FHA Changes the Investment Game

In addition to residential sales, my team is heavily involved in helping investors profit by investing in foreclosure properties. Mainly by purchasing small single family homes in Atlanta foreclosure market at 60% to 70% of future value, rehabbing them, and quickly reselling them for a healthy profit. Most of these properties are in blue collar neighborhoods that we resell to first time buyers using FHA insured financing. Most of the foreclosed properties we purchase were also financed by FHA insured mortgages.

The one wrinkle in this buy, rehab, and resell process was the arcane Housing and Urban Development anti-flipping 90 day rule 24CCFR 203.37a(b)(2). This rule "provide that a rehabbed property would not be eligible for another FHA insured loan if the contract of sale was executed within 90 days of the prior acquisition by the seller and the seller was not exempt from this rule". What this meant in plain non-bureaucrat English was that if an investor purchased the property for rehab and flip, an FHA buyer could not enter a contract to purchase the property until 90 days had passed since the investor closed on the property. This rule, also known as the "anti-flipping" rule was put in place "to protect FHA borrowers against predatory practices of "flipping" where properties are quickly resold at inflated prices to unsuspecting borrowers".
 
Well this rule obviously hurt investors by needlessly extending the time an investor had to hold the property. If an investor completed his repairs in 30 days, he still had to wait 60 more days before he could accept an offer and open escrow. This hurts an investor's return on investment - ROI.

New FHA Rules Are a Game Changer

Fortunately starting Feb 1 2010, Hud has issued a 1 year moratorium on this rule which makes it easier and more profitable for investors to make profits investing in foreclosures. You can click here: to read the HUD announcement here on their website.  Or click here: for the entire PDF if you want more detail and the exact Waver of Requirements from HUD.

What Does This Mean For Atlanta Foreclosure Investors?

What this means is that the government recognizes there is a need for private investors to help purchase, rehab, and add quality housing stock back in to the real estate market. All for a profit of course.

The government has just removed a impediment to investors. They probably realized that the free market and capitalism is the answer to working through the backlog of foreclosed properties and that making it harder for investors to profit was not the answer.

Now of course there are still a few stipulations for investors who are working in the foreclosure market. The main stipulation in my opinion is that if an investor resells the property for 20% or higher than it was purchased for, he must be able to demonstrate that the property was rehabbed and improvements and repairs were made to justify the higher price. In other words, foreclosure investors better keep records and receipts of all of the work they did to the property because the new FHA lender for the buyer will probably ask to see it and submit proof to the underwriter prior to approving the loan. Another rule is that the the property can not have been 'flipped multiple times" in the previous 12 month period. Also the property has to have "been marketed openly and fairly" on the MLS or public auction. For the majority of investors, these won't be a problem. Just keep good records and receipts, list the rehabbed property with a Realtor on the MLS, and don't flip the property to your "Uncle Joey" instead of an arms length buyer.
 
Are you interested in profiting from foreclosures? Do you want to know how to get started? Call today we will go over the process with you. We've been helping investors profit and we can help you.

This prime foreclosure market will not last forever!  Please call for a private consultation.

Related Links

• Homes Atlanta