Flipping is Hot.
A couple of weeks ago, we talked about how this recent market inflection has created the perfect storm for those who make a business of flipping homes — i.e. buying distressed or neglected homes at a low price, and then refurbishing them and selling them at a profit. Whenever a market experiences a period of declining values followed by a sharp uptick in demand (and values), it creates a dream environment for flippers.
There’s a whole lot of positive that comes from flipping a home. Ideally, the net result is that a distressed or neglected property gets a much needed facelift, which is great news for the neighborhood since it helps to raise the property values. On the other side, the buyer gets a home that is in move-in condition, which is high on many buyer’s priority list right now. So, buying a flip should be a slam dunk, right?
In this ultra-competitive real estate market, non-contingent offers and aggressive close of escrow dates are raising the bar for many buyers. But if you’re looking to cut your offer to the bone on a flipped property, there are some additional lending conditions that you should be aware of before you throw all caution to the wind.
As part of the lending reforms that have taken place in wake of the credit meltdown of 2008, many banks now require that 2 appraisals be conducted on any home that has sold more than once in the past 12 months. In addition, underwriters are requiring additional scrutiny to justify any increase in price on these homes. These additional regulations snag just about every flipped home, since the sellers rarely hold the property for over a year.
This doesn’t mean your loan won’t go through, or that the home won’t appraise. It does mean that you may have additional steps to go through in the loan approval process which may take additional time, and you should definitely have a talk with your loan broker and your Realtor to make sure you’re all on the same page before you make an aggressive offer on a flipped home.
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