Home-flipping shows on cable television have been all the rage over the last few years. These shows portray that with a little hard work you can buy a dilapidated home on the cheap, fix it up and sell it for a hefty price. But, in today’s economy is flipping really as profitable as it seems? Moreover, what legal issues could Bay Area flippers run into in the flipping process?
Home-flipping profits on the downswing in many states
Flipping is still a common practice in the U.S. In the second quarter of 2020, approximately 80,000 single-family residences were flipped. This amounts to almost 5% of all home sales in the U.S. The gross profit of these flips amounted to approximately $67,000. However, the return on investment decreased sharply to a 10-year low. There are many factors that are involved in this downturn in investments including low supply of construction materials, high prices on these materials and a sharp increase in the sales price of homes. As this shows, potential flippers need to tread carefully in today’s economy if they want to see a good return in their investment.
What legal issues do flippers face?
Flippers in the Bay Area should make sure they are aware of potential legal issues they may face in the flipping process. First, the Federal Housing Administration limits the frequency in which a house can be purchased and sold. Generally, a minimum of 90 days must pass between purchasing a home and selling it, so flippers should not be in too much of a rush to put their investment property on the market.
In addition, flippers often take out a mortgage to buy the home they intend to renovate, but the next buyers generally also will take out a mortgage to purchase the newly-flipped home. Flippers need to make sure they do not fall for mortgage fraud schemes or other home equity scams. Finally, flippers will want to make sure they have title insurance that will protect them should a title search come back “dirty” affecting their ability to sell the home.
Don’t rush into flipping without the necessary knowledge
Ultimately, if you want to flip a home you must research area real estate trends. Moreover, you will want to understand the legal aspects of flipping a home. Flipping should not be rushed into, and you should make sure you understand the risks you are taking before proceeding.