HELP!!! First Invest Property Deal Going Bad.

[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.

UPDATE: Now the bank is telling me the only way I can close on this deal is to get a renovation loan from them. The appraiser estimated repair cost to be $3500. This is to repaint and replace flooring. I have the cash on hand for the repair and I will be self performing the repair. My banker said I have to use a contractor and the minimum renovation loan they have is $5000. Also I will have to pay for another appraisal. There is no way I can ever find a licensed contractor to replace all flooring and repaint a 1000sf property. Using a contractor will probably eat all profit margin.

I am not familiar with how renovation loan works. What will happen if I get the renovation loan but self perform the work. I don't want the bank to disburse the loan to anyone as the cost will be coming directly out of my pocket. I was only interested in the property because I knew I could DIY all the cosmetic update needed. Using a contractor will it a bad deal.