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Forums » Real Estate Deal Analysis and Advice » Using a "repair escrow" to pay for rehab?

Using a "repair escrow" to pay for rehab? Subscribe to Using a "repair escrow" to pay for rehab?

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Dustin Lyle

Real Estate Investor · Kentucky


Forum_avatar_avatar-youngmogul

Jan 11 '10, 01:24 AM

Right now I'm looking at a MONSTER of a deal that I need to move rapidly on, I need to know the general concensus on my idea... I'm sure its used in other places, I've seen it in HUD deals and I think someone used it on one of those Flip shows...


"as-is" appraisal.......... 130K
Seller WILL accept...... 100K
ARV................ 160K-175K

Now, What im thinking is rescinding the 100K offer and offering 120K, with a "repair escrow" from buyer of 20K... which will be used to, well, repair it :)

The reasoning behind this is to obtain conventional financing without paying exhorbant interest on a hard money repair loan.
I was thinking about the 203K loan too, anyone ever used one?
What stipulations are on conventional loan doc's that might stop this from happening?
Ok... not so much of a MONSTER deal, but could definitley catapult my cash reserve.

Edited: 06/26/2010 at 11:11AM by Dustin Lyle


Bill Gulley

Real Estate Investor · Springfield, Missouri


Forum_avatar_avatar-financexaminer

Jan 12 '10, 12:14 AM

Dustin, very good thinking! You want to make you disbursements at 80% on draws so that 20% always remains for final inspection. You contrcat will not be an easy one. You should select the contractor or approve them. If you use your people, say so. When you close there will be a construction management disbursement fee so factor that into the deal, check with the lender or title company. 203 is a good way to go, especially if the property is in an economic development area, not that it is required, but helps in the deal, it's benny points for the lender. Good Plan! Bill

Edited: 06/26/2010 at 11:11AM


Richard Warren

Real Estate Investor · Las Vegas, Nevada


Forum_avatar_avatar-rehab702

Jan 12 '10, 12:22 AM

Originally posted by Dustin Lyle
I was thinking about the 203K loan too, anyone ever used one?


Be aware the the 203(k) program is for owner-occupants only, investors are not eligible.

More on the program: http://www.hud.gov/offices/hsg/sfh/203k/faqs203k.cfm

:cool:

Edited: 06/26/2010 at 11:11AM


Will Barnard

Rehabber · Santa Clarita, California


Forum_avatar_avatar-barnardinc

Donor Pro

Jan 12 '10, 12:59 AM

Dustin,

Your creative thoughts are on teh right track, just keep in mind that soem lenders will only allow so much to be given from seller to buyer. $20k is 20% more which may not happen with conventional financing.

One other note. $100k acquisition + $20k in repairs is a total of $120k which is 75% of the ARV. You should be at 70% so your price is a bit high, which lowers your return on investment. (something to keep in mind)

Edited: 06/26/2010 at 11:11AM

Small_barnardenterprisesWill Barnard, Barnard Enterprises, Inc.
E-Mail: info@barnardenterprises.com
Website: http://www.barnardenterprises.com
info@barnardenterprises.com




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