Buying and selling foreclosure properties can mean quick profits. Foreclosed homes in San Diego and throughout the U.S. are typically sold at prices from 15% to 40% below market value. So buying foreclosures can bring instant equity to a real estate investment. The amount of the discount depends upon the nature and timing of the purchase. But opportunities to invest, fix and flip foreclosed houses, town homes, and condos exist at every step of the process.
Foreclosed homes in San Diego can be purchased at trustees sales. These are auctions that are held on the steps of the county courthouse. Buyers at foreclosure auctions can realize the greatest savings and upside potential. But the auction process is generally too risky and cumbersome for individual home owners. Typical buyers at trustee sales are investment companies and partnerships that intend to fix and flip the homes at a profit. Buyers must be prepared to thoroughly investigate the condition of the properties prior to the auction, and monitor the properties right up to the time that the gavel falls. And payment at the auctions must be made by cashier checks at the close of the auction. This requires a degree of liquidity that most individuals do not have.
Investors who buy homes at San Diego foreclosure auctions frequently intend to make improvements to the property and offer the homes for immediate resale. But there are potential pitfalls to avoid with flipping properties. First, even if a buyer is willing to buy at the new price, appraisers may be skeptical of the higher sale price. A low appraisal can make it impossible for the next buyer to get a loan. So the listing agent of the property must be prepared with information to support the higher value. Data on recent sales of comparable homes as well as receipts for improvements to the property prior to the flip are critical in this regard.
Also in regard to the new buyer’s loan, it makes a difference whether the new loan is conventional (20% down payment) or an FHA loan. Until recently, it was nearly impossible for a buyer to get an FHA loan on a property that had been purchased at foreclosure and flipped in less than 90 days. More recent FHA guidelines allow short-term flips, but competent handling by an experienced loan officer is important. For properties that are being flipped in less than 90 days, questions include: 1) As a flip, was it a true conversion with structural, internal repairs, and upgrades, or was it merely a “coat of paint” conversion? 2) Is the agreed upon purchase price more than 20% greater than the investor’s purchase value? 3) Has the property been bought/sold more than once during the 90-day period?
For FHA loans on properties that are being flipped in less than 90 days, if the purchase price is 20% or higher than the prior purchase price, FHA will require two appraisals by FHA appraisers. FHA will also require a home inspection by an FHA inspector selected by the lender (not by the buyer). If there has been more than one sale/purchase in the 90-day period, the FHA is unlikely to approve the loan. Otherwise, subject to the two satisfactory FHA appraisals and the FHA physical inspection, an FHA loan is likely to be approved.
Contact the San Diego real estate professionals, the Schiering Team at Keller Williams Realty, for additional information about flipping San Diego foreclosure properties.
Copyright © By Geoffrey Schiering 2010*Flipping San Diego Foreclosures*
Geoffrey Schiering (J.D./M.B.A. Broker/Realtor). San Diego homes sale leader since 1999. Specializing in San Diego luxury homes transactions in La Jolla, Del Mar, Carmel Valley and Rancho Santa Fe. The Schiering Team provides world-class service to buyers and sellers of houses, condos, and investment properties throughout San Diego County. Call 619-200-7612 or visit http://homesincarmelvalley.com/