All Forum Posts by: Rob C.

Homepath financing (Fannie Mae) seems to get a lot of attention, but Homesteps financing (Freddie Mac) meanwhile has been flying under the radar as it has been rolling out. Freddie Mac appears to be following in the footsteps of Fannie Mae by offering financing incentives on some of their foreclosed Homesteps properties for sale. It's not as enticing as Homepath financing (no renovation loans for example), but I figured it's at least worth sharing. At first I thought it was just for owner occupants, allowing 5% down and no MI. However, when I called up the lender doing these loans he said that the program extends to investors allowing 15% down (and again no MI). I imagine the fees are probably pretty high like on homepath loans, but maybe it will be useful for a few folks out there who have limited cash that want to invest in as many properties as possible. I find it strange they don't mention the investor financing anywhere on their websites. Also, it's only available on some of their properties (i.e. I assume ones in relatively good condition). And currently it's only available in GA, FL, IL and TX, but is expected to roll out nationally through 2013. More information (albeit limited) can be found on their websites:
http://www.homesteps.com/homesteps/financing/index.html
http://www.facebook.com/HomeSteps
email: [email protected]

There may be more catches to the program that I didn't get in my five minute conversation with the loan officer (has anyone gotten a homesteps loan?). And again not as enticing as the homepath financing which allows 10% down payments. But on the flipside, it sounds like a good option on the surface, and moreover homesteps foreclosures seem to sell for a bit less than homepath ones. It seems to me Fannie Mae is really aggressive with their pricing, while Freddie Mac is a little more reasonable. Has anyone else noticed that?

John C. I can't tell you how much I appreciate those two cents. Sincere thanks!! That kind of educated professional opinion is priceless. And it's exactly what I needed to hear while weighing whether I should move forward on this deal or not.

If there's something I can do to repay the favor, let me know. Can I buy you dinner the next time I'm out your way?

This biggerpockets community continues to amaze me. Thanks again all

John C., Wow thanks for the offer to drive by and give me your feedback! I really appreciate you looking out for a newcomer like me.

I admit I may be underestimating the importance of schools in Decatur. Ironically, it is the main thing I look at in my search for property in Gwinnett County (i.e. good schools). However, I figured Decatur was more of a young community, so schools would be less important. Maybe I'm wrong on that.

Apparently the bank has just sent the paperwork back to me to sign. Needs to be signed by tomorrow with earnest money going in within two days from that point. 7 day due diligence period. I welcome any criticism/wisdom/suggestions that will help steer me in the right direction.

Some really good responses here. Thanks all. I was trying to keep my initial post concise, but realize now based on some of the questions and suggestions that I ought to have provided the backstory:

I called the listing brokerage on this place a few weeks ago when it came back on the market. I was put in touch with one of their buyer's agent. He mentioned he thought the property would go WAY over listing price because the BPO was ridiculously low. He figured it would end up north of 150k and it probably wouldn't serve the purpose I was looking for (which was to buy and hold long term as rental). But we kept in touch, and he gave me some leads on a couple other properties we tried to chase. Fast forward to a few days ago and I get a call from him with news on this Dalerose Rd property -there were multiple offers, but from what he gathered he didn't think they were all that far off from list price. Since highest and best was due the next day, he encouraged putting in an offer sight unseen with a due diligence period (note: he hadn't seen the property either). I bit the bait realizing that maybe it wouldnt pencil the greatest as a rental, but could be worth pursuing based on its upside. We put in an offer at 105k. He called the next day really excited and told me it was accepted. Started talking about how much of a great deal it seemed to be. The next day though he goes and takes a look at the property. He called me back afterward and his tone had totally changed. He was almost discouraging at this point, suggesting that maybe this isn't the property for me after all. We had talked about how I wasn't hoping to spend all that much on a rehab. And so perhaps when he saw it needed a good amount of work (in his opinion) he probably thought it was better not to waste time on it. So that's where I'm at now. The more I learn about it the more it seems catered to a flip than a long-term rental. And I'm wondering now if it's worth pursuing in that regard even though it wasn't my original intention.

A few of you suggested bringing a GC into the loop to help with estimates. I probably should have clarified that the guy who took the video was a GC that I recently started working with. This is the first property in about four that he has looked at for me where he has been enthusiastic about its potential. He really likes the area, and says it's perfect for renting to a group of roommates. He noted a few hybrid cars in the neighborhood, and talked to a couple women neighbors who loved the area. He didn't think there were any code issues in the property to worry about. That came as a major surprise to me. He has given me an estimate of 14-18k for a rehab that would bring it to rent ready condition. After seeing the video myself that seemed much lower than I expected it would be. Granted, that figure is not to make it look beautifully renovated, but still. The problem is I'm wondering now if I should spend the money to beautifully renovate it if the best exit strategy is in fact to resell in a short period of time. If I could find someone to fund the deal I probably would do it, but I don't know if I have access to enough cash to make it happen personally.

Thanks again for all the responses.

I'm curious what the biggerpockets community here thinks of quirky properties like this one:

youtu.be/KnGzTe-CaYQ (video tour captured by GC)

Quirks & problems include (but not limited to):
-exposed (and unsightly) piping (can't be to code, right?)
-furnace in master bedroom (again a code issue?)
-two layers of drywall in bathroom (why would that be?)
-bump in flooring where living room meets kitchen
-sink supply lines cut short
-needs virtually all the essentials

Here's the upside:
- priced around 100k with comps of same sq ft going for 180-220k (most of which could use updating). fwiw, it sold for 350k at peak of market
- up and coming area
- strong rental area (close to a college)

Is this worthy of buying to rehab, rent, and resell in a couple/few years (after the area has gentrified further)? Or is there too much risk with the potential code/permitting issues?

Nick,

I came across a similar dilemma a couple months ago. In my scenario purchasing an investment property first before primary residence would have made me ineligible for the first time home buyer benefits. However, that was specific to the program I was looking at (BBVA's 5% down, no MI, first three month's payments deferred). My impression is that would not be the case with most state funded programs (e.g. mortgage credit certificates, down payment assistance etc). I think it's different for each program and it's best to go straight to your lender for clarification.

Hope that helps,
Rob

Thanks again for the feedback Shawn Mohovich. You encouraged me to continue pursuing this one.

I found that one of the comps on the street (about 300 sq ft smaller than the one I had under contract, but likely needing a little less work) had come back on the market after being pending/contingent. I touched base with the listing agent to get the scoop. It was a short sale originally listed and pending at 81k. The bank countered at 85k. The buyer walked (the listing agent thinks they bought another house), and so it went back on the market. The listing agent received 11 offers in two days. The highest and best offer was $100k, all cash, no contingencies! Wow! Needless to say the market is exploding

That tells me me if I wait any longer I might not find anything at a price I consider reasonable. And it made the property I had under contract look like a steal at $82k. And as Shaun suggested, if the numbers work for me at six thousand more, why not go for it? So I did. Unfortunately I came to find out that the seller had already accepted another backup offer, and was under contract with another buyer. Seems unfair to me, but it is what it is. Evidently it's within the rules of the game. The attorney I've been working with still hasn't gotten back to me with a definitive answer on whether I have any legal recourse against the seller, but he didn't think so off the top of his head. Again I don't want to take this to court, but I am still curious nonetheless. My agent tells me that I don't have a case to stand on because the seller had a legitimate out- they were not able to provide a clean title (i.e. the estate is bankrupt and therefore couldn't make up the shortfall due to the bank fees, and that would put a lien on the property)

To say the least, it's been a taxing first experience. At this point I think all I can do is move on, and hope the next one works out. Unfortunately I'm beginning to realize I may need to move markets, or at least counties, because prices are clearly exploding to the point where it doesn't make sense to invest (not even for someone like me willing to settle for 8-10% cash-on-cash)

Nice job J. Looks frickin' slick! Hope the long distance endeavor ends up treating you well, and someone buys it as a new christmas gift for themselves

Thanks for the feedback Shawn Mohovich. Yea, I'm definitely planning on hiring a property manager. I've taken a look at jason hartman's website. I was even thinking of buying through that program at one time. Have you had any success with it? I get the sense that most investors on this board would scoff at the deals on their website.

Maybe I should just go for it after all, and put it in the extra $6k. It's probably not the kind of cash flow that would get many investors excited about. But for a first deal for me I guess it could still make sense. It seems pretty low risk when looking at the bigger long-term picture.

I appreciate your response K. Marie Poe. As far as my incorrect assumptions, they're based on a lot of mixed input I've been getting. A fair number of people like you have told me I don't have much of a case to stand on. However, others have told me I absolutely do. I'm using the standard GAR (Georgia) contract and it doesn't mention anywhere as far as I can tell that I'm limited only to the receipt of my earnest money in the case of seller default. I've copied the relevant sections below (at the end of my post) in case others want to offer their interpretation.

The legal part is kind of moot regardless. I don't want to take this to court. It's not my style. What is my style is coming up with a creative compromise that can make both parties feel satisfied at the end of it all. Granted it takes two to play ball, and I can only hope the seller will be willing. And I do acknowledge that they will probably be more willing if they know they're in a vulnerable position legally speaking (regardless of whether I plan to take advantage of that or not)

To reply to your point about the estate proceeding with a short sale, they won't. Their plan at this stage is to try and sell it for the higher price to clear all liens and loans. And if they're unsuccessful with that, they will let it go into foreclosure.

Your point is well taken that it seems like I'm interested in the property if it gets better offers on the open market. Frankly I am. I just want to make sure as a newbie, I'm not letting myself walk into a sour deal. I would like one of my fallback exit strategies to be a break-even short-term resale if I find that the out of state investment is too much headache to carry on with (as others indicate that it can be). Do you think I should instead disregard market value, and simply pursue it based on the long-term potential? If that's the case perhaps I ought to continue to pursue it, and throw in the extra $6k. The cash flow would drop to about 8-9% cash-on-cash (as opposed to the 10% minimum I was aiming for), but to be honest that still makes sense for me. Especially given that I'm using conservative numbers in my cash flow spreadsheet. Hell, it's better than my stock portfolio has done the past 5 years, or the .1% my savings account is yielding.

Lastly, I do admit that about half of my expenses were travel related. I understand now that this is one of the risks of out-of-state investing. Live and learn. For now it doesn't deter me from continuing to invest in Atlanta. We'll see what other risks I encounter along the way. I admit I'm a rookie, and I know I have to expect some hard knocks. At the same time I can only roll with the punches and persevere. I've changed my strategy so many times, I feel like I've got to ride out this one as long as I can endure.

Thanks again for your response, and giving me some food for thought.

[i] Disbursement of Earnest Money: Holder shall disburse the earnest money upon: (1) the closing of Property; (2) a subsequent
written agreement of Buyer and Seller; (3) an order of a court or arbitrator having jurisdiction over any dispute involving the earnest
money; or (4) the failure of the parties to enter into a binding agreement (where there is no dispute over the formation or enforceability
of the Agreement). In addition, Holder may disburse the earnest money upon a reasonable interpretation of the Agreement, provided
that Holder first gives all parties fifteen (15) days notice stating to whom and why the disbursement will be made. Any party may object
to the proposed disbursement by giving written notice of the same to Holder within the fifteen (15) day notice period. Objections not
timely made in writing shall be deemed waived. If Holder receives an objection and, after considering it, decides to disburse the
earnest money as originally proposed, Holder may do so and send notice to the parties of Holder’s action. If Holder decides to modify
its proposed disbursement, Holder shall first send a new fifteen (15) day notice to the parties stating the rationale for the modification
and to whom the disbursement will now be made.
Holder shall offer to disburse the earnest money to Seller by check in the event Holder: (1) makes a reasonable interpretation of the
Agreement that Seller has terminated the Agreement due to Buyer’s default; and (2) sends the required fifteen (15) day notice of the
proposed disbursement to Buyer and Seller. If the check is accepted and deposited by Seller, it shall constitute liquidated damages in
full settlement of all claims of Seller against Buyer. Such liquidated damages are not a penalty and are instead a reasonable preestimate of Seller’s actual damages, which damages are difficult to ascertain. Nothing herein shall prevent the Seller from declining
the tender of the earnest money by the Holder. In such event, Holder, after giving [/i]

[i]17. Default.
A. Rights of One Party Against Another Party: A party defaulting under this Agreement shall be liable for the default. The nondefaulting party may pursue any lawful remedy against the defaulting party.
B. Rights of Broker Against Defaulting Party: In the event a party defaults under this Agreement, the defaulting party shall pay as
liquidated damages to every broker involved in this transaction with whom the defaulting party does not have a brokerage
engagement agreement an amount equal to the commission the broker would have received had the transaction closed. For purposes
of determining the amount of liquidated damages to be paid by the defaulting party, the written offer(s) of compensation to such broker
and/or other written agreements establishing such broker’s commission are incorporated herein by reference. The liquidated damages
referenced above are a reasonable pre-estimate of the broker(s) actual damages and are not a penalty. In the event a real estate
broker referenced herein either has a brokerage engagement agreement or other written agreement for the payment of a real estate
commission with a defaulting party, the real estate broker shall only have such remedies against the defaulting party as are provided
for in such agreement.[/i]