flipper, because he or she can't flip a house to an FHA buyer, says Moses. "So, the rule doesn't affect my business too much, but it will definitely be a boon to retail flippers."

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