New Limits on Property Flips

There were new limits on property flips announced recently.  Investors can acquire, improve and resell a property in less than 90 days to buyers who use low downpayment FHA mortgage financing but with limitations.  There is now a 20% cap on the difference between what a person can purchase a foreclosure for and how much they can turn around and sell it for.  For example, if an investor purchases a Camarillo foreclosure for $200,000 in a market where a non-distressed property sells for $300,000, the investor can only sell that property for $240,000 or less, even if the home is valued at $300,000 after the rehabilitation work is done.  This 20% cap includes the cost of all improvements made.  This could be a problem for investors who pay too much up front or spend too much on fixing the property up.  If Ventura County investors do go over the 20% cap, the improvements must be justified through extensive documentation of what was done and how these improvements impact the property's value.  And, even if the improvements can be justified, FHA lenders are wary of getting sideways on loans with the FHA, who have been getting harsher with sanctions against lenders who violate the FHA rules and are kicking lenders out of its program completely.

While the 20% cap is a bit small in the Ventura County real estate market, it is still feasible for investors to buy up a foreclosure at a reasonable cost, do minor improvements, turn a property around in a small time frame and still make a decent profit.  Ventura investors will also need to keep an eye on their holding costs, which can sometimes be high and cannot be predicted ahead of time.

Let us know if you're interested in a Ventura County investment property.  We can help you understand the new limits on property flips.