Seasoning: Is It Better To Flip A Property Immediately Or Rent It And Sell In A Year
In 2003 I ran into a problem selling a property with FHA financing because I only owned it 2 months when I put it up for sale. As of 6/03 the FHA lender said that I had to own the house 1 year in order to sell with FHA financing because I was selling the house for more than double the price I paid for it. The deal went through because the loan was approved before 5/03. When I asked the appraiser why the new law, he said to watch an episode of the "Sopranos" Now I find some conventional lenders are grumbling about flipping. Should I wait 1 year before selling? I sell below market for a quick sale; my profit is in the low purchase price. :-?
Most lender will not allow flipping anymore, the best way to do it is hold out for a year, or getting a rehab loan in the beginning, so the sales prices wont be so far off. If you can document the improvements and your profit margin is around 25% or less, you might be OK.
Chain-of-title seasoning for conventional lenders is very much locatin based thing but even more depends on the creditworthiness of the borrower.
Most fannie mae/freddie mac products don't care about title seasoning. These products are primerily for the better creditworthy borrowers or for people with less than 20% down (fannie/freddie requires PMI).
The B/C credit lenders usually have more of an issue and FHA will always have an issue. IF you are rehabbing and not just flipping, you shouldn't have a huge problem because if you can prove to the lender the increased value with before/after photos and sometimes receipts they will do the loan. Many lenders I have found will accept 2 and somtimes even 3 different apprasials and do the loan. There is a huge following of lenders ordering their own drive by apprasial in addition to the standard one the broker orders.
Anyway, I am not a mortgage broker--just a few things I learned along the way. Find a good mortgage broker to deal with and there will be zero problems.
GOOD LUCK
Another strategy to avoid title seasoning altogether, as well as to open up to the largest variety of buyers possible, is to sell with owner financing with as little as 5% down (if it was a rehabbed property, you can sell with zero down).
Then, if properly structured, you can sell/assign this note at closing for a cash lump sum, while selling at full FMV. You take a minimal discount in the note purchase, but you sell the property faster, and do not have to reduce price to compete.
Hope this helps, Dave
Dave, never learned much about the note-buying business, but I thought notes had to show some payment history and/or a bit of equity before anyone will want them. Could you elaborate on how to do this?
loon, that is one of the myths of seller financed paper. You can absolutely construct and sell at the same closing owner financed first liens, and get cashed out completely.
You can sell to end buyers with as little as 5% down, and if you are a rehabber, there is a program that allows your end buyer to put zero down, if you are willing to sell for 95% or less of FMV, based on appraisal.
These unseasoned notes will typically be purchased from the 80s up into the low 90s cents on the dollar pricing, depending on all factors involved in the deal, as well as what type of collateral is involved.
Hope this helps, Dave
Just a quick note: If you wait the year you will pay less tax on the profits.... If you own the property for less than a year you must pay tax at the regular income tax level... however if you owned it for more than a year it is a capital gain and the current maximum cap. gain tax is 15%!
Also, more extreme, would be to live in the property for two years and then sell it.... I have seen people buy a home every two years, fix it up while they live in it, sell it for a $100 - $150K profit and as long as they lived there a minimum of two years they pay NO TAX - NONE! up to 250K profit for a single person or 500K for a married couple... If you don't live in it for the two years you MAY still qualify for a pro-rated portion to be tax free... ex. you live in the home 1 year (1/2 the requirement) you MAY get to keep 125K (half the regular) tax-free!
That is extreme but possible...
Just my two cents..
Jenn
I believe FHA changed their title seasoning requirements to 90 days in the beginning of 2004. FHA buyers will not be able to go conventional, which is the best route, as stated before. The sub-prime market is TOUGH on rehabs to say the least, and many will not allow seller held second mortgages. My short term rehabs go conventional because the sub-prime lenders are always looking for receipts, invoices, and appraisal reviews from third party companies, which most drop the value of the property by 5-10%, even WITH A SALES CONTRACT. Team up with a competent mortgage broker and have them pre-approve your buyers. Sub-prime sell their loans to the Stock Market buyers, not the Government, and the value of the home, not the strength of the buyer, is what they rely on. Title seasoning got really tough back in July 2003 and it keeps getting tighter. A Mortgage Broker who knows his products is worth his weight in gold.