Inverse house Flipping?

Question

Hello All,

I just got my real estate license this past week. I can't wait to dive in and use it for different investing and Real Estate income Strategies!

One idea that came to mind the only word I could think of to describe it is Inverse house flipping. I was wondering who might have some advice for me.

As it stands right now I don't have much start up capital to invest in flipping a home, especially in the MA area. My thoughts were if I used my R/E license to focus on selling to buyers Fixer uppers that are significantly under their budget. I would then use the left over budget  to help them remodel the house and make it their own. I would basically coordinate the entire project and make the profit on that side. Basically similar to the Property Brothers Process.

How do I get my buyers approved for the additional rehab costs on their loan?

Am I able to coordinate the process being that I am not a General Contractor?

If this process is less than worth it, what recommendations do you have to help me generate the capital needed to get my first flip under my belt?

Thanks!

Corey

Shaun Reilly · Answer

Every time I have seen Property Bros the wife and I always comment "It really isn't the same to say you can buy a $400,000 house or you have $400,000 to spend on a house."

As in you generally can't roll the costs into a loan (except in a few special cases), so why don't they just get the place that is double their budget that they always love if they have an extra $150K liquid to do the rehab on the cheap place?

As Justin points out usually they will need to get a construction loan.  If you want to deal with miles of government Red Tape you can work with them on getting FHA 203(k) loans which are basically the only pure residential construction loan product out there, and is only for owner occupants.  Otherwise the place will have to fall into a couple of categories for it to work.  Place has to be in good enough shape that they can get a regular mortgage and bought with a big enough discount you can get an adequate HELCO on it to do the work.  Same as above but won't be able to get a HELOC so need to qualify for some other loan (Construction maybe or just a personal loan of some sort).  Last is the place is a total disaster and you get some kind of commercial construction thing (Might get better terms as and owner occupant) but as Justin said those aren't going to be good long term loans for the buyer.  You can have them refi once the work is done.  If they are doing a rate/term refi there usually isn't any seasoning needed.  Cashing out usually would involve at least some seasoning.

Corey Besner · Answer

Thank you for that info.

Justin Silverio · Answer

Depending on the rehab, your buyers would need to get a construction loan which are typically expensive.  Also, banks will want a license GC to manage the project.