Should We Avoid Buying A Flipped Property?
November 8th, 2009 categories: Buyer Resource
When helping buyers decide which properties they should view, we disclose as much as we know about each potential property. Sometimes, find that properties were recently purchased for a much lesser amount, fixed up, and put back on the market at a higher price. At that point, we are often asked by buyers if they should avoid a flipped property. Some properties listed in the Sonoma County MLS are actually flipped properties, it is actually not uncommon at all.
Properties that are flipped are purchased at a discount to the market, usually by all cash buyers, which gives them the leverage to purchase a big discounts. Real Estate investors usually purchase from either a distressed seller or from a property auction at the courthouse steps. In many cases, it is not readily apparent if a property is a flip, until one looks at the tax records of the property. It will then become obvious if you look at the ownership chain, and the dates on past transactions as to what happened, flip or not, and if there are any questions, ask teh seller or seller agent.
Some buyers will not be able to buy a flipped property no matter if they want to or not. FHA loans do not allow for the financing of properties that have changed hands in the last 90 days, virtually eliminating the option of purchasing a flip with an FHA loan. The only way to get around this is to have the contract start on the 91st day after the last transaction was completed. Most sellers (Real Estate investors) of flipped properties will not agree to this. FHA loans only require 3.5% down (offers with more down “look” stronger to sellers), and most Real Estate investors want to turn properties into cash in as short a period of time as possible.
When Real Estate investors purchase at an extreme discount, they are taking very sizable risks, and should be rewarded for taking these risks. Many of these properties are purchased without an inspection contingency, are purchased with all cash, may have tenants or liens that require extra funds to disappear, and then these properties are renovated/remodeled to add the new value. This is a fair amount of risk that should be compensated for any Real Estate investor to take on this project. And there is always the risk that the Appraiser Kills The Deal.
So now, to our opinion of the answer to this ever popular question. We feel that if a property matches what you are looking for, meets all of your needs, and is not priced above the market, it is worth a look, and SHOULD NOT be avoided. It should not matter what the last buyer (Real Estate investor) paid for a property. Let’s look at it like this; if the last buyer overpaid for the property, should they be compensated for their error? Likewise, if the last buyer got a great deal and purchased the property below market, should this disqualify them from receiving an offer that is at fair market value? We think this is a logical way to look at the quandary, and should help the buyers of a flipped property rest easy after the sale.
If you or someone you know is interested in learning more about Sonoma County flips, please feel free to contact us.
