FHA 90-Day “Anti-Flipping” Rule Waived - Yes and No

Many of you have gotten excited about the FHA “waiving” their 90-day “Anti-Flipping” rule beginning February 1, 2010. But hold on a second because that’s not what really happened.

In case you don’t know, the FHA “Anti-Flipping”  rule prevents you - the ready, willing, able and honest home buyer - from buying a perfectly good and renovated home that was last bought within the last 90 days (bank-owned properties do not fall into this category). It has also prevented investors who have bought, renovated and flipped a property within the last 90 days  from being able to sell it to home buyers that are using FHA financing.

Sounds a lot like a “lose-lose” situation, doesn’t it? That’s because it is.

Well, the FHA has realized that it’s hurting home buyers and has made some changes to their “Anti-Flipping” rule. No - they have not canceled, repealed, gotten rid of or any such permanent thing when it comes to the rule. They have simply made some temporary small changes to the rule which allow for a small window of breathing room. But it’s ain’t much of a window.

Here are the highlights of the changes to the FHA “Anti-Flipping” rule…

The exception to the FHA 90-day “Anti-Flipping” rule is only for properties that do not have a 12 month history of flipping. The properties must have all the renovation and rehab closely documented. And the increase in sales price must be less than 20 in order for the property to qualify. If the sales price is 20 percent or more, a full home inspection and 2nd appraisal must be conducted.

And here’s the kicker…

Banks and financial institutions must adopt this exception before you, the home buyer or investor, can take advantage of it. So far, I have yet to hear of any bank or financial institution adopting it. And even if they do, they may add their own extra rules to the exception on top of the FHA’s so who knows what the final “exception” to the rule will be - if there’s one at all.

Sorry to burst your bubble folks, but better you know the real truth now rather than finding it out the hard way later.

If you have specific questions or concerns as a home buyer or investor, email or call me - 703.582.6900.

You can also read the HUD announcement and get further details regarding the changes by checking out the document below (click here if you don’t see the HUD press release regarding changes to the FHA 90-day “Anti-Flipping” rule below)…

Changes to FHA 90-day Anti-Flipping Rule 2010 -

Best Condo Investment Opportunities in Loudoun, Fairfax County

Several folks have recently asked me, “Which condo communities in Loudoun and Fairfax County offer the best investment opportunities?” Here are my thoughts and the rationale behind them…

Loudoun County

The best current bang for your buck on condos for rental investment opportunities in Ashburn is in the Westmaren community (Ashburn Farm) and the Lakeshore community (Ashburn Village). They’re both immediately next to shopping centers which make them very attractive for renters (and buyers). Westmaren has a lower price point than Lakeshore, but Lakeshore’s rental rates are higher. Both communities have decent condo fees and currently offer break-even to positive cash flow with 20 to 30 percent down at today’s interest rates.

The condos with the best future (6-10 year) potential are in the Summerfield community in Brambleton. The Summerfield condos are directly across Ryan Rd from Brambleton Town Center, which they’re planning on building either an underground or overhead walkway to/from. In addition, Summerfield and Brambleton are only a few miles from the future Moorefield Station and the last stop on the Dulles Metro Rail (Silver Line).

Fairfax County

Condos with some of the greatest upside potential throughout all of Fairfax County (if not the entire Northern VA area) can be found in Reston. More specifically, condos located near one of the two future metro rail stations (coming 2013). And the metro stations themselves aren’t the only thing being built. Roads are being redesigned, new walking/biking trails are being added, new bus routes are being designed, future growth won’t impact traffic as much as it has/does now, etc. (Click here for the Wiehle Avenue/Reston Parkway Station Access Management Plan Executive Summary)

Once the metro stops are operational (if not before), you’ll see an increased demand for condos located near those stops or on one of the new arteries leading to the stops. This typically leads to an increase in rental rates and market values.

If you’re wondering just how much upside there is when metro comes to town, just look at what effect the Orange Line from Washington, DC to Ballston had on the Wilson/Clarendon Boulevard corridor in Arlington.

One thing to keep in mind…condo fees.

In Northern VA, the landlord, not the tenant, typically pays the condo fees out of their own pocket. Make sure you factor in the condo fee when crunching the numbers.

• Condo fees in Westmaren in Ashburn range from around $175 to $300 (per month); Lakeshore’s range from $240 to $350; Summerfield’s are a bit higher than both
• Condo fees in Reston very greatly from community to community and unit to unit. I can provide you with the condo fees on any community or specific condo unit upon request

If you have any questions or need further clarification on anything, don’t hesitate to contact me.

Can You Make Money “Flipping” Homes in this Market?

Ever since the Loudoun/Northern Virginia real estate market turned in 2005, real estate investors have not really been able to make a lot of money “flipping” homes. In fact, many lost money. This is because prices were still declining and investors ended up not making a profit and even losing money on the deal.

But that has changed.

Pockets of Loudoun County and Northern Virginia have foreclosure/bank-owned properties that are selling for well below market value - even taking into consideration the amount of work necessary to rehab the property. Real estate investors are starting to buy them up, fix them and sell them for a profit - all in as little as 2 months.

Here are two real-life examples:

1) Fannie Mae owned town home - purchased for $160,000 (net) near end of 2008 - it needed about $30K worth of rehab (retail price - less if you have a “hook up” with a contractor or do the work yourself) - sold 6 months later for $242,500 (net). Taking into consideration cost of purchase and sale, you’re still clearing about $38K, an 18.6 percent return on your investment in 6 months.

2) Wells Fargo owned town home - purchased for $140,000 (net) in February 2009 - it needed about $40K worth of rehab (retail price) - sold in April 2009 for $244,800 (net). Taking into consideration cost of purchase and sale, you’re still clearing $52K, a 27 percent return on your investment in 2 months.

There are other opportunities like these out there - you just have to do your due diligence and find them. If you’re a real estate investor looking for other “flip” or rental investment opportunities such as these, I’d be happy to help. You can contact me here.

Real Estate Investors: How To Search For “Diamonds in the Rough”

If you're a real estate investor in the DC metro area including Loudoun County, you're most likely looking for the "diamonds in the rough" in the local area that will provide you with the greatest future return on your investment. Well, thanks to FranklyMLS.com and Jeff Royce, author of Our Fairfax, there is a good tool available to real estate investors looking for potential "diamonds in the rough" and a video tutorial on how to go about using it.

In a nutshell, it works by comparing the asking price to the assessed value of properties for sale. The greater the difference between the two, the more chance there is of the property being a great deal and investment.

You can narrow down your search by the type of property, price range and geographic area all the way down to a specific subdivision by using keywords. You can also search for only REOs or short-sales or only one or neither.

To see how it works and how to do it, check out Jeff's video tutorial on his blog, "Our Fairfax".

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FHA Guidelines Tighten On 2nd Homes, Rental Income

The FHA is cracking down on a practice called "buy and bail" by tightening up on lending guidelines on 2nd homes and rental income. "Buy and bail" refers to when a borrower buys a second home and then immediately defaults on their principal residence.

Borrowers are doing this because they can't afford the mortgage and/or are upside down on the value of their principal residence and can buy a comparable home for much less in today's market. And most borrowers are lying about rental income on their principal residence in order to get the loan on the 2nd home.

Here's an excerpt from the full article on HousingWire.com:

"Under guidance set forth in a Mortgagee Letter released on Friday, underwriters may no longer consider rental income from a property being vacated in most circumstances, and must ensure that the homebuyer can manage payments on of the full debt service of both mortgages"

Previously, lenders were typically factoring around 70 percent of one year's potential rental income into the equation when qualifying a borrower for a 2nd home. Now that amount is zero.

Note that the new guidelines also apply to situations where the FHA has not insured the mortgage being "bailed on".

Check out the full Mortgagee Letter here.

Loudoun County Top 10 Best Places To Buy Foreclosures

Forbes recently named the Washington, DC metro area including Loudoun County one of the top 10 best places to buy foreclosed homes. Part of the criteria was whether there were hints of stabilization, which is evident in the latest Loudoun County inventory/supply and buyer demand numbers.

"Our goal was to differentiate inexpensive foreclosure markets from those that are undervalued, as cheap foreclosures in flimsy markets don’t necessarily make strong investments."

Here’s are some of the figures Forbes came up with for the area:

• Median home price: $366,583
• Foreclosure savings: $56,858
• Foreclosure rate: 1.16%
• Price change 2006-2007: 0.77%

To check out how they came up with the rankings, click here.

New Online Tool For Real Estate Investors

Just ran across a company called eRealInvestor that offers an online real estate investment analysis tool called "eRealAnalyzer." The company has already made headlines over at Inman News as well as the Wall Street Journal. In fact, the Wall Street Journal has integrated the eRealAnalyzer tool into its web site.

The analysis feature loads quickly and is easy to use. You enter basic information about the property and then choose "Agressive", "Moderate" and "Conservative" depending on your investment style. It will then provide you with an analysis of pre-tax monthly cash flow, equity, IRR, etc.

You can register and use the basic tool for free, but it’s either $9.95 per month or $59.95 per year for the full version of eRealAnalyzer. The full version allows you to enter and analyxe your own properties, view and print spreadsheets and save your work on MS Excel.

According to their site, eRealInvestor was created by real estate investors for real estate investors (it’s that whole "for the people, by the people" angle). They also claim to be primarily funded by a Harvard Business School professor, a Stubhub co-founder, an early Google employee, and several residential and commercial real estate investors.

Overall…easy to use, works well and a good tool for real estate investors.

A Must Read For Loudoun County Real Estate Investors

If you’re a real estate investor or home buyer looking for investment opportunities in Loudoun County, you should check out the post I wrote earlier today regarding Sterling Park over at LoudounScene.com. It talks about how prices in Sterling Park are at rock bottom compared to several years ago and how Loudoun County is campaigning to clean-up the area - a winning long-term real estate investment formula.

In addition, the FHA is lifting it’s 90-day waiting period on "flipped" properties meaning you have more immediate access to a greater buyer pool than before (click here to read more about that).