About to make first HUD purchase!?

Question

Hey guys,

Looking for some quick advice on a HUD sale:

My boyfriend is going to be making a full-price offer on a HUD property tomorrow, and I'm trying to figure out what the bottom line is for the amount of money he will need to close.

Can someone who has dealt with a HUD sale before give me a little info into how it works? At this point he has a pre-approval for conventional financing through a local lender, but will HUD be offering any deals for financing as part of the sale?

Any help would be really appreciated, as this will be our first investment property purchase!!

Ted Akers · Answer

Just a quick caution.  You want to find out why the property is uninsurable by FHA.  If there are serious issues or it is  deemed to not be habitable you may have problems with conventional financing - for example missing flooring or sinks or foundation issues.  Check the property condition report on the FHA website.
Good Luck,

Jon Klaus · Answer

I typically find that the uninsured HUDs have a one or more major issues.  On the other hand, you hardly see any competition from owner occupants on them and can sometimes eventually get them for far less than HUD's original price.

The properties that are in good shape do tend to see more bidding action from investors and OO's and often the price is bid up.  You ought to follow the one you just mentioned to see what it goes for and to what type of buyer.

A good way to get your feet wet is start bidding low on numerous HUD's to get comfortable with the process and learn your HUD market.  You might even win one at a great value.

Des Shei · Answer

Desmond,

Des Shei · Answer

@Rich
          HUD selling prices vary vastly by local regions and the property in questions. 2 properties i was looking at sold for 35K and 25K respectively over asking. I was truly amazed.
                    
                    @Rebecca-
                    The closing costs and commission are ALWAYS an option. Feel free to add it in, what i meant is that the inclusion of the closing costs to be paid by HUD will lessen the "NET" sale price which could result in you losing the deal; especially if another individual also offers the asking price but doesn't ask for seller concession(closing cost assistance).
                    Happy Investing!
                    
                    Desmond,
                    Kamere Realty Group,LLC

Des Shei · Answer

It's a transaction like any other. I've seen HUD accepting to pay closing costs up to 3% which is good. I'm an investor with a realtor license and HUD also has pretty good commissions of up to 5% when i buy. SO bottom line; HUD accepts offers based on who gives the biggest NET sales price. The difference between an acceptance or rejection could be 25 dollars or one offer including closing costs vs the other not requiring that.
          
          When you say "deals for financing" i'm assuming thats what you are talking about. That said, with hud purchases your financing options will be dictated by the listing type; that is a house listed as "insured" can qualify for FHA loan vs an "uninsured" loan which will require cash, HML, conventional etc.
          Happy investing,
          
          Desmond,
          Kamere Realty Group, LLC

Raymond B. · Answer

Quote:although I was a bit more emotionally attached to this one, making it our first real disappointment

It is not easy to do, but you should not be emotionally attached to an investment property.

Ray in Ct

Ted Akers · Answer

Excellent advice by Jon.  And yes I could have been clearer.  If a HUD is uninsurable it is typically due to more serious issues, not just a little TLC.

Rebecca Morrell · Answer

Hey Ted!

Thanks so much for the caution; this week has been a HUGE learning experience and I feel great about all that I have found out about the process...

To summarize: 
1.) Indeed the property I was first referencing would require more rehab than we were interested in, so we scrubbed that on Tuesday.
2.) The very same day, another property came on the HUD website: single family in a great location, and only in need of some TLC.
3.) Unfortunately, since we were not planning on making our first purchase/investment at this time, we fell a bit short of the down payment and have today decided to nix that one (although I was a bit more emotionally attached to this one, making it our first real disappointment).

I suggested to my partner that he try to get a private lender to fund the rest of what is needed for the down, but unfortunately I have not thus far been able to convince him that private lending is secure enough to use as a means at this point in his life... I am much more comfortable with the idea, and look forward to finding a lender to help me finance another deal in the near future, but in a nutshell, that's the outcome of this situation!

I can't thank everyone enough for all of the info this week, and as I said I am not too upset about these prospects not pannig out since I know others will come along soon.

Des Shei · Answer

glad to be of resource Rebecca. that's what this community is for. We can all learn from each other's past experiences.
Happy investing.
Desmond

Rebecca Morrell · Answer

Des and Maryann, you have definitely answered my questions: Thank you so very much!

I am far more educated individual and investor now than I was at 8am...

I have found out that I am one of the first people in my office (as an agent) to work with a HUD buyer, but that in fact we are certified and I can place the bids myself once we decide on a property, making the whole transaction smoother.

The advice on offers and financing has been very helpful: at this point after finally seeing the interior, I have also learned that "Good" condition as listed on a HUD Property Report is nowhere NEAR what it would be on the regular market.  We are now trying to find a general contractor who might be able to give us an estimate on repair costs, and also a rehabber who we might be able to flip the property to (per transactional funding) in case the repair work is more than we want to handle.

The terms that HUD offers are just too good for him to not take advantage of at some point soon, but I'm thinking that doing a wholesale in my name might be the best option for this one.

About to make first HUD purchase!?

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