Please explain why lenders are negative...

[ZNICK]

Please help me understand why banks and lenders are so against "flippers", and why seasoning issues exist?

Who cares if I bough it last week and am selling it?  Doesn't it give lenders another opportunity?  What's the problem?

Z

[WilsonTaylor]

I am not a lender but I can think of a couple of reasons that mortgage companies would not like to deal with flippers.  

Mortgage companies loan money with the expectation that they will be making interest on the money they loan.  Since the mortgage industry is pretty competitive, they only break even on the loan fees.  If they only get to collect interest for a few months on the note, they do not make much money and have to go back out and get an new borrower to lend the money to.  Although  a new lender may be getting the new mortgage, they may empathize with the other company (birds of a feather...) and consider what it would be like for them.

Another possibility is that it increases the chance of fraud.  During the  80s a group of people (3 if I remember correctly) in Texas took turns buying property (condos) from each other at ever increasing prices.  They did little or nothing to improve the properties, but only sold it at ever higher prices and with bigger loans.  Then when the prices were extremely inflated, they merely let the banks foreclose on them.  The banks were stuck with loans on property that was far in excess of the true value of the property.  The buildings finally sold for pennies on the dollar and the banks wrote off  huge losses.  Some of them even became insolvent and the Fed stepped in.  As a result of this fiasco, we all have a new set of rules that we have to abide with.

These may not be the only explanations, but maybe someone else can chime in with others.

Wilson

[MPetty]

Well, with single-family homes, you have almost no control over the appreciation of the house.  You are taking a big risk by assuming the area your house resides in will improve.  Of course you can spend money improving the house, but if the area itself depreciates, that won't matter very much.

The value of commercial properties, on the other hand, is a function of the cash flow of that property.  You have much, much more control over that.  You can improve the buildings to charge more rent and you can lower the operating expenses of the building so that the income is greater.

This is why commercial property loans are secured against the property itself, instead of against the personal assets of the owner.

[tedjr]

Howdy Z:

One reason banks are against flippers is obvious. New investors tie up a property after reading a book on how to flip for quick profit with no money or job or credit and no real idea of the value of the property or who to sell it to. This may not be too bad one time for any seller but try getting four or five deals like this working and none of them closing.

What if you are the seller? Do you not want top value and a buyer who you know can close the deal. There are too many new investors who do not know what they are doing and have no money or credit. Even with a mentor and advice from a seasoned investor it can be difficult to close on a deal.

There are many books on the market and Tv ads that tell how easy it is and all the nice cars and mansions you can have and hot blondes. It aint that easy for most. Some get lucky and fall into fortune without hard work but it is not the norm. Some say buy a 3/2 and off you go to fame and fortune. If it were so easy we would all have been rich years ago. I enjoy the hard work but it is hard work and a lot of risk. I bought a condo for 28,000 that appraised for $56,000. I thought I was on the road again to great wealth. I fixed it up with the hard money loan but only got $2000 for repairs and it took $4000. I put $1500 down too to cover the points and closing costs. I could not sell it for what I owe now in past due payments and will lose it tomorrow in foreclosure. I am losing money and a bit of my soul. The good news is i did not let that discourage me. I just got dismissed from Chapter 13 for non payment and that is not discourgaged me. It did for a long time after the chapter 7 case was filed in 2000. It has been a roller coaster ride to say the least.

Now for some good news. I am closing on a house in Dripping Springs that we bought for $24,000 that appraised for $153,000 after $55,000 in repairs. I took in a partner that knows nothing about construction and little about RE investing. We are going to fix it up and make a profit together. He was a friend already otherwise I would have just done by myself. I also have another deal under contract that will make a good rental property and should net me $2000 per month or so with a partner if I choose to bring one in on the deal. My property on 12th has not sold and I need to get it sold as to create some working capital. I am considering a lower price to help move it within 30 days. The buyer will be prequalified and be able to close or they can keep on trucking. I took down the sign in the yard even because of all the wantabe renters and non qualified calls i was getting. It is in MLS where the Realtors will have a chance to make a few bucks and bring me a buyer that can perform. Wow. All that made me feel better. Maybe i can go back to sleep now. Hope it helped answer your question and motivates you to do great deals. It helps me more.

[ZNICK]

You mean... no hot blondes?   >

Z

[Bluemoon06]

You need to deal with mortgage brokers in your area that deal in investor financing.  You don't want to deal with the bank, nor mortgage broker that deals only with consumer residental home loans only.  Ask others in the business, they know who they are.  If they don't want to do the deal, there is something wrong with the deal.

In general the red flags that a banker sees, will be based on consumer lending.  They will loan, but you have to put more of your money into it.  The brokers I am talking about are going to do the deal on the merits of the deal.  Therfore when they don't want to do the deal, find out why and eleminate those issues.  Remember your money is made when you buy, not when you sell.  If you are not buying right, they will balk at lending.