Can you flip this house?

Fire-Damaged? Great! Structural Issue? No problem.  Mold?  Mmmm….Smells like money!  Most of the time, distressed properties and your run of the mill “ugly” or “dated” houses are hot pickings when flipping houses.  But there are properties out there that you should avoid at all costs.  Here are 8 properties that make our list of houses not to buy.

Size Matters

Can you add a half bath? Can you easily add square footage to make the house more appealing? Is there enough area to build up into the attic? Or how about finishing the basement instead? Oftentimes building up or finishing out an area will be more cost effective than changing the entire footprint.

Castles – While there is nothing wrong with flipping houses that are big, doing it in a subdivision where everything else is small is a problem.   Buyers are well-trained to avoid the biggest or most expensive house in the neighborhood.  Follow their lead and avoid these deals.

Planes, Trains, and Automobiles

Mass Transit – While the clack-clack of a cargo train passing a bedroom window is less disturbing than the roar of a 747 taking off, neither are particularly conducive to the image of peace and serenity you are trying to create for a buyer.

Overly convenient- If the driveway is connected to a road with “expressway” in the name, you need to avoid the property.  For that matter, any busy road should be a deal killer.  You don’t want potential buyers thinking about Pet Semetary while they survey your remodel.

 The Joneses

Messy neighbors – No one wants to move beside the person who stores car parts in the yard and appliances on the porch.  When you visit the home to complete your property repair estimate sheet, make sure you check out the neighbor’s homes as well.   No matter what’s growing in them, toilet planters in the front yard will not help your property value.

Yapping Dogs – Even hard-core PETA members would contemplate slipping a little something to the dog next door that barks from 2-6 am.  If the dog barks at you the whole time you are at the house, you can be sure he will do the same thing to your buyers.

Too Custom- A very custom house takes a very particular buyer. A home that is too different will mean less interest and make it harder to sell. You want to make the house you plan to flip and general and consistent as possible with a couple wow factors like stainless steel appliances in the kitchen or upgraded bathrooms.

Location, Location, Location

War Zones  – This should be obvious, but many a real estate investor has been tempted by ultra-cheap properties in questionable areas.  The ones who have answered the siren song often learn too late that the person who borrowed the air-conditioned and copper plumbing from the last owner is probably going to borrow theirs as well.  Quite simply, if you wouldn’t take a loved one to the house after dark, don’t buy it.

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As a fix and flip investor, you need to be aware of laws and regulations that affect your costs.

The Basics

The law states that you have to hold a property for 90 days before it can be resold.  This does not mean you cannot finish the rehab, market the house, and negotiate a contract in less time.  In fact, this should absolutely be the goal of every fix and flip investor.

**Note that this does not apply to buyers who use conventional financing or cash.

Current  Guidelines

The rule was waived in 2010 and the waiver has been extended until December 31, 2012 in an attempt to help stabilize the real estate market.  However, some safeguards are still in place

1)       All transactions must be arms-length.

2)       If the property has been owned for less than 180 days and the sale price is greater than 120% of the original purchase price, the lender must do extra due diligence to ensure the value of the home.

Additionally, many banks have overlays (additional restrictions) that prevent sales within 90 days despite the relaxed government guidelines.  In fact, most overlays now prevent any portion of the loan process from starting prior to day 91.  (At one time, the buyer could initiate the loan process, rewrite the contract on day 91 and close on day 92).

What to do about it

The FHA 90 day rule is simply one of the rules of the game.  By properly planning and budgeting, you can minimize or eliminate the effects on your business. Here are our recommendations

1)       Plan on a minimum hold time of 90 days+30 days to close.  (When budgeting carrying costs, we actually recommend 6 months)

2)       Plan on having to pay for a 2^nd appraisal.  This is part of the due diligence requirements mentioned above.  The buyer cannot pay for this.

3)       Check with local banks and mortgage brokers.  Some do not have these overlay requirements in place.  It may be worth offering an incentive to the buyer to close with the mortgage company of your choice in order to get the house sold.

4)       Make sure the buyer’s agent and buyer are aware of the potential for a delayed closing when the rule applies.  It won’t be an issue as long as they aren’t surprised a week before closing.