Flip HUD with TRANSACTIONAL funding?

I have recently found a Realtor specializing in HUD & VA properties in Florida with many available inventories for sale, such as non performing assets.

Does anyone have experience with flipping these properties to rehabbers or end buyers?
What I mean is to negotiate a discount (as in short sale) and buy these properties under Trust or LLC using Option for Purchase and Sale Agreement. Then, pay cash with transactional funding (24 hours funding) at the closing and resale them in double close with my buyer (rehabber or end buyer) with financing provided by my end buyer.
If this is possible, I will have to disclose to the lender that my intent is to buy and resale to the 3rd party?
Could I use the same approach as with short sale?
I'll appreciate all suggestions. Thank you all.

:roll:

Edited: 06/26/2010 at 06:43AM

Tom C

Real Estate Investor · Ohio

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Icon_minipost Dec 21 '08, 10:59 PM

Not sure if I am going to answer your question, but with HUD properties you have to put down 1k in a deposit and show proof of funds when your broker enters a bid in the HUD online system. These contracts are not assignable. Your deposit and proof of funds must be overnighted to the HUD rep if your bid is accepted.

This is how the process works, if you find loop holes in the process, then good for you. BTW: You don't need a broker to find you HUD and VA homes, you can go right on their web site and search for them yourself.

Edited: 06/26/2010 at 06:43AM

Donte Aka GetSmart

Real Estate Investor · Charlotte, North Carolina

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Icon_minipost Dec 23 '08, 03:49 AM

Tom C, i think you missed the point. the poster is looking for a way to double close reo's which might be ok, if you can find a buyer that will not think they can cut you out.

why would they deal with you when they can deal with the bank. where did you get the idea from?

Edited: 06/26/2010 at 06:44AM

Tom C

Real Estate Investor · Ohio

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Icon_minipost Dec 23 '08, 06:24 PM

Really.. I thought he asked about HUDs and VA's too..

Edited: 06/26/2010 at 06:45AM

Jozef Forgac

Loss Mitigation Specialist · Jacksonville, Florida

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Icon_minipost Dec 29 '08, 05:00 AM

The idea is from my educational CD for short sales. There is a part about HUD or VA properties. If they didn't sell it to the end buyer, then investors can bid on it. If no one will buy it, then HUD is still available and sits in the bank portfolio as a non performing asset as any other foreclosed homes sitting as REO.
Then you can submit a bid on this HUD or VA and just do the same as with short sale directly with the bank who owns this non performing HUD or VA property.
Bank on HUD should accept 83% of BPO or 63% of the original owned amount.
I want to ask if anyone tried to do that or has any experience at all to work out these discounts on HUD or VA. Option contract and double close should work and many experienced short sale investors doing that (base from my educational short sale CD !?). There are more forms to fill in as it is with short sales, but is worth to do it !?
There is buyers who doesn't like to deal with this lenghty paperwork and want to just buy with discount and from wholesaler who has this deal approved and then do double closing. Wholesaler basically brings funds to the first closing and sell to the end buyer at the second closing with own financing or cash.
There is the same profit margins as with short sales, but instead to deal with the homeowners investor wholesaler deal only with lender and with vacant property from the beginning.
Of course, numbers must work for everyone.
I just heard this theory, but I'm curious if anyone has any knowledge about this ?
Do you think it will work ?

Edited: 06/26/2010 at 06:47AM

Chris Montgomery

Real Estate Investor · Austin, TX

10 posts

Icon_minipost Jan 03 '09, 09:39 PM

With HUD properties doing the double close is difficult if not impossible. We have purchased several HUD properties. Most of the HUD properties we see are not sold at enough of a discount to meet our criteria, but occassionally one be available at enough of a discount. We purchased two last week, but those were the first two in many months. The challenge with HUD is as Tom said - you put down earnest money up front, demonstrate proof of funds and must take title in the name that is on the original contract. The contract is not assignable. In addition HUD specifies which title company to use and they are not at all flexible.

In our case we pay cash for the properties, then rehab as necessary and either list back on the MLS for re-sale or keep as a rental. You have to have the cash (or a loan) at closing.

I have heard or people discuss the idea of setting up an LLC just for the purpose of purchasing a HUD, then after getting the HUD under contract transfer the ownership of the LLC on the day of closing to the person who put up the money to buy the house. Basically trying to create your own double close. It creates a lot of risk for the person putting up the money however and I would not personally recommend it.

As for the second part of the question, yes we have had success at selling proerties we purchased from HUD to both other investors and to end buyers. It basically comes down to buying the right house at the right price as with any other transaction. HUD tends to follow a declining discount schedule. They give preference to owner occupants, but for those that are not purchased by owner occupants the properties can be picked up at a discount. Initially they can be generally be purchased at 90% of HUD's list price. After a defined period of time HUD will drop the price 10% and re-list the property for 5 days with another owner occupant preference. Once this period is over it can now be purchased at a larger discount and so on.

You don't need an agent to search for them but you do have to have an agent who is signed with HUD submit the bids for you.

Edited: 06/26/2010 at 06:50AM

Jozef Forgac

Loss Mitigation Specialist · Jacksonville, Florida

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Icon_minipost Jan 05 '09, 04:38 AM

Chris, Appreciate your input in this topic.

Based on one of my educational short sale CD's one short part mentioned there that experienced short sale investors targeting only HUD homes backed by FHA loans making a fortune in it. FHA required to fill in additional forms to proceed with short sale, but is worth to do it. If anyone is one of them and want to share this techniques using short sale system i believe anyone will appreciate to share this with others.
I'm familiar with HUD's ( I used to bid on them amd work it out back in 2004 in CA market), but I want to see if there is any other loop wholes to get this work out in today market.

Edited: 06/26/2010 at 06:51AM

John Fisher

Real Estate Consultant · Denver, Colorado

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Icon_minipost Mar 04 '09, 03:14 PM

Jozef, I must be missing something. HUD homes and short sales are not compatable. Buyer buys property with FHA loan. Buyer defaults. Lender forecloses. Because loan was FHA backed, HUD takes it over from lender (and pays lender back). HUD disposes of property via their sale system.

It is possible to get a short before the lender forecloses but that is with the lender, not HUD.
Help me out. What am I missing?
Thanks.

Edited: 06/26/2010 at 07:28AM

William Hurndon

· Louisiana

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Icon_minipost Aug 29 '09, 11:28 PM

You can buy a HUD property and flip it as long as the end buyer does not get an FHA loan.It has to be a conventional loan,or all cash deal.You can also flip a HUD home in Foreclosure before the bank takes it back,but again the end buyer cannot use an FHA loan to buy it.On a HUD property selling at 50000.00 your deposit has to be $500.00,on a property over 50000,00 you need to put down $1000.00.And if cannot close in the 45 day period,you loose you down payment.

Edited: 06/26/2010 at 09:32AM

Peter Giardini

Real Estate Investor · Baltimore, Maryland

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Icon_minipost Aug 30 '09, 01:25 AM

Jozef,

I am not sure what "short sale" CD you are listening to, but as you can see several other posters have indicated that HUD/VA and short sales are not compatible.

With that being said... there are methods that can be used to "assign" a HUD/VA contract to another investor.

These include forming a single property LLC and then selling your ownership rights in that LLC to the end buyer (they then purchase the property), doing a double close where you use transactional funding to purchase the property and then sell it to the investor buyer, and also substituting the end buyer onto the contract once the price is agreed upon and collecting your wholesale fee outside of closing.

Each of these approaches has their own pluses and minuses and having a title attorney who knows what they are doing in this regard is critical.

Pete

Edited: 06/26/2010 at 09:32AM

David Mcarthur

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Icon_minipost Oct 25 '09, 05:03 PM

If anyone is in need of 1-3 month transactional funding, let me know.

Will Barnard

Rehabber · Santa Clarita, California

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Icon_minipost Nov 20 '09, 06:48 AM

As others mentioned, a short sale would not involve HUD, so if you do get a short sale under condtract with any lender, you can certainly find an end buyer and double close using transactional fudning to fund your A to B transaction on its own merit.

You can also use transactional funding to make offers on HUD homes and find end buyers right away. If the end buyer is under contract with you, you are elgible for transactional funding and you can invest this way with very little money out of pocket (your eranest money deposit is the only cost which you get back once you close the deal along with your profits)

Edited: 06/26/2010 at 10:36AM

Will Barnard, Barnard Enterprises, Inc.
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Ted Akers

Private Money Lender · Denver, Colorado

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Icon_minipost Nov 22 '09, 03:53 AM

Transactional Funding can be used for either a Short Sale or a HUD property for a same-day flip. Just a heads up though - for transactional funding most end buyers from you are likely to be cash buyers or recieving financing from private lenders or portfolio lenders. FHA for the takeout loan is not an option due to title seasoning. Most conventional lenders will also not lend due to the same title seasoning issue. I have somewhat of a list of lenders who do not require seasoning if you would like to contact me. Your overall success could be greatly improved if you can locate lenders in your area, such as possibly credit unions or portfolio lenders not requiring title seasoning.
Good job getting after it and seeking information.

Edited: 06/26/2010 at 10:36AM

Paul Barrow

Real Estate Investor · Denver, Colorado

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Icon_minipost Dec 02 '09, 10:16 PM

The most important aspect of your intended strategy is having a really good buyers list to call as soon as you get a property under contract, either short sale of HUD. It is possible to double-close using flash funding, but a lot more difficult when the end-buyer is getting a loan of any kind. There are plenty of pros to sell to, the best place I've found to network with all cash buyers is the foreclosure auction.

Edited: 06/26/2010 at 10:43AM

Socorro Garcia

Real Estate Consultant · Bakersfield, California

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Icon_minipost Dec 02 '09, 10:38 PM

What I mean is to negotiate a discount (as in short sale) and buy these properties under Trust or LLC using Option for Purchase and Sale Agreement. Then, pay cash with transactional funding (24 hours funding) at the closing and resale them in double close with my buyer (rehabber or end buyer) with financing provided by my end buyer.
If this is possible, I will have to disclose to the lender that my intent is to buy and resale to the 3rd party?
Could I use the same approach as with short sale?
I'll appreciate all suggestions. Thank you all.

:roll:

I think I understand your question. Do you mean negotiating with HUD on their properties that have not sold? Just like you would with a short sale....asking them to lower their price after they are not able to sell to owner occupied or Investors? ......That is what I understand your question to be.....if so....I would like to know if that is possible. Negotiating with the government! that is interesting.

Edited: 06/26/2010 at 10:43AM

Roderick Oh

Real Estate Investor · Harrington Park, New Jersey

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Icon_minipost May 08 '10, 04:12 PM

I have sold my short saled properties to FHA end buyers at the end of our a to b anf b to c transaction. As of right now you can flip with no seasoning issues of course but, then you have the 20% gain issue which limits your profit margin if they come in to justify the 20% or more margin. We skip the whole process of the seasoning issue by taking subject to the the properties at the start of the whole process of our short sales which takes us out of the whole 20% and seasoning issue road block. The Land Trusts and Option Contracts will not work now with pretty all the banks with back to back closing's. It's a matter of knowledge in order to get your deals closed.

Edited: 06/26/2010 at 12:46PM

Roderick Oh

Real Estate Investor · Harrington Park, New Jersey

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Icon_minipost May 08 '10, 04:12 PM

Edited: 06/26/2010 at 12:46PM

Michael Allan

Real Estate Lender · Ft. Myers, Florida

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Icon_minipost Feb 04 '11, 05:21 AM

Hi Dodko.

I am not sure if you still have this question but I can assist you in what you are looking to do with short sales as well as the HUD properties. We offer transactional funding for up to 60 days. This allows you to work with financed borrowers as well as get around the requested 30 day holding period for some note holders. We offer transactional funding in all 50 states.

Feel Free to message me, send me an email or visit our website.

I look forward to hearing from you.

Michael Allan
Vice President Business Development
Aegis RE Partners, LLC
(908)797-2908