FHA Waives Anti-Flipping Rule Through 2012 To Increase REO Sales January 9, 2012
Posted by Matt Siggerud in Finance & Mortgage: News, Real Estate: Foreclosures And Short Sales, Real Estate: Investing In Real Estate, Real Estate: News, Real Estate: Residential, Real Estate: Traditional Sales.add a comment
The Federal Housing Administration (FHA) is extending the temporary waiver of its property anti-flipping rule through the end of 2012. FHA rules typically prohibit insuring a mortgage on a home owned by the seller for less than 90 days. In 2010, however, the agency waived this regulation, and later extended the waiver through 2011.
The new extension announced late last week will permit buyers to continue to use FHA-insured financing to purchase HUD-owned and bank-owned properties, no matter how long the homeowner has held the title, through December 31, 2012.
FHA says the waiver will allow homes to resell as quickly as possible, helping to stabilize real estate prices and revitalize communities experiencing high foreclosure activity. According to FHA, the waiver contains strict conditions and guidelines to prevent predatory property flipping in which properties are quickly resold at inflated prices to unsuspecting borrowers.
Among these conditions, all transactions must be arms-length, with no link between the buying and selling parties.
In addition, in cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will apply only if the lender meets specific conditions, and documents the justification for the increase in value.
FHA’s property-flipping waiver is limited to forward mortgages, and does not apply to the agency’s Home Equity Conversion Mortgage (HECM) for purchase program.
Since the original waiver went into effect on February 1, 2010, FHA has insured nearly 42,000 mortgages worth more than $7 billion on properties resold within 90 days of acquisition.
The agency says its own research has found that in today’s market, acquiring, rehabilitating, and reselling foreclosed properties to prospective homeowners often takes less than 90 days.
As a result, FHA says prohibiting the use of its mortgage insurance for a subsequent resale within 90 days would adversely impact the willingness of sellers to consider offers from potential FHA buyers, namely because they would be required to cover holding costs and the risk of vandalism that comes with allowing a property to sit vacant over a 90-day period of time.
BUYING RENTAL PROPERTY: WHY IT MAKES SENSE! July 27, 2011
Posted by Matt Siggerud in Real Estate: Commercial, Real Estate: Foreclosures And Short Sales, Real Estate: Investing In Real Estate, Real Estate: Residential, Real Estate: Taxation, Real Estate: Traditional Sales.add a comment
Why is buying rental property such a great investment?
There are four primary reasons that make real estate, namely, buying rental property, a great investment.
1.The first of these is cash flow. What is cash flow exactly? Well, to put it in simplest terms, cash flow is what money you have left over after the mortgages, the taxes, and the insurance have been paid. Again, the tenant pays you rent, and that money pays off these items. Whatever is left over goes into your pocket……that is cash flow.
2. Though many people buy rental property for “cash flow,” the real benefits that will build your net worth lie elsewhere. The second main “benefit” from buying rental property is the tax shelter that it creates for you. What does this mean exactly? Well, each time you buy a rental property, the IRS allows you to “depreciate” that property over 27.5 years. In other words, you can take this depreciation expense against your active income from your job. Let’s use a quick example:
Say you buy a $200,000 rental property. Again, the IRS lets you depreciate the building, not the land. Normally, 85% of the purchase price is used to determine the building, the physical house’s value. In this example, the IRS lets you depreciate $170,000 (the house) over 27.5 years. This is equal to $6,181 per year you can take a depreciation expense against your active income. In other words, say you make $80,000 in income from your job. Now, take $80,000 minus $6,181, which gives you $73,819. Now this is the income that you pay tax on, $73,819, not $80,000 (which you actually made.) Not too shabby huh!?!
You can see how by buying this “one little rental property,” you have reduced your taxable income significantly. As you guess, if you buy two houses, this number doubles, three, triples, etc.
I know some real estate investors that own enough rental property that they do not pay in federal or state income taxes because they have such a significant depreciation expense from all of their rentals.
3. The third main benefit from owning rental property is appreciation. As we know, not all debt is bad debt. In fact, any type of real estate debt you have is the best type of debt to have, for it is appreciating debt. Again, your home may not appreciate at 10%, or even 5% every year, but at the very least, it will go up over time. This is the area that most real estate investors build their long-term wealth. Buy the properties, and then hold them.
Time for another quick example: say you buy two rental homes totaling $400,000. Now let’s say those two homes appreciate 5% over 10 years. You now have homes that are worth $651,557.85. You have made $251,557 in equity by simply buying the houses and holding onto them. Not too bad, huh? Most say that sure beats what they make at their day job!.
Minnesota real estate, from 1940 to 2000, has appreciated 6.15% on average per year. (See this link below)
www.census.gov/hhes/www/housing/census/historic/values.html
We encourage you to go out and read the book Equity Happens. Go to www.EquityHappens.com to find out more about this awesome book. The basic premise of this book is yes, over time equity does happen. People have been talking about the “bubble bursting” with real estate since the 1950s. Yet in spite of this, real estate investors have continued to see slow and steady appreciation. Appreciation is real. Equity does happen 
4. The last benefit from owning rental property is achieved through the paying down of the principal balance on your mortgages. Again, the rent you receive from your tenants will go towards paying those mortgages. Most of that money goes towards interest the bank charges you, however, some will go towards paying down the debt you owe. Over time you will build equity through paying down the loans as well.
However, you can see with the previous example at #3, if you merely pay “interest only,” on your loans, you will still gain considerable equity. In fact, the majority of your equity you build will be through appreciation, not through “paying down the loan.” For this reason, I am a firm believer in doing “interest only” types of loans. It allows you to cash flow more, to put more money in your pocket right now. What’s more, the home appreciates at the same rate no matter if you are paying $1,000 a month, interest only, or $1,800 a month, principal and interest. Cash flow is a wonderful thing that will allow you to continue buying properties. Cash flow allows you to leverage yourself, and control more appreciating assets, more real estate.
For more information visit www.investmentpropertyguys.com
