All Forum Posts by: John Newland

Please keep us updated on how this progresses. I think it will be quite interesting. When do you close on the lot?

I have a rehab property in process that is past the demolition process and at the point of starting to get put back together. It is a three bedroom ranch. The bathroom has been gutted to the studs, and the kitchen has had all cabinetry removed. The living room, hallway, and bedrooms all have a sandy texture on the wall unlike I have seen before. The kitchen walls are perfectly smooth, almost like a venetian plaster. There is a wall with a doorway that separates the kitchen and living room.

I like a consistent finish throughout, but I think if the sandy texture was to be replicated it in the kitchen and bath would not look right. I would just assume keep the walls smooth in the kitchen and bathroom and go with a different color in there as well. Looking for input or ideas. This is a rehab for resale. It will be an entry level home for the area but will include a new kitchen with granite and a new bathroom. Any input is appreciated.

Thank you

How long before dip$hits are classified as a protected class?

You should be able to sell the property on day 91. Keep in mind, the 90 day restriction (at least those I have seen) prohibits you from selling the property within 90 days of closing for a price that exceeds 120% of your purchase price., i.e. if you purchase the property for $100,000, you can still sell that property a day later for up to $120,000. Helpful for a rehab? Probably not. Good for a wholesale? Most definitely.

As stated above, HUD's PCR is not to be relied upon. The last HUD I've purchased stated the HVAC was tested and in good operating condition. After I closed, the furnace blower motor was seized and needed replacement. The hot water heater was marked as satisfactory but when I viewed the property I saw an improperly installed unit that was quite rusty and in need of replacement. Things can happen between that report and when the property finally goes on sale or is looked at by you, which I what I believe was partially the case with that specific property.

You should also consider that HUD expects you to have done ALL your due diligence prior to making your offer. Your offer will not be contingent upon a home inspection, so you should have somebody check the property over before submitting the offer or at least before submitting the contract package with earnest money in the 48 hour window you get from bid acceptance. You will not receive your deposit back once they have it if you pull out due to home inspection.

I actually like the idea of throwing the bonus in unannounced at closing as a tip as J Scott does and I can see why it would earn him repeat business. I can see that working really well actually. It's a lot nicer to get the surprise at closing for doing a good job rather than have a seller dangle it in front of an agent as a "do this or else you won't get your bonus" reminder.

I agree with Joel Owens's comments as well. The bait and switch tactic associated with offering a bonus but only with a full price offer and only if the offer is accepted by or closes by such and such date gets old. A bonus shouldn't be a bribe to get a showing on your property. It should be a reward for doing a good job (yes, I realize the commission should be enough of a reward) or working through a tough deal.

I'm wondering what other investors, sellers, and even agents think of offering a bonus or incentive to a broker/agent when selling a property. I have a few investors who insist on offering incentives ranging from $1000-$5000 to try and drive brokers and their buyer into their properties.

Personally I do not believe in this simply because I feel a property usually sells itself to the buyers. I also think a broker/agent is more willing to look out for their buyer's best interests than their own, even if it means passing up a juicy bonus, just to keep their buyer happy and get referrals and future business from them. In my opinion, the seller is just giving up money and negotiation room unneccessarily; the property would probably have sold on its own merits to the same buyers without a bonus in place. I have listed and sold properties in good time just fine without bonuses, however, some people swear by them. Maybe I have it all wrong.

I'd like to hear what others think about offering selling bonuses and what the experiences have been.

Do not treat mold with bleach. Bleach will not kill mold. You need a mildewstat/mildewcide/fungicide to take it out, although I've been told hydrogen peroxide is also effective at killing the mold. The mold roots itself into the drywall (or wood) so your best best is to remove the drywall, eliminate the water source (if any) for the mold growth, and patch the section in. Being a garage it probably doesn't need to be perfect. Drywall is cheap and easy to repair/replace or remove and install.

As for who is on the hook for the repair and cost, as long as the seller wasn't intentionally hiding the stain or had no knowledge of the issue, the new owner would most likely be.

After your bid is accepted online, you and your agent are to READ a 30 page sales contract packet and sign a good majority of those pages to send in as your contract package.

Page four of that contract clearly has the earnest money outlined at $500 for anything under $50,000 and $1000 for anything over $50,000 unless your are purchasing vacant land which requires 50% of the purchase price. Since this one did not need to be signed, you may not have seen it BUT your agent should have.

Page five of the packet is the “Earnest Money Forfeiture Policy” which provides for, verbatim from the form:

“Investor Purchasers
Uninsured Sales – The purchaser will forfeit 100% of the earnest money deposit for failure to close, regardless of reason.

Insured Sales – The purchaser will forfeit 50% of the earnest money deposit for failure to close if purchaser is determined by HUD or Direct Endorsement underwriter to be an unacceptable buyer. The purchaser will forfeit 100% of earnest money deposit if sale fails to close for any other reason."

Page six of the packet is a form called "Important Acknowledgements Regarding the Purchase of a HUD Property." The most important aspect of this form for you is paragraph seven, copied and pasted in its entirety:

"No warranties on PCR, MLS or appraisal information. Inspections prior to bid acceptance are visual inspections only. Buyer(s) is urged to seek a professional inspection of the property at his/her expense. Buyer's offer is not contingent upon a home inspection. If deficiencies are discovered that did not previously exist or were not previously disclosed, Buyer(s) may seek bids for repair and add the amount to escrow when using FHA financing. Inspection results are information for Buyer(s) only and will not alter the terms of sale. Neither HUD nor any of its representatives will offer any discounts or reimbursement for inspections or costs for repair of newly discovered deficiencies."

Also of note for you on that form is the first paragraph:

"HUD homes do not follow state or city codes. It is Buyer's responsibility to verify that the property is in compliance with city or state regulations by calling the city inspector. Buyer(s) is responsible for all costs associated with necessary inspections and/or repairs necessary to bring the property into compliance if violations are discovered."

These are all things you should have read and understood prior to signing the contract. Right or wrong, like them or not, these are the terms you agreed to. It is unfortunate it happened but this is the risk you take as an investor dealing with buying HUD homes. This one might be best viewed as a very expensive lesson on how HUD offers work (especially for investors.) At the very least, you should at least now know what to do the moment your HUD bid is accepted before sending in the contract package with the appropriate amount of earnest money.

With a Fannie Mae REO, per their addendum, you ARE able to re-sell the property within 90 days, however, you cannot sell it for more than 20% of your purchase price within the 90 day deed restriction period (as stated above you will not be able to assign.) Depending on your purchase price, that 20% margin could mean a nice spread or something that is not worth your time. You would need to utilize your own cash or transactional funding to close your offer, after which, you should be free to re-sell immediately after (please correct me if I am wrong) as long as you keep your profit at/under 20%.

If you want to sell it under the 90 days for more than 20%, packaging it with a business entity and selling your interest/the entity itself as J Scott mention is the way to go.

There are some bank addendums that strictly prohibit a sale within a set period of time. I have a deal in the works on a Bank of America property that prohibits a sale within 60 days of closing.