Fix or Flip

Rate news summary

From Freddie Mac’s weekly survey: For the very first time in 2018, rates have dropped. The 30-year fixed averaged 4.44 percent, down 2 basis points from last week’s 4.46 percent. The 15-year fixed averaged 3.90 percent, 4 basis points lower than last week’s 3.94 percent.

The Mortgage Bankers Association reported an almost 1 percent increase in loan application volume from the previous week.

Bottom line: Assuming a borrower gets the average 30-year conforming fixed rate on a conforming $453,100 loan, last year’s rate of 4.30 percent and payment of $2,242 is $38 less than this week’s payment of $2,280.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages at 1 point cost: 15 years at 3.50 percent, 30 years at 4.125 percent, a 15-year agency high balance ($453,101 to $679,650) at 3.75 percent, a 30-year agency high balance at 4.125 percent, a 15-year jumbo (over $679,650) is at 4.25 percent and a 30-year is at 4.375 percent.

What I think: With all of the grumblings about low inventory levels and overpriced properties, home flippers are crushing it. Go figure.

Nationally, 2017 data indicates home flipping sales volume jumped to an 11-year high, according to Irvine-based Attom Data Solutions.

“California ranked as the 11th highest flipper state with 6.2 percent of all homes were flipped,” said Daren Blomquist, Attom’s senior vice president. “The second sale of the same property within a 12-month period defines a flip.”

Fresno led California for the highest number of 2017 flips at 9.6 percent. In Southern California, the Riverside-San Bernardino metro area ranked sixth with a per property gross flip profit of 36 percent. That translates to an average of $79,300. Nice!

The Los Angeles and Orange County market turned a 2017 gross profit of 32 percent, averaging a doubly-nice gross profit of $135,000. Cha-ching!

Not to worry if you can’t pay cash. Financing is available for investors who want to keep the property or fix, then flip it. Fannie Mae has a loan named Homestyle that will provide investor-purchase financing and fix-up funds for one to four units.

One interesting loan I came across for those wanting to “mansion-ize” a flipper allows you to put as little as 10 percent down, not to exceed 80 percent of the “as is” property value. For example, you purchase a property for $1 million but it’s worth $1.2 million before improvements. You can go in with $100,000.

With a cherry on top, the investor will make available as much as 80 percent of the fix-up funds based on the completed value. Interest rates range from 8 percent to 11 percent and 2-4 four points.

There are traditional construction loans available, but the challenge is all red tape to get an approved plan, contractor bids, etc., before the seller gets too impatient with a likely long escrow period.

Now, if you are looking to buy a recently fixed-up property, caution ahead!

Engage an experienced home inspector to dig deep.

“Fifteen to 20 percent of flipped properties I inspect are not done in a workman-like manner,” said Jon Wilhelm of Studio City-based Valley Home Inspection Service.

The biggest problems Wilhelm sees are shoddy structural modifications like opening up walls, electrical violations and moving roof framing without permits.

Wilhelm estimates 20 percent of the first contracted buyers to have inspections done on recently flipped properties walk away because problems are found and the seller is unwilling to fix them. It’s usually the second buyer contract that sticks because the seller now has something on record that can cause liability if undisclosed and or unrepaired.

A property inspection can cost anywhere from $300 to $800.

Pam Manzi can be reached at 949-510-4818


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