Fed Lifts No Flipping Ban for One Year Beginning February 1st, 2010
Before I begin, you need to know that flipping is basically buying a house that needs repair, repairing it and selling it for a profit. You can read [Broadview] [Katella]’s post that goes more in depth “What Exactly is House Flipping?”
For example, Big Bank is selling an “As-Is” property for $2. Irwin Investor pays the $2, spends $3 fixing it up, and sells the house for $7. Irwin Investor made a $2 profit! This is a situation that truly is “win-win” for home buyers, investors, and Big Bank. Let’s break it down..
Big Bank’s Books
Big Bank has many properties that Ray Homebuyer can’t get financing on because they are trashed, literally TRASHED. They have holes in the wall, flooring ripped out, and for some strange reason the kitchen sink is missing. Big Bank is looking to move these properties off their books but they aren’t willing to commit to investing thousands of dollars to fix up or “rehab” them. Enter the investor!
Irwin Investor Generates Income
Investors now have more properties that they can buy and fix up that otherwise would have just remained vacant/abandoned. In the example I used I mention that Irwin Investor spends $3 fixing up the home before selling it. Let’s focus on that for a second. Irwin Investor hires Carlos Contractor, Charlie Carpenter, Paul Painter, and Tony Tile Guy. All of which have families and mortgages of their own.
Are you following me? This one home is not only generating income for Irwin Investor but also for the people he hired to fix up the home. This is a good thing California! You might ask “well that’s all good and swell for Paul Painter and the crew, but what about me the simple home buyer?” Cue Ray Homebuyer!
Ray Homebuyer would have loved to have paid $2 for that property Irwin Investor bought, but he does not have the money to bring it up to building code. Irwin Investor is a seasoned pro at fixing up properties, it’s what he does for a living! Ray Homebuyer works in the healthcare field, not construction or real estate. Quite frankly, Ray Homebuyer just wants to move in to a home that is in good condition. What this “flips allowed” rule does is enable Irwin Investor to sell more homes at a lower price. Which in turn allows Ray Homebuyer to get a nice house at a lower price.
That house Irwin Investor sold for $7? Well four years ago it would have sold for $10, but given the current market situation and the condition of the home, Ray Homebuyer can get it for $7. What will happen 10 years from now? What has happened every year since the Great Depression up till now, property values will go UP.
This is a great way to close the loop on properties that are stagnant and not currently in livable condition. The flip rule waiver will remain in place until February, 2011. If you are a home buyer, purchase from an investor, they usually have “For Sale by Owner” sign on the property. If you are Big Bank and you are reading this, please give Irwin Investor a good deal on those trashed homes, the future of not only the state but our country is on the line here. If you are an investor purchase those damn homes and get this state back on track!
This is an exciting opportunity to get into a home, but all I can do is show you the door. I delivered the update, it’s up to you what to make of it.
If you have questions about how to take advantage of this exciting FHA rule you can give me a call directly on my cell phone at 714-244-7368. Sometimes it’s much easier to reach me by email, so here it is: ChrisA@BroadviewMortgageCorp.com