Under Contract And Stumped
I am currently under contract to purchase a HUD foreclosed 1656 sq.ft. TH in Greensboro, NC. The CMA has the low end value of the property at 96K and the high end value at 99.5K. The purchase price is 82.5K . Originally, the lender said that I could do a 10% down at 6.25% for 30years and then take out a second for repairs. Now, he and all other lenders in the area are saying that the property must be owned for 6mos to a year before I can get a 2nd against the appraised value. This is my first deal that I am attempting to do and I am getting very uncomfortable. I have 1K in earnest money invested so far and upcoming fees for appraisals and home inspections. My question is, do any of you feel like this deal is worth trying to finish or should I cut my losses at 1K?
how much will the repairs cost?
Hey,
Since you are talking about taking a second to pay for repairs, I am going to guess this is more than just a quick sweep and a coat of paint. Based on that, I would say this is a very thin deal.
FMV $100k ( I rounded up)
Purchase $ 83k
RE Comm $ 5k
That leaves $12k before repairs, holding costs, costs to fiance, etc.
So if the repairs are $5k and it takes 4 months to finish and sale....you will be close to breakeven.
The repairs should run between 3K and 5K. Most of it will be painting and replacing the flooring in the kitchen and the baths. There is some damage to the ceiling in the greatroom which I think will cost the most to repair.
Abjordan,
I am confused. What is your exit strategy here? You are in the Wholesaling forum, but you are getting a loan -- Clearly not wholesaling. You purchased a property at 82% of the After Repair Value. Add to that the cost of repairs, closing costs, and holding costs, at best you are breaking even if you intend to rehab and sell. So, you are not retailing. That leaves selling on a lease option, or renting. Now to rent, you are looking at about $500 / mo P&I, and $200 /mo taxes and insurance. This means you will want to rent for at least $900 / mo. Of course it depends on your area, the people you are renting to, and the property, but from my minimal knowledge of your general area, that might me a tough nut to crack. However, you may be able to get 1K per month for a lease option. You know your area better than I do, but I would probably LO for 1K / mo with a minimum of 5K option fee, and a 1K security deposit.
If that won't fly in your area, then (I can't believe I am recommending this) cut your losses. Maybe someone else can shed some light on possibilities I have not yet considered.
I'm not sure if there are a lot of differences with HUDs, or if it states specifically that your EM is non-refundable for any reason, but there may be ways you can back out of this deal AND get your money back.
Read the contract closely, and see what ways you can get out. If you stated you are trying to get 100% financing, for example, you may be able to get out claiming you didn't qualify for the financing.
Or, you may be able to get the home inspection done for a couple hundred dollars, and claim that the house needs far more extensive repairs than you thought when you made the offer. There are a lot of ways to get out of a contract when you are the BUYER. Just read it closely. If you have a friend that is a RE Agent, ask them to look it over and find a way out for you.
I'd say your margin is not good as well. Try other options to get your money back, but if it comes down to it, you may lose a lot more than $1K if you go through with this deal. I've lost $5K on a deal that had a 25k margin on a house I bought for only 52K. Real estate is not a sure thing, and if that had been my first deal, I wouldn't have been able to afford a 2nd, 3rd, 23rd, etc! Good luck!
-Joe
Thank you all so much for your replies. I wish I had known of this site before I made my offer. Whatever I decide to do, I will be better prepared next time. Thanks again to all of you.
Whatever you decide to do (buy or not buy), know upfront that you will NOT be getting your $1K deposit back. That HUD contract clearly states that there is NO contingencies, financing or otherwise. In fact, in order for you bid to be accepted your agent must provide HUD a letter of preapproval for a loan, or a proof of funds letter. The only possible way for you to get your deposit back is if HUD discovers that the title is unmarketable, and therefore, unsellable.
I'd also consider changing lenders/brokers for two reasons, Number one, they promised you something that they couldn't, or wouldn't, deliver, the 2nd mortgage. Now, this reversal didn't happen overnight, so it's quite obvious that it was a clear lie to get you to do the primary financing. Number two, your initial purchase is already over the LTV that the majority of lenders will loan against investment properties which is usually 80% (or less). Businesswise, you should never borrow more than this on a property anyway, but it also means that you'll never get a 2nd loan, or a refi for more than your paying for the property upfront. Your lender/broker not only knew this, they should have told you. Your lender/broker should be part of your team. Your team helps you to stay out of trouble by giving you all of the info at their disposal.
Roger