"You can only flip a property for 20% profit."

[Herm M.]

What does this apply to? Obviously flipping properties.

But what does it mean?

So if I buy a property for 500k and put no work into it... I can only sell it for 600k? According to which lender's guidelines? Which lenders don't have this guideline? Is the guideline irrelevant after 90 days, regardless of lender?

What if I buy a property for 500k, then spend 100k on it? Does that mean I can now sell it for 720k?

I guess my question is... are most lenders lending strictly on appraisal right now? Or are they limiting an investor's profits?

[J Scott]

Originally posted by Bill Gulley:

The purchase price plus cost or repairs. Your $720k is correct under fannie... This has been discussed before on BP, might search for the examples. :)

Bill - We've discussed this...it doesn't include the cost of repairs! :)

The maximum resale value is "hard-coded" into the addendum (at the time you sign the Purchase & Sale Agreement), and is only based on the sales price, not any repair costs.

Here is a real example of the verbiage in the addendum (from one of my purchases):

http://www.biggerpockets.com/files/user/JasonScott/file/30-fnma-addendum

See #14 in the middle of the page...the purchase price of this property was $31,500.