Hud home offer accepted!!!

[Maurice J.]

My real estate goals started two years ago and we just now have an accepted offer on a single family we will buy and hold. Although we can't decide on using our hard money lender or going in it with 20% down with a conventional loan. The fact that we have our foot in the door on our first deal is amazing! Meeting with contractors today to get a budget together and decide exactly what we are going to do. Wouldn't be able to do it with out biggerpockets and what his gold mine has giving me in knowledge. Here are the numbers: Purchase price: 95,000 ARV: 160k Repairs (estimate) 25,000 Rent $1250 Cash flow after vacancy and repairs 250 What are your thoughts ? First time dealing with a hud home. Any surprises we should be aware of ?

[Tim Campbell]

Originally posted by @Maurice J.:

Although we can't decide on using our hard money lender or going in it with 20% down with a conventional loan. Here are the numbers:

Purchase price: 95,000
ARV: 160k
Repairs (estimate) 25,000
Rent $1250
Cash flow after vacancy and repairs 250

 Hey Maurice, congrats!  I buy in the western suburbs and parts of MPLS.  Your numbers are similar to what I find and buy.  My purchase price is lower but my rehab cost is sometimes higher based on the condition of home.

Since it is a HUD home, you have to use their as-is contract. Although you get an inspection period, typical purchase contingenies are null and void. Therefore, get your contractor quotes but add contingency on top of that for unknowns that your contractors won't find until they dewinterize and open up walls. If you don't use the contingency...great...but at least your prepared. Also, don't estimate the numbers with a skinny rehab budget...too many unknowns. Go in fat worst case.

In reference to type of loan, I personally would rather keep as much cash liquid as possible. I would go hard money and use your 20% as reserve funds only. After the rehab, I would refi into a conventional loan for 70% of the ARV. This way, you have the liquidity for your next deal without having to wait to build up your reserves again. There is no seasoning on the refi since you already own the home. Use other people's cash and keep your 20% as the reserve. Your ARV vs purchase/project cost may prevent you from doing it on this one but this method is more scalable.