As real estate prices continue to slide investors are eager to find the next best deal. Usually when determining which property they should buy price and rental income become a big factor. Price and rental income usually translate to cash flow and this is the foundation of long term real estate investing.

Let’s look at the condo market and the pro and cons of buying them over other real estate options. The price point of a condo can be very low and investors can usually cash flow on them, but one area that needs consideration is the short term exit strategy. If an investor wants to sell their investment condo they should think about who is going to buy it and what loans are available to buyer to finance them.

Loans on condos are still available, but guidelines have changed that make it more difficult to finance condos with little or no money down. Condos as an affordable housing option for low and middle income brackets are great because of the low price, but a large group of these borrowers need low to no money down on their purchases. Many loans require 10% or more depending on the geographic region, borrower and the type of condo that is being financed.

Here are a few key questions to ask your mortgage professional in helping you with your exit strategy:

1. Is this condo FHA eligible?
2. Is this a warrantable condo?
3. Is this a non-warrantable condo?
4. Is this an ineligible condo?
5. Does one investor own more than 10% of the complex?

All of these questions relate to whether or not a bank will actually be able to finance your property and some have a higher down payment requirement.

Investors do you home work up front, have a well formulated exit strategy and anticipate the hurdles that your potential future buyer may have to over come.

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Tags: condo, condominium, FHA, HOA, loan, mortgage, real estate, real estate investor

You have to love the amount of flexibility there is when running a deal FHA but more often than not, there are too many things left undone that cause major hiccups in the final stages of any transaction.

Technically, many of these hiccups are because of the lack of attention to detail on the part of the mortgage broker handling the file. But for the sake of this post, we will say that it isn’t anyone’s fault why so many FHA processed files couldn’t beat a broken bottle of molasses running uphill to the closing table. I have an associate who wants to purchase a 3-unit apartment building in Washington, DC but he has had no success getting the deal to the table. Let’s call him Investeron.

You would “think” that anyone with 3 bureau scores over 720 and a $100,000/year income is a shoe-in for financing for anything under $500,000. Mais, ce n’est pas vrai.

Problem #1 - If this property is going to be 100% investment than Investoron would have to find 20% for a down payment. That is bad news. It just so happened that Investoron is willing to live in one of the units as a joint-tenancy occupant. Problem solved.

Problem #2 -The decision was made to run the deal FHA. With FHA there is a required 3% down on a multi-unit. No worries. Investoron finds an able friend to provide her with a gift. We know that gifts must come from family members, so Investoron asks his father for the funds. His father agrees, the gift letter is completed, the monthly statements are submitted and all is well. Problem solved. (2 weeks)

Problem #3 - FHA changes their guidelines and gifts cannot be accepted as “seasoned funds” for multi-unit purchases. The gift must then be returned. The only option at this point is to have Investoron’s father add Investoron to his checking account or whichever account has an average balance of the 3% or more. He agrees and all is done. Problem solved. (1 week and an additional week to receive the VOD from Inverstoron’s new banking center)

Problem #4 - The appraisal was ordered within the first 3 days of the application process for this purchase. The hold was that the initial appraisal was not ordered as an FHA appraisal. Problem solved. The appraisal was canceled an re-ordered but did not happen for another 5 weeks. That appraisal was submitted in a timely fashion and all was well. Problem solved. (6 weeks)

Problem #5 - The appraisal that came in was not done in accordance with FHA’s regulations. PLUS, no FHA case number had been filed. YIKES! (1 week)

Problem #6 - Investeron is an investor and he uses a standard investor 2 page purchase of real estate agreement. Processor calls Investeron and asks for the signed contract and the FHA addendums. Investoron has no FHA addendums and calls the broker. The broker alerts Investoron that the contract must drawn up on a standard GCAAR with FHA addendums and signed by seller and buyer. “It’s just the way things have to be done with FHA.” (2 weeks)

As of today, everything is in and Investoron and the seller are waiting for a clear to close and what has been a roller coaster of a transaction. And it really goes to show us investors that sometimes great credit can’t get the job done if the rules and the path are not simply paved in front of us with no surprises in the bushes. I hope all is better in your real estate investing business.

Blessings to your real estate investing successes,

Milton B. Yates

Tags: Credit, FHA, FHA Loans, invest, lending, mortgage, real estate, real estate investing