BRRRR-Delayed Finance Exception-How to Get Rehab Budget on HUD-1

[Tim Broxholm]

Hi fellow investors! 

I just got a house under contract and based on the recent EP of the podcast the guest shared he was able to use delayed finance exception by getting the rehab costs on HUD-1. The guest said that you can wait the 6 month seasoning period and get 75% LTV on the ARV -OR- take 100% of what's on the HUD-1. For this project, it makes the most sense to utilize the delayed finance exception

I wanted to see if anyone could share the mechanics of this process. 

We are entering the inspection period and I'll be purchasing all-cash via private money, then funding the rehab.  Rehab should take 8-10 weeks, and I am working with a lender to make sure ducks are in a row.

Any advice or coaching would be greatly valued! 

[Tim Broxholm]

Hi Wayne, can you clarify what doesn't seem doable? In EP 301 of the Podcast, Alex Felice, discuss the concept and that he has done the delayed finance exception. Here is what he said in the podcast:

Alex: I got all my money back by 6 months later and then I found out about delayed finance and then I did 4. It takes me 8 weeks to do a Brrrr now."

Alex: So you close in the house 35 thousand dollars, the hud says 35 grand so when you go to get a loan even if you use delayed finance they’re going to say you can pay a 100% a hud or 75% whichever ones less. So the house appraises for whatever and I only paid 35 grand so you can only get 35 grand. That’s what everybody doesn’t like about delayed finance. You can only get out what you paid for the house.

So what I started doing was when I got the hud I went to the title attorney and I just said I’m going to add some stuff to that do you care? No we don’t care, why would an attorney care what’s on the hud? They don’t care. So here’s an invoice for 3000 dollars for my contractor, here’s 700 bucks for my insurance, can you add to it? Sure, now the downside is you have to pay for all of it upfront and they’re going to Escrow it to the insurance, they’re going to escrow it to the contractor and you can set it up, they do disbursements or what not but now the hud says 66 grand. And so when I go to the lender they’re like oh 100% a hud, we’re done. Cool 66 grand.

Brandon: That’s fast and interesting.

David: So if I understand you right Alex, you’re paying your rehab cost into the Escrow, you’re closing the cost of the house is going to the seller and the Escrow company is keeping your cost in Escrow which they disperse to your contractor as they complete the work. Is that correct?

Alex: That’s the way you should do it. I don’t do it that way, I pay my contractor full upfront, I don’t care because him and I are, that’s the power of having a great team. You can tell them Escrow it out you know as you tell them they will disperse it no problem.

Here is the link to Fanniemae's guidelines, which does show it  is possible:

https://www.fanniemae.com/content/guide/selling/b2/1.2/03.html