Home “flipping” is something that has been highly debated for a number of years. This is when a property is purchased and quickly sold again, often for a decent profit. There are many reputable house and property flippers doing decent work. There is also the other side of this equation, where individuals are purchasing properties then only making cosmetic improvements—then selling the property quickly for a large profit.
A Road Block to Unscrupulous Home Flipping
In 2003, the U.S. Department of Housing and Urban Development (HUD) established a rule that helped to prevent inappropriate home flipping. The rule basically stated that resale could not be within 90 days of the original sale if Federal Housing Administration (FHA) financing was to be used.
Also, when a home was resold between 91 and 180 days and the sale price exceeded 100 percent of the original purchase price, the seller was required to provide extensive documentation to prove that the improvements were legitimate and this was truly reflected in the sales price.
A Waiver Appears
The HUD rule was waived in 2010 as a way to stimulate growth in the housing market, get properties sold and give homeowners and sellers more leeway. This guideline waiver was recently extended, and allowed to remain in place until the end of 2011. There has been a lot of discussion about this waiver, which could affect its further extension.
Arguments for Extending the Waiver
The Legitimate Flipper: There are still a number of reputable individuals who do decent work when it comes to home flipping. These people take the time and energy to appropriately update and improve upon a house before it is resold. The waiver allows these people to continue their good work, which helps upgrade the neighborhoods.
Increasing Home Values: In any community, property values are extremely important. The more vacant homes there are in any particular area or development can certainly have a negative effect. Property values drop and can hurt homeowners when they are looking to resell, refinance or make major improvements to their home. The HUD waiver allows these vacant homes to be quickly sold so that property values do not suffer.
Options for the Buyers: For a buyer to make the best possible purchase, there needs to be a good variety of options available. Now that there are more homes on the market, buyers are able to find the property that is in the right location at the right price.
Arguments Against the Waiver
Poorly Renovated Properties: Simple and inexpensive improvements such as fresh paint and updated fixtures may make the house seem as if it had been well maintained and is in good condition for the buyers. These improvements are basically a bandage that hides underlying problems and adds no real value to the property. Unscrupulous home flippers are now able to unload these properties to unsuspecting homeowners and make a great profit.
The Banks Benefit: With a glut of houses on the market, there are more properties that are owned by banks and the banks themselves will benefit. Flippers are able to buy low and sell high which basically hurts everyone except for the home flipper.
Buyers Get Burned: Most buyers are not able to distinguish between a poorly flipped house, that has only had cosmetic repairs, compared to one that has been adequately and appropriately refurbished. This is often not found out until it is too late and the homeowners are locked into their new purchase.
There are certainly benefits and disadvantages to both sides of this topic. At the end of 2011, there may be further changes to this policy, which will probably be based upon how much of a glut there is of homes sitting empty on the market. It is too soon to truly know what the effect of the guidelines waiver on the housing market will be, but the debate will no doubt rage on for some time.
Terry Harmon is a landscape architect and works with home flippers regularly. Terry finds that using dump trucks makes quick work of hauling in and removing materials from the renovations. If you’re interested in a landscape or flipping business, it’s easier to just purchase your truck rather than paying for rentals, and Terry suggests checking out the dump trucks for sale at truckertotrucker.com.