RESPA/HUD Anti- Flipping Law Hurting Investors
I know that the new anti- flipping law is a good thing but now ALL types of mortgages besides government loans are using the same guidelines as FHA regarding anti-flipping and the resale time limits set. This must be a huge hurdle for all investors who likes to buy houses, fix them up, and sell them for profit. Besides finding a buyer that will pay cash for the property( rare) what other strategies is anyone else using to counter back at this new law? 
tclose,
There are many options to moving properties, so that you arent flipping. If you know the difference between flipping and wholesaling, there is the answer to you question there. Flipping is Illegal, wholesaling and retailing is not. Good luk
One strategy is to know which lenders to avoid. Another strategy is to keep all your rehab receipts and take before and after pictures.
What I have found is sometimes it slides right thru and other times they want detailed information and we have to have the loan submitted elsewhere.
Best Riches,
Jeff Adam
[addsig]
I'm new to REI and appreciate the wealth of info on this forum. I've attended Ron's 3 day seminar and purchased his 3 book & CDs.
With that being said, I'm confused by the previous statement stating that Flipping is illegal? Would somebody please define Flipping vs Wholesaling to me? I plan to start with junkers using Ron's wholesaling techniques due to low initial startup costs.
Thanks in advance to all who respond.
The term is confusing. the media has butchured it up.
Flipping is not illegal at all. Buying a property fixing it up and selling it for a profit in a short period of time.
However, buying a property getting a bogus high appraisal (over market) just to draw out the cash and walk away is. Or using this appraisal to get a person to qualify with no money down etc, in a short period of time is.
It is my understanding that the seasoning period is 90 days for FHA. Granted, I have only done a few properties, but by the time I Fix them up, market them, and sell them, 3-4 months have passed. I have a house scheduled to close on the 25th with a FHA loan. I purchased it in Oct of last year. The mortgage broker has no problems with seasoning at all.
-Chris
[addsig]
If you buy and rehab this shouldn't be a problem. As long as you can prove that there was an improvement in the property to justify the higher selling price. If anything, this will cost the buyers more. They may have to pay for 2 appraisals to satisfy HUD.
It will make buying and reselling immediately to FHA buyers more difficult. But legitimate investors will find ways around that with lease/options or rent-to-own.
There are no guidelines taht say you cannot sell your property. You can buy a property today for $100,000.00 and sell tomorrow $150,000.00. As long as the appraisal is documented correctly there is no problem.
Lori
[addsig]
Flipping can mean two things, it means buying a property and selling it in a short period of time ( 30 to 60 days) and it also means using preditory lending techniques which are illegal. Even if you are wholesaling (legal) all lenders are STILL requiring the title to be in your name and to be seasoned 6 months to a year. Then the lenders want documentation to prove your house is worth what the appraisal said it's worth. The new guidlines are actually questioning the appraiser's accountability and accuracy .Say, for instance, if I bought a rehab for 10,000 and put 12,000 in it. After doing a market analysis ( I am a real estate agent) the house goes on the market for 40,000. It appraises for 40,000 (from a very legitamate appraisal company) Does this mean that I have show reciepts totaling 18,000?Or will the fact that spending 12,000 on this 10,000 house now make it worth 40,000? Or is the new guidelines saying that I can only sell it for 22,000? ( 10,000 original price+ 12,000 for rehab)I need some real hands on past experiences from investors who are on the same boat as I am and who has done some transactions since June 1,2003( the dat this new RESPA/HUD law came into effect
I have found out from the MBA ( mortgage brokers association) that if you buy a house and fix it up and sell it before 1 year's time you will have to show documentation of your rehab. All they want for proof is pictures (if possible) of before and after the rehab work, and receipts for the improvements made. They WILL NOT total the amount of the receipts and justify the current value by how much you spent. They will ,in fact, confirm that the appraisal is legitimate and proceed with the sale. Everyone must remeber that these RESPA/HUD guidelines were supposed to be only for government loans but the trend is spreading rapidly to ALL types of loans, conventional, non-conventional,VA etc. But as long as you can prove that you HAVE done some legitimate work on your rehab home, as long as your using a reputable appraiser you should have nothing to worry about! Happy Investing Everyone!!
But what about the situation where in certain markets you buy for cash at foreclosure auction a PRETTY HOUSE, does not need work, but no one showed up at auction but you, and got $50k equity, POOF!
Then you go to flip. you don't have any receipts because it was a distressed sale situation, and no work was needed, at least not enough to justify that equity spread.
How do you get around that issue?
That is an excellent question. From what I understand, if you can show it was distressed by being on the foreclosure auction, this is why you obtained it for the low amount. You also would need 2 appraisals from reputable appraisers to show why your asking for more than you paid at the auction. When I say you, I am really talking about your buyers. Does anyone else out there have any suggestions??
[ Edited by tclose on Date 02/16/2004 ][ Edited by tclose on Date 02/16/2004 ]
To shine another light on this topic; with pre-construction homes in Vegas increasing in value by $100,000 by the time their built, flipping here has never been a problem. A friend of mine closed on a home for $330,000 and sold it 23 days later for $450,000. No seasoning problems for the buyer at all. Add to that, there are lenders that will even loan money on the new appraised value 1 day after closing a home.
I was very worried about this new law when i first found out about it but so far it hasn't been an issue for me. If the value is legit and can be proven there is no problem. The last appraiser called me and asked me for an explanation of the difference. I explained that the price I paid was under value due to it being an estate and told him what updates I did to the property. He took notes as we spoke saying that he wanted to make sure that he got everything in the report to the bank. The bank had no issues with his appraisal. Done deal!
Say this with me very slowly.
It is not a LAW!!!!!!
IT IS NOT LAW
IT IS NOT A LAW