understanding HUD process

8 Replies

I was just checking on HUD listings around my neighborhood and saw something that i liked. I did some BP search and understand that you can have a HUD home for as low as 60% of the price. I was more interested in knowing the process involved? is it similar to a conventional real estate transaction?

also can i wholesale a HUD home? how accurate are the reports that are attached along with HUD listings? do i need to have it inspected separately?

i know these are a lot of questions but any guidance is highly appreciated. 


The process is very similar to any other purchase. You must use specific agents that are authorized to submit HUD offers. Unless you're planning on moving in, do not bid during the owner occupant period. Wait until the investor bid period. If you do bid as an investor, get your bid accepted and give them earnest money it is VERY, VERY unlikely you will ever get that earnest money back. You don't have to close on the property, but you're not getting your EM back. If you're bidding as an investor and you want to do inspections, do them before making a bid. HUD will not renegitiate after the offer is inspected. If you don't like what you find in an inspection after you get an accepted bid, tough. You cannot back out based on an inspection contingency, as you can usually do on a regular purchase.

The inspection reports are about as accurate as any other inspection.  Which is to say they give you some info, but may have missed something.  They are in no way any sort of guarantee about anything.

I think 60% is far too low.  IDK what the number is, but its not nearly that low.

I've seen these wholesaled by making offers in the name of an LLC, then selling the LLC to your end buyer.

thanks @Jon Holdman . thats helpful. however if the property is locked in a bid within 2 days of submission, wouldn't creation of LLC take a bit longer. Are you saying that i should have an LLC in place prior to bidding?

You should have the LLC's created ahead of time. You will have to have the LLC make the offer. If you make an offer in your name and its accepted, its too late to change it to your LLC.

The timeline varies from state to state. Here in CO I can create an LLC in five minutes at a cost of $50.

Jon is correct.  You will have to have the following before you bid :

LLC Created

Tax ID Number for your LLC

Proof of funds in the name of the LLC or a Pre-qual Letter in the name of the LLC

thanks @Jon Holdman

appreciate your response. 

that helps. however in IL, a LLC creation is upwards of $300. so have to plan it accordingly.

Originally posted by @Greg H. :

Jon is correct.  You will have to have the following before you bid :

LLC Created

Tax ID Number for your LLC

Proof of funds in the name of the LLC or a Pre-qual Letter in the name of the LLC

 thanks @greg h

how easy is it to get a pre-qual letter for a newly formed LLC? i was under the impression that even LLC have to go through the grunt of proving to be credit worthy before the banks give the letter.

In any case, a pre qualification letter is useless for making offers. You mean a pre-approval. Its possible to get one for an LLC, if you can prove to a bank you can qualify. You'll almost certainly need a personal guarantee to get approved for a loan for an LLC. Its you that's credit worthy, not the LLC.

This strategy works better if you have cash available and can make all cash offers.

@Jon Holdman

In the "real" real estate world I agree with you. With HUD, a simple pre-qual letter is acceptable and cash or financed makes absolutely zero difference on a HUD offer

As proof, I always offer on HUD as financed even though I always pay cash with my own funds. Why ? Because, I buy 2-3 HUD homes a month and we are always behind on the rehabs. Financed gives you 45 days to close vs 30 days for a cash offer.

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