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Last Updated on February 25, 2022 by Mark Ferguson

The FHA 90-day flip rule has caused me delays on a few flips this year. The rule basically says that FHA financing is not allowed on a house for new buyers that was purchased fewer than 91 days ago by the current owner. If you buy a house, fix it up, and try to sell it to FHA buyers, you will have to wait until you have owned the house for 90 days before you can even accept a contract from those buyers. There are some exceptions for certain sellers—like banks and builders—but for flippers, it is almost impossible to get around this rule.

What exactly does the FHA 90-day flip rule say?

It used to be that the buyer could order a second appraisal to bypass the FHA 90-day flip rule, but that changed in 2014. If you are selling a flip that has a huge difference from your buying price and the selling price (close to double), you still may have to order a second appraisal, even after the 90 days.  

Exceptions to FHA property flipping restrictions are made for:

  • Properties acquired by an employer or relocation agency in connection with the relocation of an employee.
  • Resales by HUD under its real estate owned (REO) program.
  • Sales by other U.S. government agencies of Single-Family Properties pursuant to programs operated by these agencies.
  • Sales of properties by nonprofits approved to purchase HUD-owned Single Family properties at a discount with resale restrictions.
  • Sales of properties that are acquired by the seller by inheritance.
  • Sales of properties by state and federally chartered financial institutions and Government-Sponsored Enterprises (GSE).
  • Sales of properties by local and state government agencies.
  • Sales of properties within Presidentially Declared Major Disaster Areas (PDMDA) only upon issuance of a notice of an exception from HUD.
  • The restrictions listed above and those in 24 CFR 203.37a do not apply to a builder selling a newly built house or building a house for a borrower planning to use FHA-insured financing.

How do you handle an FHA contract that comes in before you have owned a property for 90 days?

I sold a flip earlier this year on which we actually got a contract before I had owned it 90 days. I have had up to 22 flips going at one time this year, and it is rare that I get a house repaired fast enough to list it for sale before I have owned it 90 days. However, I bought this house from my direct marketing campaign, and it did not need much work, which allowed me to get it fixed quickly. Here were the numbers on the house:

  • Purchased for $120,000
  • Repairs were about $20,000
  • Carrying costs were about $12,500
  • Buyer closing costs of $3,000
  • Selling price of $213,000
  • Total profit of about $57,500

This was one of my best flips of the year, especially considering I made this much on a low-priced property. I actually thought it would sell for a lot less when I bought it, but our market has been tremendous this year. We did run into some hiccups on this property because of the 90-day flip rule. I bought it on July 28th and listed it on September 22nd. We listed it for $199,900 and immediately received a $210,000 offer. I was ecstatic until the buyers’ lender said they could not close on the house because of the 90-day flip rule. They were hoping to close in October, but because of the flip rule, it would actually have to close in December. That was a long time to wait, but it was a great offer, so I went forward with the deal.

The 90-day flip rule does not state that you cannot buy a house prior to the 90 days but rather that the entire loan process cannot start prior to the 90 days. Technically we are not supposed to write the purchase contract until the 90 days have passed. What we did was write a contract between the buyers and sellers, and then we wrote a brand new contract when the 90 days passed. At that point, the appraisal, underwriting, and loan approval can begin. Luckily, the appraisal came in at value, and we closed on December 11th.

Are there other ways to get around the 90-day flip rule?

There are some ways to get around the 90-day flip rule, including dumb luck. I sold a house earlier in the year to an FHA buyer who wrote the contract before I had owned the house 90 days. I used this sale as a reason for the lender why we should not have to wait the 90 days on the property I discussed in this article. The lenders’ response was the underwriter and lender must have both forgotten about the 90-day flip rule on that deal. There is no way it should have been under contract or sold before the 90 days, even with a 2nd appraisal. I got lucky on that property. You can also try to find a buyer that does not need to use FHA. Often, a conventional mortgage is actually better for buyers, but they need to have better credit and debt-to-income ratios to qualify for conventional. Most of our buyers use FHA loans, and they are willing to pay the most for our flips, so it makes sense to cater to them.

Conclusion

I usually do not have to worry about the 90-day flip rule because it takes me longer than that to get my houses ready to sell. It can be a thorn in an investor’s side when they are counting on a house selling quickly and they have to wait a month or two longer. Investors also need to be aware they may need a second appraisal with FHA loans if they try to sell a house for twice what they bought it for. Conventional mortgages do not always eliminate these problems either as many conventional lenders adopt FHA rules.

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Source: investfourmore.com

Apache is functioning normally

Last Updated on August 22, 2019 by Mark Ferguson

When I became a real estate agent in 2001, I was not a real estate investor. I focused on selling houses for and to people, but when I became an investor the license was a huge help. When I started investing in rental properties my real estate license saved me thousands of dollars on commissions and I found more deals. Now that I flip houses and buy rentals the license saves me hundreds of thousands of dollars a year in commissions. The license also allows me to find many more deals because I can act faster and pay more than other investors.

How can you become an agent?

I discuss how hard being a real estate agent in this article. You must take pre-licensing classes and then pass a test in most states to get your real estate license.

My assistant got his license through Real Estate Express, which also has a great licensing program in all 50 states. Real Estate Express also has some of the lowest prices I have seen, although I have not researched every real estate school.

Visit Real Estate Express

Why becoming an agent saves money

Being a real estate agent has helped me tremendously in my own investing strategy. I have purchased 20 long-term rental properties, and I am making at least 15 percent cash-on-cash returns on all of them. One of the reasons I am earning such high returns is that I save thousands of dollars on each transaction by being a real estate agent. I also do 20 to 30 fix and flips per year and save thousands of dollars on each of those transactions as well. I estimate that being a real estate agent saves me over $100,000 in commissions on my flips and rentals per year. That does not include the profit I made on deals that I would not have gotten if I were not an agent.

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How can you save on commissions?

If you plan to buy more than one or two rental properties per year get your real estate license! If you do nothing else with your license except buy your own rental properties, you will save thousands in commissions per year. On every rental property I buy, I save a ton of money because I am paid a commission as the buyer’s agent. The commission may be 2, 2.5, or 3 percent per deal, but in the end that adds up to a lot of money. If you buy three houses per year with an average price of $100,000, being a real estate agent can save you $7,500 to $9,000 per year.

If you fix and flip those houses, you will more than double your savings because you will save a commission when you sell the house as well. On a recent fix and flip, I bought the home for $105,000 and earned a three percent commissions as the buyer’s agent. I am going to fix and flip this property and most likely sell it for $160,000. When I list the home, I will save another three percent commission that I would have had to pay another agent. On this one deal, I will save $7,950 because I am a real estate agent.

How can you get better deals?

There are many other advantages to being an investor with a real estate license. Being an agent allows me to get more deals as well. Here are some other ways that having a license is a huge advantage:

Access to MLS

As a real estate agent, you have access to MLS and can do your own searches for properties without having to rely on an agent to find you the right deal. Having access to MLS gives investors a huge advantage because they do not have to wait for an agent to send them listings. I search for listings at least five times a day, and I routinely make offers on the same day a house is listed. An agent can also easily pull sold comparable information from MLS to calculate values on properties. Calculating accurate values is one of the most important things an investor needs to do in order to be successful.

Networking

As a real estate agent, you can fraternize with other agents and people in the real estate world. The more people you know in the business, the more people you can tell that you are looking for property. Sometimes the best deals are those that are brought to you, not the deals you find yourself. Let everyone you know that you are looking for investment properties and you never know what will turn up. I have purchased a couple of properties that were never listed on the MLS because of my contacts in the business.

Taxes

The IRS has limits on how much money you can deduct on rental properties if real estate is not your primary job. If real estate is your primary job, you may be able to deduct many more expenses. For more details, please see the IRS tax code.

Reputation

If you are a real estate agent that does many deals, most agents will know who you are. If you bring a good reputation for getting deals done, sticking to your word, and being dependable, other agents will want to work with you on tough deals. Many properties that we buy have major issues and are tough to sell. Other agents know me and know I will do my best to get the deal done.

Offer price

I already mentioned the commission savings on investment properties, but there is another advantage besides just the money savings. If I save $8,000 in commissions on a fix and flip deal, I can buy that property for $8,000 more than an investor who does not have their real estate license can. That savings allows me to pay more money and get more deals than other investors while still making a profit.

How much money can you save?

This year I will come very close to fix and flipping 30 homes. That means I will sell 30 houses that I flipped, I will buy close to 30 houses, and I bought a few rental properties as well. Here is how much I think I have saved this year alone:

  • Selling 30 flips I save 3 percent commission on each flip because I can list the home, instead of another agent. My average flip sells for $225,000, which equals $202,500.
  • I will buy close to 30 flips, but not all of them are MLS deals. If I assume half of them are MLS deals and I buy them for $125,000, I save $56,250.
  • I will buy three rentals totaling about $500,000 which saves me another $15,000.
  • I will save over $270,000 by being a real estate agent this year on my own deals alone.

I have a great set up with my broker where I get 100 percent of the commissions and pay him a flat fee every year. If you have to pay your broker a split of your commissions you may not save as much money.

How else can you make money?

I am biased, but I think being a real estate agent is one of the best opportunities out there. There are many forms of income in the real estate business. If you are motivated and dedicated to making it in the business, you can make serious money. I will not go into details in this article, but here are some of the different areas that can generate income.

Property management

If you want to be a serious investor, you will want a property manager to handle your rental properties at some point. If you start your own property management business, you can manage your properties and other properties as well. Not only are you saving ten percent per month on your rent coming in by doing your own management, but you can also make extra cash by managing other investors properties.

Retail Sales

This is the most common way to earn money as an agent. Retail sales involve listing houses for private sellers and selling homes to buyers. If you are dedicated and treat this as a real job, you can make a lot of money. Many agents make over $100,000 per year and the very best make much more than that.

Commercial Sales

Commercial real estate requires much more experience and knowledge than residential. It is difficult to break into commercial unless you start with a commercial firm that can mentor you. Experienced and successful commercial agents can easily make hundreds of thousands of dollars per year.

REO Sales

REO properties have been foreclosed on and they have gone back to the bank. REO agents list and manage these homes for the banks. Agents can make a very lucrative living if they work with the right banks. It can take years to build up your business and the supply is determined by how many homes are foreclosed on. REO agents are not allowed to buy their own listings, as it is a conflict of interest.

Short Sales:

Short sales homes are listed by private sellers who are selling the home for less than they owe the bank. There is a huge market for short sales and many agents make a great living specializing in this field. It takes a lot of patience and diligence to close a short sale since the banks have many requirements and they can take months to approve a short sale.

Broker Price Opinions (BPOs)

A BPO is a one to three-page report used to determine value on properties but is not an appraisal. Licensed agents can complete BPOs for various clients including banks. The agents are usually paid between $30 and $80 per order. Some agents make a living only completing BPOs. It is a great way for agents to supplement their income while learning the business.

Real Estate Express is a real estate school that provides online classes in many states. Three agents on my team…

Conclusion

There are many ways to make money as a real estate agent. Even if you just want to buy or sell a few of your own listings each year, I believe becoming a real estate agent is well worth it.

Build a Rental Property Empire

Categories Real Estate

Source: investfourmore.com

Apache is functioning normally

By Mike Piper Leave a Comment – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited January 10, 2014.

When putting together a portfolio, the very first question you have to ask is what type of asset allocation you want to use — how much of your portfolio should be in stocks and how much in bonds?

And the answer to that question depends on how willing you are to take risk in your portfolio.

Risk Tolerance Questionnaires

The most common way of assessing an investor’s risk tolerance is to give them a multiple choice quiz called a risk tolerance questionnaire. Unfortunately, most such questionnaires leave much to be desired. You can get more useful information from a quiz in Cosmo.

The problem is that the questions are often designed in such a way that there’s only one reasonable answer. So rather than learning anything useful about yourself, you simply proceed through the quiz, picking the “right” answer each time as if you were taking a quiz in school.

For example, consider this question from a real-life risk tolerance questionnaire:

“Imagine you inherited $1 million-worth of a single stock from a long-lost aunt. Would you A) hold the stock, B) sell half of the stock and invest the money in more diversified holdings, or C) sell all of the stock and invest the money in more diversified holdings?”

If you choose C, you’re rated as a conservative investor. The problem, of course, is that everyone should choose C. Even super aggressive investors (who don’t want any low-risk investments like bonds or cash) would be better off selling the stock and investing the money in a diversified portfolio of stocks. In most cases, holding $1 million in a single stock doesn’t make you an aggressive investor. It makes you an idiot.

Using Real Life Experience

My best suggestion for determining your willingness to take risk is to keep a record of how you have actually responded to market declines in the past. For example, what did you do when the investment banks started failing in late 2008 and the market began to crash? How did you feel? What about a few months later, by which point the market had fallen by roughly 50%?

  • Did you panic and move everything to cash?
  • Were you sufficiently brave to hold on to your investments (but not brave enough to rebalance your portfolio back to your planned allocation, because doing so would have required selling bonds to buy more stocks)?
  • Did you rebalance exactly as planned?
  • Or did you smell the deal of a lifetime and move every single dollar into stocks?

What you actually did and how you actually felt during a real life market crash gives you meaningful information about your willingness to take risk — far more useful information than you can get from a multiple choice quiz.

What About New Investors?

If you’re a new investor who hasn’t been through a bear market before, my suggestion is not to worry about it too much. When you’re first getting started, how much you invest is far more important than how you invest.

You probably won’t get your risk tolerance and asset allocation precisely right on the first try. But that’s OK. If the lesson you gain from your first bear market is that you under- or overestimated your risk tolerance, simply adjust your portfolio as needed and move on with your life, knowing that you’ve gained valuable information that will help you to better survive your next bear market.

Mike Piper is a CPA who blogs at Oblivious Investor, where he answers tax and investing questions such as, “Should I roll over my 401(k)?” and “Should I invest in index funds?“

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Source: biblemoneymatters.com

Apache is functioning normally

Passive Real Estate Investing: What to Know

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Real estate investing can have many benefits, including cash flow, asset appreciation and tax breaks. However, it can also be a lot of work, which many people don’t have the time to do. But investing in real estate doesn’t have to involve managing properties in person. In fact, passive real estate investors own their properties from afar. Here’s what to know about passive real estate investing. You may want to consult with your financial advisor to understand if this is a good investment for you. 

What Is Passive Real Estate Investing?

Passive real estate investing involves purchasing real estate investments without active involvement in their day-to-day management. This differs from active real estate investment, which may involve buying, selling and managing real estate investments, such as rental properties.

Active real estate investors often must commit a significant amount of time to their real estate investments. They might also be skilled in doing at least basic maintenance and repairs on their own.

Conversely, passive real estate investors take a hands-off approach. They typically aren’t involved in the daily management of the properties and may not have the skills to make repairs on investment properties. However, passive real estate investors often must pay fees to a property manager or pay investment fees.

Passive real estate investing can come in many forms, such as investing in real estate exchange-traded funds (ETFs) or buying shares in a real estate investment trust (REIT). Another way to passively invest in real estate is to purchase real estate properties directly and then hire a property manager to take care of their day-to-day management.

Benefits of Passive Real Estate Investing

Passive real estate investing can have many benefits that make it appealing to many investors. For instance, the time commitment is often much less than for active real estate investors. Passive real estate investors often outsource day-to-day management to a property manager, so they only need to monitor their investment periodically.

Passive real estate investing also offers diversification. Real estate investments typically have a low correlation with the stock market, allowing investors to reduce the overall volatility of their portfolios. In addition, the minimal time commitment allows passive real estate investors to invest in more properties in different regions, providing further diversification.

Passive real estate investing can also have less risk than active real estate investing. These investments are typically managed by a professional team with expertise in the real estate industry. These teams have the knowledge and experience to evaluate properties and make sound investment decisions on behalf of the investors. Owning multiple real estate investments can reduce one’s risk as well.

Risks of Passive Real Estate Investing

Passive real estate investing is not without its risks. For one, you have minimal control over investment decisions. This may not be an issue if the investment manager is highly experienced, but it could be a problem if the investment manager isn’t as knowledgeable.

These investments can also have a lack of transparency. For example, REITs can be complex investments with multiple projects and it isn’t always clear exactly how investors’ money is allocated. In addition, there can be inadequate regulation in the industry that leads to minimal disclosure of information.

There may also be volatility in the real estate market at times. We saw this with the Great Recession when the value of many homes collapsed. The real estate market can be overheated at times as well, leading to inflated prices. This volatility can have a serious impact on investments, both positive and negative.

How to Get Started with Passive Real Estate Investing

Passive real estate investing can be a great opportunity for investors but requires careful planning and due diligence. Before you get started, assess your financial goals. What are your financial goals, your risk tolerance and your desired returns? These questions will help determine which type of investment is the best choice to meet your needs.

Next, it’s time to find the right passive investing opportunity. As mentioned earlier, you can consider investments like REITs and real estate ETFs. You can also buy your own property and hire a property manager. Or you can consider crowdfunding platforms and private equity funds. Each of these has its own benefits and drawbacks and the questions you answered above will help you make the right choice.

However, you should also do your due diligence with each investment opportunity. That might involve researching the company’s past performance, reading customer reviews and assessing its risk and reward. You want it to be the right fit before you decide to invest.

The Bottom Line

Passive real estate has several benefits, such as a minimal time commitment, lower risk and diversification compared to active real estate investment. However, it can also have risks like lack of transparency, limited control and volatility. Do your due diligence before you invest and review the investment with a trusted financial advisor.

Tips for Investing in Real Estate

  • Real estate investing can be complex. If you want some help, perhaps speaking with a financial advisor could be beneficial. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you decide to become a passive real estate investor, there will be a lot to think about. In addition to various laws and regulations, you may have to finance your investment properties. In that case, you can still use SmartAsset’s mortgage calculator to estimate your monthly costs.

Photo credit: ©iStock.com/g-stockstudio, ©iStock.com/Wasan Tita, ©iStock.com/AmnajKhetsamtip

Bob Haegele

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Apache is functioning normally

Well, 2013 has officially come to a close, and 2014 is well underway.

For a moment there, it seemed as if each holiday was followed by a weekend, creating an endless vacation, but sadly it’s time to get back to work.

So without further ado, I present to you my top 10 predictions for the mortgage and housing market for 2014.

For the record, you can see my 2013 predictions here, which I’ll admit were a bit of a mixed bag.

1. Mortgage rates will inch higher

Last year, I expected mortgage rates to move somewhat sideways. I was wrong. They went up a lot more than I predicted.

This year, however, I see the movement a bit more muted, seeing that they’ve already risen so much (more than 1% in a year).

Most market pundits expect rates on the 30-year fixed mortgage to average close to 5% by year-end, which is less than half a point above current levels.

Yes, higher, but not that much higher. And still cheap.

2. Home price appreciation will ease, somewhat

Going hand in hand with that prediction is the expectation that home price appreciation will moderate after an explosive couple years.

Again, the idea here is that home prices have already chalked impressive gains, so the upside is more limited. Of course, that will depend on the region of the country in question. And our propensity to chase prices higher.

I’m not sure I agree with the really conservative views though – the housing market could surprise us yet again as eager buyers that missed out earlier try to get in late.

3. Housing inventory will remain tight

Yes, as home prices rise more homeowners will be able to list their homes (positive equity facilitates that).

But I don’t know how many of them will be quick to list, especially after waiting so long to get back in the black.

They might want to book a profit as well. Then there are the investors, who made it clear they plan to hold and rent for who knows how long.

4. Investor home purchases will decline

Speaking of investors, they should pump the brakes on home purchases this year seeing that home prices have risen so much.

Sure, they might still scoop up properties in certain hard-hit, non-fully recovered areas, but they’ll probably step aside and let everyday Joes get a piece of the action (at a premium).

5. ARMs will get more popular

Despite interest rates on the 30-year fixed slated to remain below 5%, more borrowers will turn to adjustable-rate mortgages to get their financing.

I think this will be a combination of lenders pitching more ARM products, along with the fact that fixed rates aren’t where they once were.

It’s an ego thing. Today’s home buyer won’t want a rate of 5% when their neighbor has a rate in the 3s.

Housing affordability, or a lack thereof, will also contribute to this trend.

6. Lenders will offer non-QM loans

Before the year ended, there was a lot of fear that the new Qualified Mortgage rule would neuter the mortgage market.

There’s already at least one major lender pledging to make interest-only loans, which happen to be explicitly banned under the QM rule.

My guess is more and more lenders will offer non-QM loans and hold onto them, which was kind of the point, right?

7. Conventional lending will stage a comeback

The last couple of years were dominated by FHA lending, which surged in popularity thanks to its soft underwriting requirements and low mortgage rates.

But now that the FHA is sticking it to new borrowers via ridiculously expensive premiums and insurance that stays in force to term, I doubt many borrowers will go the FHA route unless it’s a last resort.

At the same time, private mortgage insurers will help conventional lending reach more borrowers by easing guidelines.

8. Home equity lending will increase

With rising home prices comes opportunity. And one of those opportunities is tapping it.

I expect more and more borrowers to pull cash out via home equity lines thanks to much higher home prices. And they may actually use the money to improve upon their homes, instead of buying Hummers.

Speaking of home equity lines, a lot more are set to reset this year and the next, so expect more defaults related to HELOCs as well.

9. Foreclosures and short sales will fall to normal levels

Despite some reset-related foreclosure starts, I still see foreclosures and short sales falling closer in line with historical levels.

Both have already slowed tremendously, with foreclosure starts already at a 95-month low, per RealtyTrac. Short sales are also a dying breed because homeowners are able to sell at such a premium nowadays.

There’s no compelling reason to expect that trend to reverse course. I also think banks will spend more time on foreclosure alternatives than foreclosure itself.

10. Mel Watt will fight new fees

There have already been reports that new FHFA head honcho Mel Watt is more or less against the proposed mortgage pricing adjustments recently issued by Fannie Mae and Freddie Mac.

If enacted, they would make 780+ credit scores important, which one could argue is taking things a little too far.

I expect Watt to fight these fees tooth and nail on the basis that the housing market is far from fully recovered.

Hopefully he’s successful, seeing that new buyers will have to contend with both higher interest rates and home prices in 2014.

Stay tuned for 2015.

(photo: Rareclass)

Source: thetruthaboutmortgage.com