Here is some good news!!! If you are an investor or real estate agent, I’m sure you have run into this before. I know as an investor this has held up settlements of my investment “flips” several times, and in some cases has caused me to lose a buyer. HUD has decided to lift the ban for one year. Follow the link at the bottom for HUD article.
If you’re not familiar with the HUD guidelines on “flips”, HUD requires that a seller must hold title to a property for over 90 days before it can be resold if it is going to be purchased through an FHA mortgage. If you are a property investor this can cause a problem because in most cases you can get your rehab done in thirty days, and then turn around and sell the property quickly. This rule limits the speed of your turnaround. This rule had investors waiting 90 days from the time they purchased it before a buyer could even be secured. I know in some cases I only had about two weeks of work that needed to be done before I listed my investment “flip”. I was stuck paying interest for the rest of the time period until my 90 days was up. I primarily focused on areas where FHA buyers can afford to buy; this caused a problem with selling my properties sometimes because the buyers had to wait 60-90 days before we could even go into contract. So why not just try to secure a non-FHA buyer? Well, I don’t know about your market, but 80% of buyers in my market get FHA financing. The market being the way it is (with oversupply of homes) most buyers just moved on to the next property. As an investor, I have always priced my homes to move quickly, and always picked attractive areas to invest in. I have never had a problem securing a buyer, it was just the fact that the 90 rule would drag out settlements, or not produce a buyer until the 90 days had passed. In some cases my potential buyers were not willing to wait that long. In cases where I had an FHA buyer who really liked the house and wanted to wait, I still sold it to them, but had to pay more carrying cost, and they had to make living arrangements (most FHA buyers want to move in 30-45 days from contract date.), or pay a longer rate lock, which in turn led to them incurring more costs as well. This new rule will eliminate costs on both ends. This was never a huge drawback to reselling properties, but it has caused some issues for investors and agents alike in recent years.
With real estate fraud increasing over the last several years, FHA had this rule for good reason. There were numerous “flip” schemes out there that affected uneducated buyers, and left them in financial shambles. Local and national banks were taken to the cleaners as well on these kinds of frauds. There will still be strict guidelines on “flips”( so please read the article) that are secured by FHA mortgages, but I think this is a step in the right direction. Why punish the good agents and investors because of the few bad ones? Most guidelines state and nationwide recently have deterred investor from buying because of the real estate fraud in recent years, this will encourage them again. Investors are a big part of why houses are selling now, and investors help rid communities of foreclosures and short sales. In many markets over the past few years, investors have been a huge part of the market, both on the buying and selling side. Speaking from personal experience, I have bought the “ugly houses” in neighborhoods, fixed them up, resold them, and helped bring neighborhood values up for a long time. Fixing foreclosed and abandoned properties in neighborhoods helps value move in an upward direction. This new rule will encourage more investors to do just that, because their turnaround time will be shorter. This gives investors more of an incentive to continue to buy property fix it up and resell it.
For agents this will be a big help as well. Investors in most cases price properties extremely aggressive when selling “flips” (I know I do!). The point of an investment “flip” is to sell it as fast as possible, and it is no secret that price is usually the most important factor in securing a buyer quickly. These types of properties attract the attention of many FHA buyers, because they are usually in the FHA buyers’ price range. Most investor “flip” properties have had many recent improvements, or modernization, and are in desirable areas. As agents our FHA buyers will not have to wait 90 days anymore to purchase aggressively priced properties from investors, or skip these properties because of timing issues.
I have high hopes that this rule will not be taken advantage of, and that this will benefit us all in the coming year!!
Follow the link here: http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10