What is FHA's 90 Day Anti-Flip Rule?
What is FHA's 90 Day Anti-Flip Rule?
Question: What is FHA's 90 Day Anti-Flip Rule?
For a number of years now, FHA has enforced a 90 day anti-flipping rule which prevents an investor from reselling a home to a buyer using FHA financing until that have owned the property for at least 90 days. While some investors might think this is a moot point, since most renovation properties take at least 90 days to rehab and sell, that is certainly not always the case. There have been numerous occasions in which I have purchased and resold in less than 90 days, because the property was a very LIGHT rehab, or need nearly no renovation whatsoever.
While most deals do involve BOTH a distressed property AND a distressed seller, that is not always the case, and some times the property will need very little to no work. Just last year, I purchased a home in Pensacola for $50,000 and resold it THE NEXT DAY for $79,900 after spending just $400 to trim the bushes, mulch the beds, and stage the home. Thankfully I had a cash buyer, but had it been someone using FHA financing, I would have had a LONG wait before I could close and realize my profits.
This "anti-flipping" rule wasn't as big of an obstacle for investors in the past, as FHA financing was a very small part of the overall mortgage market. However, when the market crashed and banks were reeling, government insured loans through FHA began to take on a much larger share of the market and so it became a bigger issue for those who were looking to flipping to buyers in less than 90 days.
Thankfully, someone at FHA had a massive "A-HA!" moment back in 2010, and they issued a waiver of the anti-flipping rule. They understood that investors were a huge BENEFIT to the overall real estate market, and that their role of buying distressed home, fixing, and re-selling to strong buyers was a stabilizing force in the market the would help expedite the recovery. Unfortunately, many of the lenders who were issuing these loans were skittish and uncomfortable with the new rule after numerous threats of "buy-backs", penalties, and fines from the government regulatory agencies, and so they added what are known as "overlays" to the FHA guidelines. So, they effectively ignored the anti-flipping waiver, and continued to require sellers to be on title for 90 days, sometimes not even allowing a CONTRACT to be written until the 91st day.
Sadly, this social awareness of the necessity of investors in the marketplace, and their benefit as a force to help recycle old dilapidated real estate into good, quality, affordable housing has disappeared from the minds of the powers that be at FHA. As a result, the decided not to extend the anti-flipping waiver last year, and investors became evil once again on January 1st of 2015, and now have to be punished with an extra long wait to re-sell if they happen to buy a good deal.
(SIDE NOTE: Can you imagine this ever happening in ANY other industry? A car dealer gets a good deal on a trade-in, and is FORCED to hold it for a period of time before he can sell? Dollar General buys some close out light bulbs for pennies on the dollar, but has to wait 6 months before they can sell them in stores? Hogwash!)
So, what's the lesson to be learned for active real estate investors?
Number 1 - Multiple offer situations - If you receive multiple offers on a house, you may want to take extra care to review all of the TERMS of the deal, including the type of FINANCING. Though one offer might be higher in purchase price, if it's an FHA offer that requires you to wait an extra 30-60 days before you can sell, you may end up netting less money due to increased holding costs such as debt service, utilities, insurance, property taxes, etc.
Number 2 - Review Sales Data BEFORE Purchasing or Marketing - As I mentioned in our recent meeting entitled "The Gatekeepers", Realtors have access to data on the MLS that can you provide you with which types of financing are more popular in a certain area, whether cash, conventional, FHA, or VA. If an area is heavy with FHA buyers, you may decide to market to a different area, or at least be aware of it going in to the project so you can estimate your holding costs accordingly.
What's your experience with FHA buyers and/or the 90 day anti-flipping rule? Let me know your thoughts below!