There are many ways for people to invest in real estate. Some people convert inherited property that they receive from parents or grandparents to rental units. Others purchase vacant land and wait for infill to make the property valuable decades later.
Those looking for short-term profits may engage in house flipping. House flipping involves acquiring a property at a competitive price and then making improvements. The flipper then resells the property at a profit, often after owning the property for a limited amount of time.
House flipping provides an investment opportunity for those with capital, but it may also put pressure on those seeking entry-level homes. As such, California lawmakers have enacted a new statute after passing Assembly Bill 968 that is intended to highlight house flipping and ensure that buyers can make informed decisions. What restrictions does the Flipper Disclosure Law impose on investors?
Sellers must disclose all major projects
The point of the Flipper Disclosure Law is to prevent investors from making low-quality cosmetic improvements to a property and charging a major increase in price for applying paint or replacing aged appliances.
Under the Flipper Disclosure Law, sellers who intend to relist a property after acquiring it as an investment have to provide a detailed disclosure to buyers of all major projects performed at the property. The Flipper Disclosure Law applies to anyone who intends to resell a property within 18 months of taking possession of it.
Sellers must provide a list of any repairs or changes made to the property, including structural alterations. They may also provide information about the contractors hired to perform the work and a record of the permits secured for the project.
Even sellers who have a longer turnaround time on properties may want to consider making extensive disclosures. When buyers are aware of what improvements sellers have made, they may have an easier time justifying the current asking price for the property.
Those intending to invest in real property may need help evaluating their options and maximizing the return on the investments they make. Ensuring careful compliance with all disclosure requirements and other regulations can help sellers better navigate a competitive real estate market.