Flipping Real Estate 2020

Flipping Real Estate 2020 – I felt compelled as a real estate investor to write a response to a recent couple of articles I have read.  My practice is in New Jersey and Florida and most of you know my reasons and business ties.  I am a typical residential real estate agent, commercial broker of multi-family, and a real estate investor myself.  The title of this article describes what critics of flippers are saying.  (Probably because they are sitting on the sidelines).  During the real estate demise over the last few years, mortgage fraud was on the rise among other things.  Lets list a few things regarding mortgage fraud that was exposed during boom and bust years and compare it to the other fraud some writers are claiming.

Flipping Real Estate 2020

Flipping Real Estate or House 2020

Mortgage Brokers would:

  • Falsify income of the buyer to assist in overall Debt To Income levels, making it appear a buyer is qualified when in fact they are not.
  • Photo-shopping W2 IRS forms.
  • Interfering with appraisal practice
  • Among many other things.

After billions of dollars of real estate was purchased by false prequalifications, the government removed most Stated Income programs and require borrowers to prove income.  Every one of those bullet points above is a federal crime, therefore can be classified as legitimate fraud.

On the other hand, writers are creating false impressions of the real estate investment market with something called FLOPPING.  Note the similarity to FLIPPING.

These writers claim that Flopping is defined as The intentional misrepresentation of housing value for purposes of illegal flipping.

Real Estate House Flipping

I am a real estate investor.  I make a lot of deals happen by achieving very low sale prices on listed short sales.  And I don’t feel bad doing it.  It goes beyond lowballing the bank.  I look for value add opportunities.  I ask myself how I can buy a property, make some home improvements and sell to homeowners looking for an upgraded property.  Many homeowners want a modern or upgraded home that they can afford.  So I offer them both of that.  Why does this work?  Because Rehab home loans are extinct and homeowners simply don’t have the money to put 20% down PLUS make all of these home improvements which will be costly.

So my investment risk is simple.  I buy at X, I fix up for Y, and I sell for Z.  Unfortunately, I cannot control Z, or what I can sell it for.  I am a speculator at that point.  I will let the market determine my fate.  We are fundamental real estate investors AND agents.  As a real estate agent, we do not get involved with our own sellers.  But other sellers represented by other agents are free game.

Lets say a home is listed at $400,000 and is disclosed as a short sale.  I make an offer for $320,000.  Laughable?  Insulting?  Maybe.  But it takes me literally 5 minutes to draw up a cash offer.  Upon submitting my offer, the listing agent and/or attorney and/or seller submits all of this to the bank.  Heck, sometimes I am told that they will not present the offer.  I say to myself, OK, I will just move onto the next.

A BANK DOES NOT DECIDE ON A SALES PRICE BASED ON TERMS OF THE CONTRACT AND WHAT THEY FEEL THE VALUE SHOULD BE.  A bank orders a BPO (Broker Price Opinion – Performed by a licensed real estate broker, not an appraiser) or an official appraisal.  BPO are cheaper than appraisals, but are considered reliable.  Once the bank negotiator reads the BPO or appraisal, THEY (the bank), makes the decision to either counter-offer, reject, or accept.

Let’s assume they accept my $320,000.  It is not out of left field for a bank to fire sale the home at a 20% discount from current BPO or appraisal.  I’ve seen worse.  But the approved short sale price IS ON THE BANK, NOT THE REAL ESTATE INVESTOR.

Where are we breaking the law?  Appraisers are hired by third party service companies.  The investors and the bank has no knowledge as to who is performing this.  And if you want to really break balls, don’t forget the HVCC (home valuation code of conduct) rule.  If you are interested in knowing what that is, just google it.

So let’s assume I get my house for $320,000.  GREAT FOR ME!  Bad for the bank?  Bad for seller?  The bank approves or doesn’t and it is ultimately up to the seller or homeowner to AGREE OR DISAGREE to all of the terms set forth by the bank regarding any deficiencies, promissory notes, or anything that could be brought on.  I don’t get my price until both the bank and seller agree.  Illegal?  Yeah right.

I should be thanked by neighbors these homes in some circumstances.  I am buying a tired property and enhancing the interior and exterior and overall, although by a nominal amount at worse, I am improving the integrity of the neighborhood.  When the home resells and regardless of whether I win or lose, this house will serve as a true comparable sale and sold TurnKey to a homeowner who got a nice, updated home.

Then these articles insist we investors are illegally flipping or should I say flopping.  How so?  I list my own properties  99.9999% of the time, the buyer for my home comes from an outside brokerage, serviced by a real estate agent who is suggesting a good or bad buy for these prospective buyers.  If the buyers like my home, they STILL have to get financing and the sale is STILL subject to an appraisal.  If it doesn’t appraise for what I agree the purchase price to be, I either lower the price, or the deal is dead.

I can go on and on about the lucrative practice of flipping real estate, and if you want to call me out as being into Flopping, well then I am happy to be a Flopper.  There is a ton of money to be made if you are a cash buyer or serious investor.  This is old school fundamentals of real estate investing.