Financing in San Francisco>Question Details

Eric Wu, Home Buyer in Russian Hill, San Fr...

If I am purchasing a property in cash for $500,000 and going to re-sell it almost immediately for $600,000 to a retail buyer with financing...

Asked by Eric Wu, Russian Hill, San Francisco, CA Sat Feb 8, 2014

Are there laws or regulations that would prevent me from doing this? Are there exemptions to the seasoning period?

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12
I've been inactive in real estate market since 07/2007 as an agent. My assessment regarding your plan to acquire and to dispose a piece of real estate after you acquired the Title, and also, want to turn it around for a profit regardless of your tax liability is possible provided, the buyer(s) could come-up for all cash transaction, or if not, and the buyer(s) will be looking for a new loan to finance his/her t purchase then, most likely, the new lender might asks for a new appraisal to establish the value. And if, within six months after "you" acquired the title then, perhaps, the new lender would consider the recent or the previous appraisal regardless of the sales comparison in the area. The buyer(s) has to come in with the difference of the sales price between the appraisal. Traditionally, for a simple calculation of how much down payment would be somewhere from 70 or 80 percent LTV of the Value. This is only my opinion, considering the current condition of our economy.

On the other hand, if your loan is assumable and the buyer(s) would do the assumption then, this means, short closing and faster profit for you but, only if your lender approves it. Remember, any interested buyers that would come in to a purchase like this, are going or intended to occupy the property otherwise, any speculators whose purpose are to buy and sell, like what your plan is, then, you only have or could have limited numbers of buyers.

So, your choices are, find an area or location where the market is "hot" and the turnaround are quick and fast, that way, your investment will not costs you money, when you are not going or intended to occupy it. And, don't you forget of your tax liability. Remember, Two out of Five years for owner's occupancy to be entitled to $250K exemption if single, and twice if couple filing jointly. I think, that's all I can share for now because, I really don't have more information of your plan and I thank you in bringing up this question. I hope that, from many of these experienced license agents here makes your investment plan simply and wisely.

Bing Maranan
bingmaranan@hotmail.com; or outlook.com
BRE #00948438
0 votes Thank Flag Link Wed Feb 19, 2014
I've been inactive in real estate market since 07/2007 as an agent. My assessment regarding your plan to acquire and to dispose a piece of real estate after you acquired the Title, and also, want to turn it around for a profit regardless of your tax liability is possible provided, the buyer(s) could come-up for all cash transaction, or if not, and the buyer(s) will be looking for a new loan to finance his/her t purchase then, most likely, the new lender might asks for a new appraisal to establish the value. And if, within six months after "you" acquired the title then, perhaps, the new lender would consider the recent or the previous appraisal regardless of the sales comparison in the area. The buyer(s) has to come in with the difference of the sales price between the appraisal. Traditionally, for a simple calculation of how much down payment would be somewhere from 70 or 80 percent LTV of the Value. This is only my opinion, considering the current condition of our economy.

On the other hand, if your loan is assumable and the buyer(s) would do the assumption then, this means, short closing and faster profit for you but, only if your lender approves it. Remember, any interested buyers that would come in to a purchase like this, are going or intended to occupy the property otherwise, any speculators whose purpose are to buy and sell, like what your plan is, then, you only have or could have limited numbers of buyers.

So, your choices are, find an area or location where the market is "hot" and the turnaround are quick and fast, that way, your investment will not costs you money, when you are not going or intended to occupy it. And, don't you forget of your tax liability. Remember, Two out of Five years for owner's occupancy to be entitled to $250K exemption if single, and twice if couple filing jointly. I think, that's all I can share for now because, I really don't have more information of your plan and I thank you in bringing up this question. I hope that, from many of these experienced license agents here makes your investment plan simply and wisely.

Bing Maranan
bingmaranan@hotmail.com; or outlook.com
BRE #00948438
0 votes Thank Flag Link Wed Feb 19, 2014
Eric,

If your buyer is using conventional financing then you can expect that within the first 90 days after your purchase, that buyer will be held to 80% loan-to-value. Since the property has not increased more than 20% (greater than $600K), this buyer would not need a second appraisal. If the buyer needs to use PMI, you can expect additional guidelines to apply in the first 6 months.

If your buyer will use an FHA loan, again you'll have a 20% increase threshold, and if you cross it you can expect a 2nd appraisal and inspection to be necessary in some cases.

Moral of the story is if you flip the property, make sure you understand the type of financing, if any, your buyer plans to use. And a second moral, keep the increase under 20% from your price.

Rob Spinosa
rspinosa@rpm-mtg.com
0 votes Thank Flag Link Mon Feb 10, 2014
There are no laws preventing you from selling your property at whatever price you want. However, you could run into some issues on appraisal since your buyer is getting a loan, and banks don't typically like flips in a short period of time, especially if there hasn't been work done to justify increase.

I would have your agent/broker discuss the issue with your buyer's lender before going into contract to avoid any problems.

If you need some help, we have a great track record of success with tricky deals.

Best Regards,

Lance King/Owner-Managing Broker
King Realty Group

lance@king-realtygroup.com
415.722.5549
BRE# 01384425
0 votes Thank Flag Link Sun Feb 9, 2014
You should ask a real estate lawyer. No one here can answer your legal questions.

Alex Greer
Loan Officer
NMLS #1056079

http://www.TheMortgageOutlet.com
408-352-5147
AGreer@TheMortgageOutlet.com
0 votes Thank Flag Link Sun Feb 9, 2014
Eric, If you are selling to a cash buyer...YOU ARE GOOD TO GO! Congrats! ------------ You would be wise to identify a local portfolio lender in your area who would be happy to provide the buyer financing. You should pay for an appraisal to present to that lender. If they say it's 'Good to Go" it time for a $100,000 party on your street!. ----------------YOU CAN COMPEL THE BUYER TO BE PRE-APPROVED BY YOUR LENDER. ------------ This will become useful later when the 'financing' contingency raises its head. DO NOT ACCEPT A PURCHASE OFFER WITH Bank of America, Wells Fargo or Chase paperwork attached. You must consider these banks 'show stoppers' from he very start. Any lender whose business model is to resell the mortgage are show stoppers whether directly from the bank or via a mortgage broker.
0 votes Thank Flag Link Sun Feb 9, 2014
Eric,
As has been eluded to here, some lenders have restrictions others do not. As a mortgage broker I work with a variety of lenders, some of which have no time restriction on :flipped" sales.

When you have your eventual purchaser, just make sure they are aware, and have a lender that is not restricted by the "flipping" guideline.
0 votes Thank Flag Link Sun Feb 9, 2014
"Flipping houses," like anything you buy with an eye for a quick profit, has some conditions that don't necessarily prevent you from achieving a good profit, but, as some of the response herein have pointed out, some lenders (for the subsequent buyer) may have an implicit limit to how much more the house that was sold in such a short period of time previously, may garner on that subsequent re-sale. I recall one such case where I helped an investor do just that. The subsequent buyer's lender would not allow a "profit" of more than... That part was predicated by the type of financing that was sought by the second buyer. At one point, FHA lending put a cap of 125% above the first sale. However, these rules were loosened, but, many lenders still have some version of these rules in place. On the other hand, if you re-sell to someone with all an all cash purchase, that should affect you (unless that buyer comes in with a slightly lower offer price. You can address some of these concerns with your negotiations, e.g., put it in the terms of the agreement that if there is any shortage based on the buyer's lender's approval/appraisal, that it is their issue and not yours to deal with. If structured right, you probably can do that, but the buyer would have to be able to come up with the difference, somehow.
0 votes Thank Flag Link Sat Feb 8, 2014
As others have said the problem is with the second buyer's lender/appraisal. If the property sold for $500,000 how can it immediately be worth $600,000. Good luck and keep in mind the taxes that will be owed on the gain.
0 votes Thank Flag Link Sat Feb 8, 2014
There are some restrictions when dealing with short sale and REO properties however, if that's not the case, there is noting stopping you from making profitable real estate decisions. You can even do a double-escrow (buy and sell at the same time). One other item to consider is the lender's appraisal. Will your purchase price have an effect on the appraised value? Oggi Kashi - 415.690.3792 direct Broker Associate, Paragon Real Estate Group CA DRE 01844627 All data from sources deemed reliable but subject to errors and omissions, and not warranted.
Web Reference: http://www.oggikashi.com
0 votes Thank Flag Link Sat Feb 8, 2014
Hi Eric,

A lot of lenders have flipping guidelines and restrictions, meaning that they would prevent a buyer from buying a home which was purchased 180 days prior to new contract date. This length can be lengthened if this in a non-arms length transaction (you know the new buyer). Check with the borrower's lender to clear this up on the front end. The key here is that "a lot" of investors have these guidelines, not all. Make sure the lender clears it with investor prior to wasting the buyer's or your time.

Let me know if you have any questions.

Best,

Bryan Mecsey
Amerifirst Financial Inc.
Mortgage Consultant
bmecsey@amerifirst.us
Direct: (510)725-2665
NMLS: 861229
0 votes Thank Flag Link Sat Feb 8, 2014
Hi Eric,

There are no rules against making a profitable real estate investment. Lenders will do their due diligence, and there will be more scrutiny in the event of rapid price appreciation, such as more than one appraisal being required, and in some cases the need to provide proof of any upgrades that were done to justify the value increase. But this will all depend on what program your buyer chooses.

Your best bet is to align yourself with a lender who will "cross-approve" any offers to see what type of financing is being used, and evaluate the scenario in detail to make sure it can be done. I work with a lot of flippers, so we see these types of scenarios every day. I'd be happy to help. Contact me if interested.

Good luck,

Robert
0 votes Thank Flag Link Sat Feb 8, 2014
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