I remember back in 2003 when FHA and a handful of lenders started creating policies about flipping properties. For those of you that aren’t aware of the term, a “flip” of a property refers to the rapid sale of a property from the time it is first purchased to when it is sold.
When FHA put official rules in place in 2003 they indicated FHA would only insure loans in which the seller had owned the property for 91 days or longer at the time the sales contract between buyer and seller was executed. In the last couple years FHA has relaxed its position and will allow flips to occur within a shorter time frame but with restrictions.
As is true with many things in life, not all flips are created equal. In general, I find nothing wrong with an investor acquiring a home at a low price and selling the home at a higher price. At the same time, it should be understood that many buyers purchasing these properties are first time buyers with limited financial resources. In addition, many of these same buyers are using programs that require a small down payment, such as FHA. The combination of limited financial resources on the part of the buyer and maximum financing on the part of the lender requires greater scrutiny of the transaction.
In my opinion it is in the best interest of our industry and the best interest of our clients to ensure that flipped properties are sold at prices that are sustainable and that whatever work has been done is done to professional standards. Too often in the last few months I have seen properties hastily rushed to market with minimal upgrades and/or faulty workmanship.
Our current market conditions bring about great opportunities for investors and buyers alike. I expect that lenders will continue to finance flipped properties cautiously and with restrictions. Personally, I can’t find fault with that.
Overall, I urge fellow professionals to look out for our consumers in this environment when flipped properties are involved. We need to expect that these transactions will face greater scrutiny and are perceived as being a higher risk to the investors that ultimately fund and/or insure them. Before an offer is accepted, all parties to the sale should have realistic expectations.
I expect our industry to continue to flip over flipping. My overall advice is to work with professionals that understand the guidelines involved and are committed to ethical and responsible practices.