You may have heard the term “lipstick on a pig.” In house-flipping terms, this means doing basic Exterior upgrades that mask underlying issues beneath paint and drywall.
california house flippers They’re going to have to take off the makeup and get out the heavy machinery because of a new law—Assembly Bill 968 (AB-968), effective July 1 – requires sellers of one to four properties sold within 18 months of purchase to fully disclose their repairs and renovations. The purpose is to protect the buyer from undisclosed and unseen condition of the property.
However, This is not just Comprehensive scope of work Need to provide. The new law could have wider implications.
Key Provisions of AB-968
Single family or small apartment Multifamily (Under Four Units) House flippers need to take a close look at their home flipping efforts and who does it. this Details of legal requirements yes:
- Records of all major and minor repairs costing more than $500.
- Copies of all relevant licenses.
- If there is no permit, the seller must assist the buyer in obtaining a permit from the relevant third party (usually the DOB at City Hall).
- The name of each contractor associated with each permit and their contact information.
How new laws will affect home flippers
Many house flippers take on general contracting work they themselves, hiring subcontractors and paying cash for specific jobs (especially unskilled labor). While they can still get away with it, when it comes to more skilled work like plumbing and electrical, everything needs to be done by the book, with permits and inspections from licensed contractors. This means that undocumented workers may not be hired, regardless of their skills.
The end result may increase costs and hours of work, where the speed is usually game name.
Litigation and Compliance
Sellers who fail to comply with AB-968 will face fines and lawsuits. Should unpublished or published jobs be discovered? work not done, the buyer has grounds to rescind the sale and compensate for losses. Therefore, it is not advisable to try to circumvent the new law.
Flippers need a lawyer
Given the high real estate prices in California, house flippers shouldn’t leave anything to chance. price Hire a lawyer It’s well worth ensuring that sellers fully comply with the new laws when listing their home for sale. Preparing for disclosures, renewing licenses, and resolving possible issues before they arise means hiring an attorney long before you flip your home finished It’s a prudent move.
California law targets flippers
Bill AB-968 is hot next Act of Parliament 1771, introduced in 2022 by Assemblyman Chris Ward (D-San Diego), under the California Speculation Act, house flippers could be taxed 25% of their profits. The bill ultimately failed to win approval from the Assembly’s Revenue and Taxation Committee. Additional tax revenue will flow into the newly created Speculative Recapture Community Reinvestment Fund and be used for local government spending on schools, affordable housing, infrastructure and transportation.
“We’re hearing about people getting cash offers from investors when buying their first home,” Ward said then. “When investors exit the buying pool, average homebuyers have an opportunity to purchase a home.”
Supply is a major issue
California’s contentious relationship with home flipping points to a larger issue in the state: Chronic housing shortage. In recent elections, voters overwhelmingly supported building new homes across the state, but a recent opinion poll The survey found that a majority of Los Angeles respondents remain skeptical of its effectiveness in alleviating housing stress. When asked what impact they thought new housing built in their neighborhoods would have, 49 percent agreed with this statement: “It will drive up housing costs and force residents out.”
The poll is called the 2024 LABC Institute Housing Affordability Survey, and Los Angeles TimesThe survey of 600 registered voters in Los Angeles was conducted between April 3 and 7. limited affordable housing as well as veterans, public service workers, low-income seniors, and low-income families with children.
California is fertile ground for house flippers
according to A Study in Highland CabinetsCalifornia ranks seventh among the most profitable states in the nation for flipping homes, with an average remodel price of $83,382. The national average is $67,791.
“The latest data shows that investors will still have a tough time making substantial profits after fees,” ATOM CEO Rob Barber said in a press release about the organization’s 2024 U.S. Home Flip Report. “With others, Likewise, they’ve faced tough times over the past year as the real estate market boom cooled, but our current year’s trends suggest things are starting to look up for the flipping industry, with clear signs of growing interest in the market.
Los Angeles’ “mansion tax” harm the bottom line Luxurious house flippers, but will this help solve the housing crisis?
Like New York, Los Angeles imposes a “mansion tax” (formerly known as the UL measure) of 4% on all sales over $5 million and 5.5% on sales over $10 million. However, unlike Los Angeles, New York’s mansion tax is 1% starting on sales exceeding $1 million.
While the mansion tax is unlikely to directly impact flippers who first-time homebuyers are competing to acquire properties, proceeds from the tax could directly address Los Angeles’ housing crisis. Measuring ULA has been roughly improved $215 million This is the first year, according to the Los Angeles Housing Department.
This has been a contentious issue among Los Angeles real estate professionals, who claim it harms all elements of development, including multifamily development and commercial real estate — because it expropriated Ironically, this could help alleviate the housing crisis.
“My clients are leaving Los Angeles,” said Jason Oppenheim, a luxury real estate agent who stars on a real estate reality show for sale sunsetwhen being interviewed Los Angeles Times. “We can’t continue to drive wealthy people out of our city. This tax has not The effect is promisedit’s time for everyone to swallow their egos and realize this was a mistake. one after another Celebrities sold their Los Angeles homes before the tax took effect, including Mark Wahlberg, Stalloneand Brad Pitt.
Guess so The mansion tax will generate about $300 million in net revenue for the city this fiscal year. “Despite the lawsuits, despite the cold markets, and despite the wealth defense industry that aims to help wealthy people protect their money from taxes,” said Greg Good, senior adviser for policy and external affairs in Los Angeles. dollars for housing and homeless programs. Los Angeles Times.
final thoughts
It looks very nice obviously think The city of Los Angeles and other places should add some nuance to their tax laws. Support for sellers who agree to build more unit apartment complexes Apartment buildingpossibly through Chapter 1031 Exchangeexempting the mansion tax seems logical.
New house flipping instructions only Regardless, reinforces what should be provided in a sales disclosure. Being forced to publish the names of contractors goes some way to eliminating the situation of unlicensed contractors working underground for cash, which would undoubtedly hinder the bottom lines of smaller flippers and bring cash workers into the tax system.
The obvious solution is to have a licensed contractor sign off on the work for a fee, which is nothing new. However, legal fees and the time it takes to provide documentation may prevent the deal from being completed, but this is not insubstantial if the flipper is tight on controlling the correct documentation as the work progresses.
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