After lots of emaling with our lender and my brokerage mentor, and lining up potential contractors and subs for inspections, the husband and I are leaning very heavily towards NOT signing this PSA. Without the inspection contingency, there is a lot of concern we could get trapped in the deal, even with negative inspection reports, because we have already pre-qualified for the rehab loans. We feel like we could end up with a house that pencils out for the rehab approval, even with huge repairs to main systems, but will come up short on profit.
We will watch and see if the property comes back up on Hubzu, in which case, we may bid again, once better prepared. Or it may go to the next high bidder. We will see.
Just for anyone else who is looking at doing one of these Hubzu auctions, and for my own clarity, I'll list out our lessons learned thus far:
1) Double-double check your bidding registration form. I *thought* that I had check-marked BOTH Mortgage Contingency and Inspection Contingency, but only the Mortgage Contingency is showing now, and only that one is in my PSA, which is making this deal too risky. I still think I checked them both, but I cannot be sure, and I honestly can't see any reason why they'd negate one and leave the other. So, I will be extra, extra double-sure next Hubzu auction. I am still emailing the Altisource associate preparing the docs, without response, LOL, so who knows, maybe they'll add it.
2) If you have your brokerage license or an amenable agent, get your contractors and inspectors out there BEFORE the auction period starts to give you bids, even rough estimates. This is one of the biggest issues we are having. Inspections and bids are customarily done here after an offer is accepted, but that doesn't work well with Hubzu, and seems backwards to me anyways on a rehab project. A whole-house inspection here is, I think, about $600. Well worth it in the long run to ensure you don't end up stuck in a deal that doesn't work, or even just to avoid wasting 2-3 weeks in waiting and contingency periods on a property that you won't buy. Some inspections, like a full septic inspection, probably can't be done without a signed PSA , but most can.
3) If a contractor or inspector tells you they can't or won't come out without a PSA, call another. I stopped after the first foundation company told me this. I should have kept going. Yesterday I quickly lined up a half-dozen different contractors and subs who have zero problem meeting there and getting into things and giving me quotes. I would have a lot more confidence today to sign that PSA (or to feel solid about NOT signing) if I had more accurate numbers.
4) Make sure you understand the details of your lending process, if you're not an all-cash deal. I realized at midnight last night, that I'm fuzzy on exactly how my lender does the rehab approval process - does he use my "vision" for the rehab, and my scope of work, and my contractor bids along with his appraisers ARV to see if it works, or does the lender have their own "minimum standard" scope of work that they will instruct the contractors to bid on, and if that fits, I'm approved (and stuck, if I only have a Mortgage Contingency)? I was up half the night last night after that realization hit, going through potential scenarios and that's where I felt like we could get hurt - because I didn't clearly understand the process.
5) Don't be afraid to go for the higher-priced, less-fixing properties. We have been very focused on lower-cost properties, thinking we needed to use all our own funds. After talking more with our lender, we pretty easily pre-qualified for some fat rehab loan limits. Instead of starting with a total wreck, and doing a ton of sweat equity to make it nice, and then see a really big profit margin, we are now feeling much more comfortable with the idea of buying a decent place that just needs cosmetics, and seeing a narrower profit margin. We originally thought we either couldn't swing that up front purchase price, or that the stress of having so much invested would be bad, but after running all the numbers on the major fixers, they're either simply not worth saving from a flip perspective, or we'd have just as much or more cash involved anyways, with lots more risk. So we will be open to those properties, but not focus only on them.
There's doubtless more lessons that will come as we go with this, but these are my big ones. I will probably still meet the contractors out there next week, and get bids, if only to sharpen my estimating skills and meet these guys. It's been 4 years since my husband was doing general contracting, and pricing is probably very different now. We're also told that it's very difficult to get good contractors to show up right now, because things are so hot and they're in demand. Both make it a good idea to start establishing contacts. I have asked my lender's rep to also come out and walk the property with me, even without a PSA. He is also a personal friend and supportive of our REI plans, so I am really hopeful that he will. This particular house is messed up enough that I don't know if it would qualify for conventional or not (maybe with holdbacks), and he can pretty much tell me by walking it. That will help me greatly on future projects to be able to at least guess at it on my own.
