First Invest Property Deal Going Bad. HELP!!!

[Jay Thomas]

Hello Fellow Investors,

I am in the process of buy my first rental property in Chicago area.. It is a HUD (insured) home that only need cosmetic update. HUD PCR report reveals that everything is in working order. I have also done an inspection. The house needs new interior painting and new flooring. HUD has stripped the current flooring leaving an exposed concrete slab. I planned on self-performing all the cosmetic update and I estimated this to be about $3,000. I have the $3,000 cash on hand.

Prior to making an offer on this property, I spoke to my bank and made them aware of the condition of the property. My banker spoke to his underwriter and they gave me a go ahead to bid on the property. I was told that they would only do an "As-Is" appraisal which would allow me to close on the property before doing renovations.

After putting $1000 earnest money, $600 appraisal fee and $200 inspection fee, the appraisal report came negating what the underwriter said. The appraiser gave the property a C5 rating requested that we paint the walls and install new flooring prior to closing. My bank disagrees with the report and is fighting it with the appraiser. The appraiser rejected my banks request to remove “fix before closing” clause in the report. My bank has escalated the issue with the appraiser and we are now hoping for a better outcome else it looks like I might lose out on this deal.

HUD is not very nice to investor when it comes to returning earnest money. I have already sunk $1,800 into this deal. I don't want to lose all that money. I have started calling other bank if they would finance this deal if the first bank denies my loan. None of them is willing to finance a C5 property. I found a bank willing to finance it as a portfolio mortgage but they are asking for 2% fee, 5ARM, Prime + 2% interest rate, another appraisal fee and put $4,500 into repair escrow.

I’m already putting 20% down. I don’t want to spend to much money towards closing this deal. What other options do I have on the table? The idea of losing $1,800 lives a very bitter taste in my mouth.