All Forum Posts by: Account Closed

jeffrey- I suppose contractors in general are able to withstand the pressure of insurance companies better than restoration companies? Please explain-- this is an Interesting generalization. Also, how are you making a connection between shotty work and being pushed around by insurance companies? Maybe some explanation on the relational aspects of restoration companies and  insurance companies would help add clarity and provide context.

I would look for a restoration service like Servpro that specializes in fire/water damage, as compared to a contractor.

Sharad- Servpro in Sterling heights I know to be reliable and with good owners/proprietors. They likely serve the farmington region too.

Alex - it is a bit more simple than you would think. You obtain a construction to perm loan and they pay off the first lien.  I am financing a new construction in bham; feel free to shoot me a note and I can tell you the lenders in Michigan that offer competitive construction financing. I think the forum rules prohibit posting that information. 

As a side note, Fannie underwriting guidelines note for a construction loan the following: land owned for >1 year, the FMV of the land + construction costs= your value (V) in LTV; land <1 year they use the acquisition price. Effectively, the 25k you have in equity in the lot contributes towards a virtual down payment to meet LTV requirements. Two lenders I know of go to 90 and 95 LTV in Michigan.

200k (land FMV) + 250k construction costs= 425k

total land (cost basis) + improvements= 400k

95 LTV of 425k is 403k. You would only need 3k cash required to close (based on your estimated costs)

My impression is that Fannie will routinely amend a purchase price if the appraisal comes up short less than 10 percent of the original purchase agreement.

Wait for a few price reductions. Check the listing agents history on homepath homes to anticipate the frequency of reductions. I purchased a homepath foreclosure after waiting for three price reductions (4 months) and using a rather risky strategy. I scrubbed the comps and knew them well-- when a final price reduction came that was 10-15pct above FMV I made an offer at full list thinking the home would not appraise, and they would amend the purchase agreement when the appraisal came up short. Well the strategy didn't work as planned; the public records homepath used were incorrect and the house was 200 square feet greater than the listing. The home ended up appraising since their was 200 sq feet of space I didnt anticipate ($200/sq foot market) and I ended up getting the house for about 50k under FMV. in theory, the high offer, low anticipated appraisal can work (I have observed it on two other Homepath homes). If you have a financing and inspection contingency you have many outs if you cant get an amended purchase agreement.

It sounds like you are reporting RS means is for consumption by the general public and includes a mark-up from wholesale to retail pricing. My understanding is it's used by a wide variety of construction professionals for cost engineering and estimation. Many of the tools include a separate line item for GC mark-up. Given this mark-up is included as a separate cost, it would seem reasonable to assume the material costs are just that-- costs, and not retail pricing including a margin for a contractor (reported separately).  

The comments are useful if you have observed different costs in practice. My observations in my particular market is RS Means closely approximates actual costs to build; I am not a GC but work with an experienced custom home builder on a cost-plus basis. $150/sq foot may seem high for some on a custom home, but it's consistent with the quality of construction of homes built in my market. And there is still plenty of gross profit in a market that commands $300/sq foot for finished construction. The dirt is not cheap though! Thanks for the comments I will use this tool with a bit more skepticism. 

RS Means construction cost data is a valuable online resource for this type of question. It is the gold standard for cost estimation from my observations.

I tend to think about these costs within the framework of the Fannie/Freddie UAD standard used by appraisers to determine construction quality and fair market value. The ratings are from Q1 (highest) to Q6 (lowest). The Q1 quality rated construction is defined as follows:

Dwellings with this quality rating are usually unique structures that are individually designed by an architect for a specified use. Such residences typically are constructed from detailed architectural plans and specifications and feature an exceptionally high level of workmanship and exceptionally high-grade materials throughout the interior and exterior of the structure. The design features exceptionally high-quality exterior refinements and ornamentation, and exceptionally high-quality interior refinements. The workmanship, materials, and finishes throughout the dwelling are exceptionally high quality.

For this category in a custom home I would imagine you could spend on the order of $150/sq foot on a cost-plus basis with a general contractor (includes a 15-20% gross margin for GC). Mileage may vary based on geographical location.

I would say don't use hard money until you run out of options to finance with qualified mortgages (QM) by large banks that are guaranteed delivery into the secondary market by Fannie/Freddie. You will get the best rates / terms with large commercial banks. Second, look to smaller portfolio lenders that don't deliver to Fannie/Freddie for securitization and hold on their books. Third, look to HML. Using an HML right away would be like using venture capital money right away (at 50% cost of capital) to fund a business when traditional financing was available.

I think you will find it is difficult to stop foreclosure proceeding short of a legal argument. Also, it may be safe to assume most home owners are financially savvy enough to explore their options before a foreclosure (short sale, deed in lieu, etc). if the aren't this savvy, they would probably be leery of anyone promising them an "out" given they hadn't considered this option. My best advice is to visit the courthouse sale and observe. You can bid if you have cash, if not, being present you can garner good information. Make note of the opening bid amount-- if the amount is a number with cents it is usually the total amount of encumbrances (mortgage). If the amount is a whole number it is typically the minimum amount the bank is willing to accept and has instructed the county in this regard. If the property goes unsold at auction, you can use this information to make an offer once the property reverts back to the bank and becomes an REO. You can leverage this "min price". I have used this strategy twice to buy homes significantly undervalued.