I love searching the internet for cool articles that can help us out as real estate investors. This article really can. I found one that talks about some basic things about flipping that goes hand in hand with what I teach people every single day. It’s good to see that we in Dean’s family are cutting edge and quite ahead of the curve as far as real estate investing strategies go. I hope you enjoy this article and get a little bit of insight from it.
Thinking of Flipping? What You Need to Know Right Now
May 6, 2013 By: Deidre Woollard
At the height of the housing boom, house flipping was the order of the day. Television shows like “Flip This House” added to the frenzy, and the idea of being able to buy a house and sell it in a few months for a substantial profit became part of the American dream. Then came 2008 and with the housing crisis, the flip was no longer a reality and many would-be flippers found themselves unable to sell as quickly as they liked.
The new flipper
But with low inventory in many markets, rising prices, and talk of a seller’s market, the flipper may be re-emerging as part of the overall housing picture. Many homes especially those at a lower price point are seeing multiple offers and the offer that takes the day is frequently a cash one, more proof that the investors are out there and active.
Today’s flippers are still smaller in number than the ones from the earlier era and they may be more savvy too. They’ve learned from the mistakes made during the last boom cycle. They are pickier about the houses they choose to invest in. They don’t overspend on lavish renovations thinking they can make it up on the sale of the home. Also, because loans are much harder to get these days there are far fewer buyers chasing the no-money-down dream. Today’s investors move quickly and have cash on their side.
Short sales and foreclosures still appeal to investors
Short sales still remain attractive to flippers simply because they may be priced under market value but there are some things to be aware of there too. Sophia Delacotte, a Realtor in Silicon Valley recently wrote about flipping short sales on her blog. One thing that’s important to keep in mind is that since January 18, 2013, guidelines for all Fannie Mae and Freddie Mac short sales with or without an offer state that the buyer is prohibited from selling the property for any sales price for a period of 30 days from the date of the deed and after a 30 day period, and until 90 days from the date of the deed, the buyer is further prohibited from selling the property for a sales price greater than 120% of the short sale price. The Federal Housing Authority (FHA) has extended their moratorium regarding their “90-Day Anti Flipping” rule for all FHA insured loans through December 2014 meaning that eligible buyers may use FHA-insured financing to purchase properties they intend to flip.
The 70% rule
Michael LaCava writing over at BiggerPockets, a popular real estate investing community, advises using the 70% rule to calculate potential purchases. In this formula you start with the price you believe a house will fetch after renovation. You multiply this number by 70% (.70) and then deduct your estimated repair costs from that number. The resulting sum is the guideline for what you should pay for the house you intend to flip. For guidance on potential renovation projects, Remodeling magazine’s Cost versus Value report is always an excellent place to start.
The important thing to remember when considering flipping a home is the same adage to keep in mind about any home–you make your money when you buy not when you sell–so don’t let a multiple offer situation tempt you into paying more than you intended.
Happy Investing!
Matt W.
I love searching the internet for cool articles that can help us out as real estate investors. This article really can. I found one that talks about some basic things about flipping that goes hand in hand with what I teach people every single day. It’s good to see that we in Dean’s family are cutting edge and quite ahead of the curve as far as real estate investing strategies go. I hope you enjoy this article and get a little bit of insight from it.
Thinking of Flipping? What You Need to Know Right Now
May 6, 2013 By: Deidre Woollard
At the height of the housing boom, house flipping was the order of the day. Television shows like “Flip This House” added to the frenzy, and the idea of being able to buy a house and sell it in a few months for a substantial profit became part of the American dream. Then came 2008 and with the housing crisis, the flip was no longer a reality and many would-be flippers found themselves unable to sell as quickly as they liked.
The new flipper
But with low inventory in many markets, rising prices, and talk of a seller’s market, the flipper may be re-emerging as part of the overall housing picture. Many homes especially those at a lower price point are seeing multiple offers and the offer that takes the day is frequently a cash one, more proof that the investors are out there and active.
Today’s flippers are still smaller in number than the ones from the earlier era and they may be more savvy too. They’ve learned from the mistakes made during the last boom cycle. They are pickier about the houses they choose to invest in. They don’t overspend on lavish renovations thinking they can make it up on the sale of the home. Also, because loans are much harder to get these days there are far fewer buyers chasing the no-money-down dream. Today’s investors move quickly and have cash on their side.
Short sales and foreclosures still appeal to investors
Short sales still remain attractive to flippers simply because they may be priced under market value but there are some things to be aware of there too. Sophia Delacotte, a Realtor in Silicon Valley recently wrote about flipping short sales on her blog. One thing that’s important to keep in mind is that since January 18, 2013, guidelines for all Fannie Mae and Freddie Mac short sales with or without an offer state that the buyer is prohibited from selling the property for any sales price for a period of 30 days from the date of the deed and after a 30 day period, and until 90 days from the date of the deed, the buyer is further prohibited from selling the property for a sales price greater than 120% of the short sale price. The Federal Housing Authority (FHA) has extended their moratorium regarding their “90-Day Anti Flipping” rule for all FHA insured loans through December 2014 meaning that eligible buyers may use FHA-insured financing to purchase properties they intend to flip.
The 70% rule
Michael LaCava writing over at BiggerPockets, a popular real estate investing community, advises using the 70% rule to calculate potential purchases. In this formula you start with the price you believe a house will fetch after renovation. You multiply this number by 70% (.70) and then deduct your estimated repair costs from that number. The resulting sum is the guideline for what you should pay for the house you intend to flip. For guidance on potential renovation projects, Remodeling magazine’s Cost versus Value report is always an excellent place to start.
The important thing to remember when considering flipping a home is the same adage to keep in mind about any home–you make your money when you buy not when you sell–so don’t let a multiple offer situation tempt you into paying more than you intended.
Happy Investing!
Matt W.