Am I missing something!?!?

Question

Good morning ladies and gentlemen,
Back in early February I put an offer in for a two family.  My offer was asking price, but my closing day would've had to be a month longer than usual.  Well my offer was rejected.  The property closed last week for $12K less than my offer.  I'm still really new to this (haven't closed my first deal yet) so, am I missing something?  Is a month too much of a deterrent, what are some things that will let you (as a seller) pass on $12K?

Jon Holdman · Answer

Sorry, but your offer is very weak.  FHA is bad enough.  Some other program to help with down payment is an extra kicker.  Add on the extra month to close, yeah, I can see why they took the other offer.  Hopefully you didn't mention you needed that extra month to save up the down payment.  To me, that's a death knell.  It tells me you aren't really quite ready to buy.  If the transmission on your car goes out in the next two months, closing is going to be delayed.  I've been the seller on a deal similar to this.  If I would have had another buyer, I'd have gone with them, too.

Engels Rojas · Answer

No apology necessary.  That's exactly why I asked, I appreciate the perspective.  Thanks to people like you and all the material I keep reading on this website, I keep getting more excited about investing in Real Estate.

Ben Reese · Answer

Ann Bellamy and Mike D'Arrigo are correct that structurally a HM loan would be a good way to go, but If I read this correctly Engels Rojas has only a small down payment available. That usually precludes the use of Hard Money.

Mike D'Arrigo · Answer

Ann,
You're absolutely right but he could finance it with hard money as N/O/O refinance it with conventional and then move in after he pays off the hard money lender.

Ann Bellamy · Answer

Mike D'Arrigo Most hard money lenders won't lend to owner occupants, so that may not be an option.

Mike D'Arrigo · Answer

FHA loans have a negative connotation among a lot of real estate agents, although it's an outdated viewpoint. When you start adding down payment assistance programs on top of it, that's a deal killer. About 30% of real estate transactions are cash so that gives you an idea of what you're up against. You might want to consider financing with hard money and then refinancing in to a conventional loan.

Chris Masons · Answer

Another thing sellers may see when they hear FHA is first time home buyer IE. more chance deal may fall through due to inexperience, cold feet, ETC.

In this market sellers are probably willing to take a lower more definite offer IE all cash or 25 - 30% DP VS a FHA with 3-5% down and have to worry about FHA inspection and appraisal.

NOT to discourage you in anyway shape or Form. My first purchase was a FHA 4 family back in 97. The market was different back then also.

Keep your head up and just learn from the experience. There will ALWAYS be another property that comes along that fits yoru criteria, I Can promise you this.

good luck!

Chris

p.s. I love your strategy of your first property/investment being a 2 family that you will occupy and rent out!  Very smart move to get into RE

Grant P. · Answer

FHA is not as bad as it was when the market was down, but FHA brings appraisal issues.

The FHA appraisal sticks with the property for 6 months, so if for some reason the property did not appraise for the offer price,  the seller only has one option if he wants to sell to a FHA buyer for the next 6 months-price reduction.  Typically even if the FHA buyer was willing to come with the cash difference they don't have it, otherwise they wouldn't be an FHA buyer.

Engels Rojas · Answer

I would have actually appreciated the person contacting the lender.  I can see how on paper without research my offer wasn't good at all.  Why is FHA such a big disadvantage? This 2 family house was 'turn key' both units, with one of the units already rented.

Grant P. · Answer

I don't even look at offers without calling the lender.  So many generic BS lender letters and proof of funds letters floating around out there.

If I found out that you did not have the liquid down payment I would have thrown the offer out.  Unless you were submitting an offer contingent on a sale of another property the long close would have been a red flag.  FHA is also a big disadvantage.

Am I missing something!?!?

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