Real Estate Investing Blog

Flipping Homes No Longer Profitable, Investors Pursue A Long-Term Strategy

October 10th, 2009 by HousingPredictor.com

Flipping Homes No Longer Profitable, Investors Pursue A Long Term Strategy Homeowners are facing an economic crunch from the housing crash, but investors often face even more severe repercussions. More than 1 in 3 foreclosures are of investment properties, and should the foreclosure epidemic worsen as forecast, that number is expected to rise as more investors walk away from mortgages.

During the real estate boom investors and speculators bought homes, fixed them up and many sold within months. But the real estate crash prevents them from doing just that. Living in a home intended to be an investment property has become the answer for some investors, while others select to rent the property. More than 240,000 homes sit vacant nationwide, according to the U.S. Census Bureau.

A key strategy of buying a home to flip has gone by the wayside as more and more real estate investors purchase properties for the long term. Just when and how long it will take to reap profits from their investments is an uncertainty with some economists saying that it could take more than 10 years for the market to become healthy enough to make a good profit.

In his book “The Millionaire Real Estate Investor”, Gary Keller, founder of Keller Williams Realty International, keeps a basic theme: “Buy real estate right, pay it down and pay it off.” The ultimate goal should be to own lots of real estate free and clear for maximum cash flow. That mantra is attracting millions of investors and wannabe investors back into the depressed housing market to invest.

Whatever the length of time, investors still seem ready, willing and able to take the leap into real estate. During the boom investors in Las Vegas, Nevada purchased thousands of properties, rehabbed them or didn’t even do any work to the structure, slapped up a for sale sign and sold the property before the first mortgage payment was due, drawing the criticism of owner occupants in neighborhoods all around Sin City. But those days have long passed and Las Vegas has the distinction of being the worst foreclosure market in the country.

Real Estate speculators typically buy property to make a fast buck without doing work to repair the property, and they are finding themselves in even more trouble these days. The practice paid-off big time during the boom but has landed many speculators in bankruptcy court.

The trouble has added to an over-abundance of property on the market, and is one of the main sectors compiling the record volume of foreclosures. Las Vegas is one community considering a proposal to out-law flipping all together, but whether the movement ever becomes reality is another question considering legal property rights. The FHA now requires a one year (seasoning) period for a home to be resold in order to get a new mortgage and other lenders are considering the same rule.

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Comment by Janney

October 11th, 2009 at 6:58 pm

Thanks for making clear of these matters. Sometimes we get overwhelmed with what others would say without knowing the consequences and jumping right into it is like diving into a river full of crocodiles. Good luck on all your real estate endeavors. By the way, I know a real estate coach who could also help many in the real estate industry make money despite the current crisis.

Comment by Ed

October 14th, 2009 at 7:54 am

Can you give us the specific site referring to this new ruling?

Comment by Nick Cifonie

October 14th, 2009 at 7:57 am

Flipping houses is BIGGER and MORE profitable than in the “boom times”. During the “boom times” houses were selling for full value, even an “ugly house” was selling for a premium. It was difficult for an investor to buy low enough to “flip”, due to the fast the homeowner could sell by themselves for a premium just as easily.

Now, those same properties and “uglys” are selling for 20 to 30 cents on the dollar. How many houses do you want for $5,000-$10,000? I can get you as many as you like… and not in Detroit, heh. Chicago, Cleveland, Indy, Memphis… you name it.

Because of the market, an investor can buy $100,000.00 houses for $20k, put $20k of work into them, and sell them FAST, (to “buy and hold” investors as well as homeowners) for $80,000, quickly doubling their money and giving the buyer a good deal.

In addition, we can buy those same $100,000 properties for $20,000 and resell them to other investors for $25,000.00 – $30,000.00 … without doing any work whatsoever… within DAYS.

This is one of the best markets ever, to be a real estate “flipper” in! We’re doing it over and over!

Nick Cifonie

Comment by Nick Cifonie

October 14th, 2009 at 8:05 am

WOW… I just read the “FHA Thing”… FHA requires 90 days for a “flip”, not a year.

In fact, they just WAIVED the 90 day seasoning rule for certain entities, allowing some parties to fund sales with FHA loans with less than 90 days.

Section 203.37a(b)(2) of the FHA regulations, 24 CFR, is hereby waived for a period of one year, September 14, 2009 through September 13, 2010, with regard to sales of previously foreclosed or abandoned properties acquired and resold by for-profit and non-profit entities using funding from and performing under agreements with state and local government agencies under the NSP program.

http://www.hud.gov/offices/hsg/sfh/waivpropflip.pdf

Nick Cifonie
http://www.REI-TV.com

Comment by Simon

October 14th, 2009 at 9:00 am

First, for the average person flipping a house, or buying a house, it’s 90 days, not a year as posted above. (a year is just silly)

The change put in last week, was FHA funding some deals with NO seasoning. 1 day, 2 days, a week is enough seasoning if you’re the right type of seller.

They waived the 90 days in favor of NO seasoning for certain agnecies.

Take a look at the revision:

Section 203.37a(b)(2) of the FHA regulations, 24 CFR, is hereby waived for a period of one year, September 14, 2009 through September 13, 2010, with regard to sales of previously foreclosed or abandoned properties acquired and resold by for-profit and non-profit entities using funding from and performing under agreements with state and local government agencies under the NSP program.[/i]

http://www.hud.gov/offices/hsg/sfh/waivpropflip.pdf

Comment by Marco Santarelli

October 14th, 2009 at 10:29 am

Nick — you certainly bring up a good point. There are many opportunities to flip property in the right markets today. Prudent due diligence is always required and can lead to some nice short-term (i.e. quick) profits. And as section 203.37a points out, the opportunities to finance those flips on abandoned and foreclosed just got bigger.

Simon — glad to see you are keeping up to date on the ever changing HUD/FHA lending guidelines. Thanks for your contribution here.

I will contact our contributing author on this article at HousingPredictor.com and share your comments, corrections and viewpoints. Thanks for your valued input!

Comment by Joe Bordelon

October 14th, 2009 at 10:35 am

It seems to me that as a cash buyer i can sell whenever i choose and not worry about seasoning as long as the buyer is not purchasing with FHA financing.

Comment by Marco Santarelli

October 14th, 2009 at 11:31 am

Joe — Yes, you can sell anytime as long as the new buyer is outside of the FHA guidelines for new purchase financing, and is not under any other restrictions set out by their own lender or Fannie Mae/Freddie Mac.

Comment by Jeff Smith

October 15th, 2009 at 8:09 am

Very glad to see the distinction made between a real estate ‘speculator’ and a true ‘investor’. Thanks for the article.

Comment by serschaf

October 15th, 2009 at 11:09 am

This is for Janney,

Can you please tell me how to contact with the real estate coach you mentioned in your comment?

Thanks in advance.