On The House: A Crowdfunded Alternative To House-Flip Financing

By Caitlin McCabe
The Philadelphia Inquirer

WWR Article Summary (tl;dr) When the housing bubble burst and values plummeted, flippers with multiple mortgages suddenly couldn’t sell their properties and couldn’t pay their loans. The rest is history. Now, flipping, buying second-rate homes, rehabbing them quickly, and selling them for a profit, is back. In 2016’s second quarter, more than 51,000 U.S. homes were flipped, the most since 2010.

The Philadelphia Inquirer

Back when house-flipping was the major fad of the mid-2000s, Matt and Elizabeth Faircloth were not like most.

As tens of thousands of people across the nation were securing mortgages they never should have received to fund flips, the New Jersey couple were tapping into money for projects in any way they could find: personal savings, money from friends and their inner circle.

They were the outliers: Only 30 percent of flippers were paying with cash, the majority instead borrowing from banks and other lenders to get a lot of money fast.

For years, the system worked. Until it didn’t.

At the peak of the flipping boom in second-quarter 2005, when 95,000 people across the country flipped single-family homes or condos, many flippers were holding two, three or four mortgages, experts say, partially driven by investors who lied on their applications, saying the homes would be their primary residences so they could get cheaper interest rates. Lenders who severely loosened their borrowing standards were also part of the problem.

So when the housing bubble burst and values plummeted, flippers with multiple mortgages suddenly couldn’t sell their properties and couldn’t pay their loans. The rest is history.

Now, flipping, buying second-rate homes, rehabbing them quickly, and selling them for a profit, is back. In 2016’s second quarter, more than 51,000 U.S. homes were flipped, the most since 2010.

Can we ensure what happened in the mid-2000s doesn’t happen again? Industry experts say there’s something that can help: the internet and the crowd.

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