Property Flips – What You Need To Know

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
What is a Property Flip?
Flipping is a term used to describe a purchasing a revenue-generating asset and quickly reselling (or “flipping”) it for a profit. Though flipping can apply to any asset, the term is most often applied to Real Estate and Initial Public Offerings (IPO’s).

The term "flipping" is used by real estate investors to describe "residential redevelopment". Redevelopment of distressed or abandoned properties or neighborhoods has sometimes been unfairly linked to malicious and unscrupulous acts in the post housing boom era by pessimistic or uninformed parties. The term "flipping" is frequently used both as a descriptive term for schemes involving market manipulation and other illegal conduct and as a derogatory term for legal real estate investing strategies that are perceived by some to be unethical or socially destructive.

Content above from: WikiPedia - Property Flipping

How will a property that’s been flipped change the dynamics of your new home purchase?
If you’re in the market to buy a property and run across one that has recently been fixed up there are a few key things to know. If the property has exchanged hands within the past 90 days and is on the market again the lender for the new homebuyer will require additional documentation.

What documentation will need to be provided on a Property Flip?
1. Home Inspection - Home inspectors tend to point out every single issue with the property from a cracked slab on a brand new roof, a fence that may be leaning, hole in the fence, appliances or meters not working. If any of these items mentioned in the inspection are habitable issues they will need to be fixed by either the seller or the buyer before financing is made available. Under a normal transaction we don’t need to see the inspection, we go by the appraisers comments on the appraisal.

2. Detailed ledger of repairs from the seller showing how much they paid for the cost of improvements and what they did to increase the value of the home. The improvements must substantiate the new sales price.

3. If the seller is unwilling to provide a detailed list of repairs made to the property we can order a 2nd appraisal from another vendor to get another opinion on the value of the property.

If the property has exchanged hands (flipped twice) in the last 90 days, additional requirements will apply. I have a perfect example of this with a transaction that occurred within the past 3 months. I had a seller who acquired a property, made improvements to the property and then entered into contract with my buyer. This is great; this would follow the steps above to be considered for financing.

During the transaction the seller decided to change the ownership interest (at the very end of the transaction). Now I’m assuming that he had issues with the partner he was involved with in flipping this house and wanted to protect his interest in the property. After speaking with the seller even he had no idea that this would create a problem for new financing. Ultimately this triggered what’s now called a “Double Flip” which has a different set of requirements.

Requirements of a Double Flip:
If property is flipped twice in the 90 day time period additional waiting periods for financing will apply. FHA has a minimum waiting period of 90 days before the property would be eligible for new home financing. Conventional requires that 120 days must have passed before it would be eligible.

This caused this seller to only be able to sell his home to a cash buyer (for 90-120 days). I’ve went back and looked at the title of the property and it’s still on the market for sale 4 months later. Now the borrowers who were going to purchase the property are in a small claims lawsuit against the seller. It caused the buyers to not have a place to live, paid costs like appraisal that are not refundable and this was completely out of their control.

The goal of this post is not only to educate consumers who are looking to purchase a new home but also investors looking to flip properties. Every month of interest that goes by can hurt their overall profit from the flip and it’s best to avoid that if at all possible.

If you have any questions on property flips, please don’t hesitate to reach out.