Things to Consider When Buying a Flip

We all have seen the shows where a run down house is purchased, gutted and then beautifully renovated.  The new home looks nothing like it's former self and in fact, is comparable to a new construction home, for less.  This is a win-win, right?

In the DMV there is always a renovation project going on.  A lot of those homes were built in the early 1900s and do not fit the need and desire of today's families.  Some of these jobs have brought about amazing transformation.  I personally do not have the vision or the knowledge to look at a home, see the new vision and how to bring it about. That is my contractor's job.

The problem with some of these flips, is you don't know who did the job, were they licensed and did they follow current building codes.  

Just last June, a Virginia couple was fined $1.3 million dollars for a slew of shoddy renovations, performed in the District of Columbia.  This money will be distributed to the various families that purchased these homes.  The homes which were from some of DC's hottest neighborhoods, Petworth, Columbia Heights and Bloomingdale, to name a few, did not meet construction or zoning standards, which in turn caused serious safety hazards.  The lawsuit also allows for more funds to be levied, if the costs exceed the $1.3M.  Given the number of houses involved, 19 total, I think that can be expected.

That is not to say that all flips are bad.  Greed will cause even a Boeing executive to cut corners to enjoy a bigger profit.  There are some good investors out here who take pride in their product and genuinely enjoy seeing families benefit from there work.

In this market, that is still permeated with short sales and foreclosures, newly renovated homes are highly sought after.  That means full price offers and minimum seller closing help.  If this is the home you want, then be prepared to deal.

Another area of concern, that isn't widely discussed, is if you are purchasing a flipped home, with an FHA loan, there is a 90 day rule.  This rules states that the seller, from the date of transfer of title/deed record date to the date of the buyer applying for the loan, must be after 90 days.  

If you are purchasing in Prince George's county and the seller is a bank or the lending entity that took back the property as a REO or foreclosure, then you will want to pay attention to this rule.  The recordation office of Prince George's is extremely backed up on recording the sales of foreclosed properties.  In many cases, the name on record is still listed as the mortgagor.

The way to deal with that scenario is from the beginning, request from the seller proof of deed recording date.  This will be proof that the underwriter will need to see.  

The take away here is no matter whether you are purchasing a new home, a standard resell or a flipped property, do your due diligence.  That is your responsibility just like if you were buying a car, an appliance or an expensive gadget.  Because once you buy it, it is yours!

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Elisa Seth
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