In a 2006 Mortgagee Letter, the Department of Housing and Urban Development (HUD) described flipping and explained its opposition to it in the following way: “Property flipping is a practice whereby a property is resold a short period of time after it is purchased by the seller for a considerable profit with an artificially inflated value, often abetted by a lender’s collusion with the appraiser. FHA’s policy prohibiting property flipping eliminates the most egregious examples of predatory flips of properties with the FHA mortgage insurance programs.”

The primary component of FHA’s anti-flipping policy is the 90-day rule. No FHA funding will be provided for properties purchased within 90 days of the seller’s acquisition of the property. The intent of this policy is to protect buyers from overpaying (and, of course, to protect FHA’s insurance program).

MetroStar® Realtors® advocates balancing against the this sleazy "simultaneous closing" type of abusive preying by the "3 a.m. Info-mercial Investors" to prove that they actually have some capital capacity, i.e. semi-legitimate loan worthiness (plus a Homeland Security scrutinized borrower) and where they actually own and publicly record title transfer for at a minimum of 10 business days. And this revision of the 91 day Anti-Flipping FHA policy would still allow open access by FHA borrowers to the legitimately rehabbed and improved properties that can be repaired and then re-sold. 

Zero days is too short, 90 days is too long.

This position conflicts with other position in the industry:  See recent California Assoc of Realtors position (which I disagree with):

REALTOR® ORGANIZATION OPPOSES

FHA ANTI-FLIPPING RULE

October 18th, 2009 ·

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Below is a typical flipping opportunity resource found on the web, I don't endorse this, nor do I totally agree with the title "Truth", I think within the context of Truth that you need to lay out the whole cloth to see all of the moth holes.

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The Truth About Flipping Real Estate

by: Bill Vaughn

There has been a lot written about "flipping" real estate these last two years - and much of it is more fiction than fact. Some say it is great way to make money fast. Some say it is very difficult. Some even claim it is illegal. So, just what is the truth?

Let's take care of the "illegal" claims, first. Flipping, if done the way it was meant to be done, is completely legal. But it becomes illegal when unscrupulous investors, working with unscrupulous appraisers or lenders, conspire to defraud either buyers or lenders. This is done when an investor gets an appraiser or lender to over-value a property for the purpose of selling for a higher-than-market value, or for the purposes of getting a bigger mortgage so the investor can pocket more cash. In short, it is not the flipping that is illegal -- rather, it is the fraud that sometimes accompanies it that is in violation of the law.

Such fraud is not necessary. You can use any legitimate method of flipping, and if you remain within the law and act in an ethical manner, you will profit immensely, and earn yourself a solid reputation as a good person to do business with. In the long run, as you gain a reputation for fairness and sound ethics, you will actually profit more than if you were to defraud anyone.

Now, as for it being difficult. Some so-called "gurus" claim that in order to flip, the investor must first buy the property and only then find a buyer to resell to. Let's put that falsehood to rest right now -- you can buy and resell at the same closing (called a double escrow, or simultaneous closing) without ever having to finance a single penny, because the buyer's money funds both transactions. Under the law, neither transaction takes place first or last in a double escrow, regardless of which one actually is completed first. Therefore, the transaction with your buyer can take place first, providing you with the funds to pay off your seller. In such a transaction, the only requirements are a) you contract to buy a property from the seller at one price, then b) contract to sell that same property to another buyer at a higher price, and for both contracts to call for closing at the same time and place. Both agreements are placed into the same escrow. The key, of course, is to buy at below market value, and sell at no more than market value, to avoid any possibility of fraud.

The reality is that there are a number of ways to flip properties, the double escrow is only one method. Some methods require financing - others do not. Some methods do not require cash or credit. And most methods are quite simple to do. In addition to the double escrow, the investor may also flip by way of "assigning". In this technique, a property is put under contract. Then, instead of reselling the property (double escrow), the investor sells (assigns) the contract to another buyer. The buyer pays an assignment fee -- usually $3000-$5000 -- to the investor at the time the contract is assigned. The investor does not have to participate in any closing -- he is out of the deal, and a few thousand dollars richer.

That said let us look at claims that it is very difficult and time-consuming. Since the most difficult part is finding a suitable property, the rest of the transaction consists of negotiating the deal (no different from any other transaction), find a new buyer (also no different from any other sale), then wait until closing when the closing agent takes care of everything else. Personally, I have never found laying on the beach waiting for a closing to be all that time-consuming or stressful. And I have been using these methods for over 35 years.

Then there are the unfounded fears that for some unknown reason, your seller and/or your buyer will revolt at closing when they "discover" you are making a profit.

We can only assume that the investors who have this fear feel it is necessary to keep it a secret that they are an investor. I do not advocate that. I stress ethical conduct. Simply make sure your seller and your buyer are fully aware that you are an investor - it is nothing to be ashamed of! If they know this, they will obviously know, up front, that you must make a profit - you would not be in the deal, otherwise. At closing there will be no anger because they were not deceived. In all my years of doing this, I have not seen one case where closing did not complete because of such problems, because the problems never arose in the first place.

Yes, flipping is a great way to make a lot of money in a short period of time. And it, like any other endeavor, can be stressful at times. It is not as easy as many "gurus" would have you believe, but it is not all that difficult, either. The secret lies in 1) knowing which properties lend themselves to flipping , 2) being honest and up front, and 3) using the right contracts, specially designed for flipping.

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Be Careful out there,

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