It is “OK to Flip Houses”: FHA

Yes, dear reader, you read that right.  In a rare triumph of common sense and reason over knee jerk politics the FHA has given its approval to buying homes cheap in hopes of a quick resale…usually within 90 days. It is now “OK to Flip houses!”

The waiver for house Flippers is intended to accelerate activity to combat abandonment and blight in low income neighborhoods.  It has always baffled me why people act like there is something wrong  with the practice of investing in distressed homes for a quick sale and hopefully a nice profit.  It is this hope for a nice profit that drives people to improve property.  Doesn’t every one win?  If the flipper doesn’t make a profit there is still usually an improvement to the property.

Why would it not be “OK to Flip Houses” in the first place?

Foreclosed homes in low income neighborhoods are magnets for crime and downward spiraling prices.  Flippers often rehab before reselling.  This kind of aggressive real estate investing creates a much more dynamic kind of karma in any given location.  Isn’t “Location, Location, and Location”  the first rule of real estate?  Stagnation is pushed out of the picture as a downward influence on property values.  People sometimes forget that flippers don’t win them all.  Flipping is not for the faint of heart or faint of wallet.

“OK to Flip Houses” Comes with Caveats

These transactions must be at “arms length” and will require additional paperwork if the resale price is above 20%.  The FHA insures the majority of mortgages in many low income areas.

Lest the pendulum swing too far it should be noted that new research from the Federal Reserve Bank of New York shows that house flippers were sufficiently numerous and active to actually drive the price explosion during the years immediately preceeding 2007,  thus making a major impact on prices.  This was demonstrated by the pronounced rise in people owning multiple homes…a rise that could not be accounted for by vacation homes.

Those “OK to Flip Houses” are All About the Down Payment

Low or no down payments were far more of a factor than interest rates in this bubble growing out of control.  Interest rates matter little to flippers compared to those who are buying their home for the long run.