Flipping Houses - What To Watch Out For
Flipping Houses is the process of reselling a recently purchased property for a substantial profit. While this form of real estate investing is a great way to make money, you need to be very careful how you do it. Flipping properties has come under fire from quite a few different directions over the past decade. Much of the negative attention that property flipping has gotten is from the numerous scams that have been uncovered.
These scams have been elaborate enough to include mortgage loan officers, appraisers, real estate agents and even mortgage lenders. Perhaps one of the most damaging aspects to this facet of real estate investing is the fact that a majority of the victims in property flipping scams are low income minorities living in urban areas.
Bad Property Flipping Here's What Not To Do
A "developer" will purchase a distressed property in a low income minority neighborhood for dirt cheap. Months later, perhaps only days later the "developer" will resell, or flip, the property for a considerably higher sales price than they had just acquired the property for. Some developer's will give the new home buyer some sort of cash at closing for repairs to the property, or promise to make repairs to the property after settlement. Many times the repairs never come and the money that the new buyer gets is rarely used for the purpose that it was set aside for.
Fraudulent property flippers argue that their methods are legitimate in that they are skilled deal finders and have a right to purchase properties way under market value only to turn them around nearly instantaneously for a large profit. They are also argue that they have a better marketing skill such that they can market their new property for a higher price than current market prices or for what the home originally sold for. And some developers claim that they are doing a neighborhood good by offering these homes for higher prices as it elevates the overall prices of homes in the area.
Good Property Flipping Here Is What To Look For
Good property flipping has a little different flare to it. For starters, a good flipper will own the property probably no less than 90 days. They will also invest in the property making substantive repairs including: window replacements, vinyl siding replacement or repair, new roof, new paint throughout the home, appliance upgrades, new carpeting etc. These are legitimate home improvements that a property owner can make that can really raise the value of property.
The key is that these repairs can be documented by purchase receipts. If you are considering buying a home that has been "recently" remodelled you may want to ask to see the home improvement receipts. If the seller can produce them, give them a look over to make sure the dates correspond to the owner's dates of ownership. You ought to verify the receipts with actual work in the home. If each of these items match then you probably have a legitimately improved home that justifies a higher sales price. An underwriter will probably ask to see proof of the upgrades that the seller has made if their purchase date is relatively close to the date to when you are buying the home.
There are varying degrees of good and bad property flippers. Decent, well intended flippers will at least do some upgrades to the home to improve its value. This improvement is grounds for selling the home for an increased amount above the developer's original acquisition price. Less scrupulous flippers do not put any money into the home and resell them claiming that the home is worth more. Rare is it that these bad flippers do any substantive rehabilitation work on the homes that they buy and sell.
Additional Information on Flipping Houses
Article by Dale Stouffer, Mortgage Broker. Dale has a been a mortgage broker since 1996. This Article is designed to be of general interest and should not be considered legal advice. The specific information discussed may not apply to you. Before acting on any matter contained herein, you should consult with your personal legal adviser.
