Been there done that, it almost worked out too. Unfortunately the meltdown occurred wiping out the buyers 100% mortgage commitment. I used $10k of the buyers money to do a few extras before closing, he got that money back as well. This beautiful over renovated home is now in my rental portfolio. Next time I will be a non refundable down payment (if that is legal).

What I do now is buy them for cash, renovate them, market to sell, and if they don’t sell they become rentals. I buy all of my properties for dirt cheap, actually for less than dirt cheap.

What I was talking about(my first comment) is when you buy the home, fix it up and re-sell it. Most of my rehab/marketing time take longer than 90 days to accomplish, so the seasoning hasn’t really come up. if I am doing a light rehab I am usually just going to put local financing on it and hold it for a rental. The magic you seek is a relationship with a good mortgage broker. A good mortgage broker is 4 things 1)invests in RE himself, 2)has his FHA license (not just conforming), 3)has local bank relationships and knows how to do commercial and non recourse loans, 4) has access to hard money or is a hard money lender.

Talk to someone that has all that and will help you structure your deals going in, and you will have no trouble with financing. This obviously assumes you can find the comps you need.

One of the things to remember is this. FHA or VA or Fannie may or Freddie mac have very general or liberal guidelines. The more stringent rules are at the lender level, the key is to work with medium sized regional lenders… or a mortgage broker that is signed up with them. If you are taking your loan business to a direct lender handicapping yourself, you will get better pricing and more options if you talk to a good mortgage broker.

re: 203k loan… Do you “own” the home that you plan to sell to the retail buyer? And if so, does it matter how long you’ve owned it, or how much you bought it for before your lender will consider financing that transaction to the end buyer? Most lenders with competitive rates/terms (FHA or conventional) look first to seasoning of title and what you paid for it.. and only after passing the sniff test will they then CONSIDER doing the loan. Most will allow you to resell for what you paid for, plus documented costs- AFTER a seasoning period.. and will basically not allow you to earn a profit in exchange for giving a loan to the buyer. Government has decided that the solution to stopping fraud is to take away common sense and lump all transactions together- they’re all fraud, unless proven otherwise. And even then, some “policies” are simply used to remove judgment from the evaluation-hoping seasoning cures the “possibility” of fraud…

IF you DON”T own the home, your buyer is not going to get a FHA 203k loan through underwriting if you signed as seller under the sale agreement … unless you have some form of a “side” agreement with the seller – where he agrees to pay you for deliverying the buyer.. which will almost always requires a real estate license in order to comply with state licensing laws. The license introduces another troubling set of considerations and risks.

There are all kinds of clever ways that transactions CAN be done- the problem is that few, if any, are compliant with your local laws AND satisfy today’s loan underwriter.

I am always looking for ways to overcome these obstacles- and if you have discovered the magic solution- please do advise!

1- Like Bill said, you’re going to have to be very careful of how you market yourself. In every state I know of (except maybe some areas of Texas) you can go to jail if you’re leading people to believe that you are a builder when you are not a licensed general contractor. The way you suggest doing the contract would immediately put you in the wrong if you’re not a licensed contractor. You could be on the contract with a licensed contractor or bring the homebuyer and contractor together.

2- Believe me you do not want to be on a construction contract. You’re obligating yourself to something you have little or no control over.

3- Next is warranty. This has been a huge issue for me with spec homes. By law, in most states, new construction has to be warranteed for up to 10 years for structural items. If you don’t make the right deal with the right builder you just might be letting a contractor off the hook while you’re left holding the bag for poor work.

4- Pricing. Large builders have huge departments to keep up on the rapidly changing costs of materials and labor. You will have to be very careful. Once you sign a contract with someone to build a house you are obligated to deliver a house to industry standards for your agreed price. If you can’t find someone to build the home for that price then you’re going to have to make a generous contribution to the building of someone else’s dream home.

There are a staggering number of different trades that contribute to the construction of a home. This plan puts you smack in the middle of a builder or contractor and a home buyer. That is not a good place to be. You better get a good lawyer and bone up on your local lien laws and collection processes. Once a construction deal goes bad the injured party looks for anyone to hold accountable. If the contractor doesn’t perform and disappears then tag you’re it. If the homebuyer doesn’t pay and disappears then tag you’re it. They don’t go after the guiltiest; they go after the easiest target.

This is not a bad idea. There are a lot of small builders who might really like a source of projects. It’s just a little too scary for me.

1- are you a licensed contractor? In my state, you would need to be a contractor to perform this sort of “flip”
2- do you own the subject property(ies)? If not, then seasoning, title and many other issues must be managed. If you do own it currently.. for how long? Again, check with lenders in your area and see what they say about seasoning.. and if seasoning isn’t the issue, do they have a problem with you selling for a profit substantially above your cost +improvements? Our country and banking industry has become quite anti-capitalist over the recent past (as if you haven’t noticed…)
3- If you don’t own the properties you’re trying to “flip”, you should check with a real estate attorney to find out just exactly what licensing may be required. You may be shocked to learn how the state is interested in licensing any activity involving frrequent buy/sell transactions. Doesn’t matter if you do it all as a “principal”.. ask qualified attorney to make sure you know the boundaries. Just remember, we are evolving from a free market, capitalistic system into a far more Statist/contolled market where government is a partner whether you like it or not.

Thinking through the entire process- I agree that it’s straight forward in concept.. but if you’re relying on outside financing at any stage (including sale to retail buyer), you best understand exactly what today’s financial institutions will and will not do. You may find that the only players are VERY expensive and offer quite low loan/value ratio loans.

Great article!