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.

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.