Riverside Realtor Blog - Alma Dizon

Alma shares her experiences and observations as a Realtor in Riverside California.

Tuesday, May 30, 2006

builders don't want people to flip houses

Lately, I have had a couple of people ask me about selling new houses that they'd just bought recently. In both instances, when I read through copies of their trust deeds, I found where they had promised not to sell the property for at least a year. In one case, where the owners had borrowed about 95%, they had also promised to move into the home within several months of its completion. This type of verbiage is becoming more and more common as builders try to prevent investors from flipping houses in new tracts.

I asked both sets of owners if they were aware of this wording. The first group said they were, and when I asked if they had a strong reason to get out of the agreement, such as a job relocation, they said, "no." They just wanted to flip the house. I advised them to talk to the lender and find out if it was even possible for them to get around the limitation, such as by paying a penalty. But I also told them there'd be substantial tax consequences, and that they should talk to their tax preparer. I suggested that, since they'd put a large deposit on the property, they go ahead and rent it out for a year in the meantime, so that they'll be able to do a 1031 tax exchange later.

As for the other people, they never responded to my questions but just went ahead and listed with someone else. I wish them luck. They'd just gone through a 6-month listing without a single offer, and it probably had to do with their house being priced about 80k over 3rd phase houses that the builder was closing out.


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