Real Estate Agents Hate 203K/ Rehab Duplexes?

18 Replies

Hi Guys

How would one find a Socal real estate agent to bring me duplexes that need work? I would like to fix the place up using a 203K loan and live in one of the units. I cant find any RE agents that specialize in distressed 2-4 units in Socal. The ones on Loopnet have a 1 off here or there. Any help would be appreciated!!

Dave

Thats my specialty here in South Florida, I actually closed on a 203k financed duplex last year. As far as I'm concerned I'm the only brokerage around that has this specialty so id advise you take matters into your own hands. Great investors have their own marketing and farming strategies. I'd look into DealMachine to start a log of properties you see in the streets. And check tax roll to find properties that may be pending forclosure.

@David G. I have not personally been involved w/ a 203k loan on the sales side but my long time agent has and he hates those loans. I mean really hates them.

I'm not sure he would recommend that I take an offer on a 203k unless it was way over asking price. Maybe +/- 10% over? It seems like the bureaucracy and box checking for a loan like that would be a huge red flag for a seller. I want buyer who is going to close. A 203K offer doesn't give me that feeling.

I can see why they're attractive as a buyer but just giving you some perspective from the sales side as I sell a lot of 2-4 MFH units. 

IMO a 203K loan is generally a bad way to go. Besides all the paperwork the contractors have to do they get NET 30 payments, extra inspectors stopping work for a week. All work must be done by a licensed and insured contractor. I have not had a client who was looking at it not say "Well my brother is a roofer and he can do it cheaper". Doesn't work that way. The bank hires someone to see if your quotes are realistic. If they aren't then the bank denies and you can't get it done.

For example. I commonly get average furnaces installed for about $2200. The local bigname HVAC group is about $4500. Guess who the bank compares it off of. Now you are overpaying. If that bigname group is doing 203K, then it's going to cost more because of all the time and energy they need to put in (paperwork/interest on what they pay until the bank gets around to it etc). Now multiply that with a roof/kitchen/windows. You end up paying way over for repairs. With 203K you pretty much have to pay retail for all work. IMO it is usually better to get the property, shop the repairs and save yourself some money.

Just my 2 cents and good luck

@Mike Cumbie Thanks a lot for your advice. I like the 203K because this is my first rehab and

I want the handholding process of other vested interests as well as the extra eyes overseeing the entire process.

The 203k is great and try not to let the 'naysayers' persuade you otherwise. I've been a part of many transactions where the 203k is used. 

203k's are certainly not perfect, but neither is any other loan. 

Sure there's a bit more paperwork and more eyes on the project but that's only to ensure that everything gets done right. Working with a lender with a lot of 203k experience, a contractor with the accreditation as a Certified 203k Contractor (one who has been educated on the 203k and had financials verified), and a Realtor who see the upside to 203k's, you can get a 203k closed in 45 days (max 60 days depending on the lender's workload).

Contractor pricing on a 203k is generally a bit higher compared to a non-203k project because the contractor has to do extra work, there's more paperwork involved, gets no $$$ upfront, has to basically finance the project and every draw payment is max 90% of their payment request (10% holdback). So, yes, the pricing is a bit higher compared to non-203k rehab projects. 

I like 203k's and see more upside to them than negatives. 

To find a RE agent for MF properties, maybe you can search for recently sold MF and find out who the seller's agent was and the buyer's agent and contact them. 

@David G. Just make sure you get a trustworthy contractor for this process and put EVERYTHING in writing. If it’s not in writing, signed and agreed to, it probably won’t happen. That’s been my experience with construction loans.

Using a contractor and lender who specialize in 203k/rehab loans makes everything go smoother from contract to close. Agents with 203k experience know this and when clients give pushback on this it can cause frustration and almost always leads to a lot longer closing timeframe than originally outlined in the contract.

If you have a agent, contractor, 203k consultant and lender who have experience working together the process goes A LOT smoother. 

Lots of realtors are experienced with 203K and know the true costs which they tell the clients in advanced to not waste time. The ones who hate 203k it's because they waste time on clients who think it will be less costly rehab and then break contract a month later when realize how expensive the rehab will be. Here in Chicago it's typically a minimum of $40k+ a unit with 203k for a pretty basic rehab where as not pulling permits less paperwork can get it done nearly half the price out of pocket. 203k will also typically make you do $10K+/- in stuff you wouldn't normally fix up for a rental rehab. 203K can be a great option if don't have the cash for larger down payments but need to know the cost and have an experienced contractor, realtor and lender. 

@David G. - Hey David, I doubt you'll find many agents who specialize in duplexes because it's such a small niche in most markets. I would find a local agent here on BP so you know they at least understand the REI world.

Set up alerts for the type of property you’re looking for and be ready to jump on them.

Maybe if you want to get aggressive have your agent pull a list of off market properties and do a Deal Machine and cold call campaign.

Good Luck!

Originally posted by @David G. :

@Khalid Bryan

I am more than willing to trade money in for the time of driving for dollars or door knocking

Wish I had a solid agent on the team.

 Let me know if you decide to invest in Florida. I have 2 houses in Pensacola FL, both rented at $600 & $625. Both houses can be purchased for $125k.