If you’re a fix and flip investor, you likely wonder how soon you can sell the property after buying it. You rely on the profits from the sale to buy another and keep increasing your net worth.
But what are the rules? How long do you have to hold a house before flipping it?
Like most real estate investment rules – it depends.
The Type Of Buyers Matter
Here’s where the rules come into play. If you have anything but cash buyers purchasing the home, you need to know the mortgage rules.
As a general rule, you should have the home for at least 90 days before you sell it. FHA, VA, USDA, and conventional loan buyers will have the easiest time getting approved if you hold the title for at least 90 days.
But, that’s just a generality. Each loan program has specific requirements.
FHA loans have the strictest requirements when flipping a property. They don’t provide any wiggle room. If you haven’t been on title for at least 90 days, you can’t sell the home to FHA buyers.
If you own the home for 91 – 180 days, the FHA allows the sale, but they allow lenders to add more restrictions including requiring a 2nd appraisal which you, the seller, must pay, the buyer cannot.
VA lenders have similar restrictions regarding the 90-day rule. VA borrowers can’t buy a home the seller owned for less than 90 days. But, if you own the home for 91 – 180 days, the lender can add additional requirements.
Most lenders require a 2nd appraisal only if you’re making more than a 20 percent profit on the home. If that’s the case, the lender will require a 2nd appraisal to verify the property’s value. Again, you must pay for the appraisal, the buyer cannot.
USDA loans are for borrowers buying a home in a rural area according to the USDA guidelines. You’ll only be able to market to USDA buyers if the property falls within these areas. Like VA financing, if you’ll make over 20 percent gross profit, the lender can require a 2nd appraisal to verify the property’s value.
Conventional lenders have more lenient guidelines. Fannie Mae and Freddie Mac aren’t as strict about what they require, leaving most of it up to the lender.
In general, if you’ve been on title for less than 90 days AND you make over 20 percent gross profit, the lender may require a 2nd appraisal and some lenders may not approve the loan.
Most lenders, however, will require two appraisals until you’ve owned the home for at least 181 days.
How Long Does It Take To Flip A Property?
Now let’s talk realistically about how long it takes to flip a property. Since most lenders won’t lend on properties owned for less than 90 days, there’s no rush to flip the property, but in reality, most people can’t flip a home that fast anyway.
Here’s a basic timeline:
- 30 – 45 days to buy the property – Depending on the type of financing and the nuances with the sales contract, it can take 30 – 45 days to buy a property. Between the appraisal, settling the financing, and conducting the closing, it’s usually at least a month before you’re on the title. During that time, you can plan how you’ll rehab the house and get your ducks in a row for it.
- 1 month – 6 months to rehab the property – How long it takes to rehab the property depends on the complexity of what it needs. Cosmetic changes can take 30 days or less, but most fix and flips need much more than cosmetic changes. If you’re making structural changes, you’ll need permits, plus the contractors to do the work.
- 1 – 3 months to sell the property – Once you rehab the property, it’s time to sell it. This takes time too. How long it takes depends on the market, and how well you market the home. If you work with a licensed real estate agent you may sell the home faster than if you sell it yourself.
As you can see, it can take as little as 1 month to flip a property to 6 – 12 months. The only time you need to worry about how long you’ve owned the property before you can flip it is if you flip it within 90 days.
Watch Your Carrying Costs
As with any investment, watching your costs is important. You can only manage your profits if you know your costs.
While you can’t predict how long it will take you to sell a home, figure in the carrying costs, especially if you need to hold onto the property after you fix it until you hit the 90-day threshold.
Carrying costs are all the costs you incur to maintain and keep the property. This includes property taxes, homeowners insurance, and the costs to keep the house running. If you have a mortgage, you’ll have to keep paying it too.
The faster you sell a property, the less carrying costs you’ll have, but the more difficulty you may have with the buyer’s lender.
If you sell a home within fewer than 90 days of acquiring it, be prepared to go through plenty of scrutinies to make sure the property is worth as much as you say. Lenders want to avoid lending money to borrowers who pay an inflated price for a home. If you owned the home for less than 90 days and will make more than a 20% profit, it’s a red flag for lenders, which makes them proceed with caution and sometimes not even offer the financing.