Is this a good flipping plan?

8 Replies

I have come across an REO that is in excellent condition with comps selling for significantly more. The house would need basically no work other than cleaning and staging (1 week).

(It's a FNMA so this is assuming I navigate their selling restrictions)

So if I buy it for $100k, clean and stage and then list a week or two later for $120k, am I going to run into any problems?

Will my buyer run into any problems when applying for a mortgage?

Thanks,

Here's some info on Fannie Mae REO.

In this thread, "Kel S" gives the deed restriction verbatim, and "J Scott" gives an addendum to remove it:
http://www.biggerpockets.com/forums/41/topics/32885-fannie-mae-owned-property-flipping-rules-

More threads on the deed restriction:
http://www.biggerpockets.com/forums/16/topics/8602-fannie-mae-reo-shocker

http://www.biggerpockets.com/forums/88/topics/27267-deed-restriction-with-fannie-mae-foreclosure-

http://www.biggerpockets.com/forums/16/topics/37221-fannie-mae-reo-you-can-flip-them-in-24-hrs-

Owner-occupant offers only and the time period for investors to wait:
http://www.biggerpockets.com/forums/16/topics/40973-fannie-mae-reos

Locating Fannie Mae REO:
http://www.mortgagecontent.net/reoSearchApplication/fanniemae/reoSearch.jsp

http://www.homepath.com/

I'm not sure about Fannie REO's but regarding the price, make sure it is a deal.

Even if you buy it for 100k and it doesn't need any work there are other costs associated with the purchase that might make 120k selling price not look so sweet.
From buying costs (inspection, title search etc) to holding costs while it sits on the market and then wait for it to close, and then the selling costs (commission, seller concession etc.)
Also, there is probably at least some work you will need to do that will add up. The inspection report could be a good guideline of what you need to fix because when you go to sell the house, the buyers are going to get one and then either ask for you to fix it or ask for a discount in price...
For a fair warning on my OPINIONS here, I am a newbie at this so take it for what it's worth.

So if I buy it for $100k, clean and stage and then list a week or two later for $120k, am I going to run into any problems?


purchase: $100k
closing costs(x2): $3k
commissions to resell: $7k
loan? ... $3k
holding costs (taxes, utilities, clean-up, ins, inspections, mtg pymnts, etc): $3k
total (best case) = $116k

resell at FULL price (if lucky) = $120

profit = $4k (if everything goes well)

pretty thin margin ... probably lucky to break even but then again, maybe you can resell right away for full list price ....

:blush:

THIS IS NOT A DEAL! If the ARV IS 120K and it really needs no work the absolute most you should pay is about 75k and thats my cash if you using hard money or getting any loans other that a private loan you need to roll that cost into the equation that will drop you down to 71k

Steve, thanks so much for that great summary. I had already looked up and read some of those but not all.

Rico, I agree and those are not the final hard numbers on the deal and it is all contingent on lowering some of the costs involved in purchasing and selling.

My main question here was - if I am able to navigate through the FNMA seasoning requirement - would a buyer run into any problems buying this from me at 20-30%+ from what I paid if I haven't done any improvements to the property?

Problems I can think off would be appraisal, loan underwriting...what else?

That Fannie Mae deed restriction caps your mark-up that you can take. That's why I posted what I did earlier in my initial reply to your question. I saw that the numbers were marginal, but figured you could get those negotiated to be better. The quickness with which you can flip might just be limited by Fannie Mae unless you can successfully have them remove that deed restriction.

BTW - thanks for the votes!

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here