Wholesaling HUD Homes

23 Replies

Hi,

Ive been looking into all different ways and options to get into Real Estate from REO's, to short sales, and so on and now I've come across HUD homes and so far it's sounding pretty good, but Im new at this, so I want to run a few questions past you guys and gals. So first off, being a previous FHA loaned home, I shouldnt have to worry to much about major surprises like other homes, right? I mean, from what I've heard, FHA is pretty strict on major things not being an issue with a home they finance... So Im thinking that sounds like a relief to not have to stress that my contractor will uncover a costly issue when Im just getting into this business and every $ counts... From the information I just got off of another webinar, as long as you buy the home from HUD and they are aware you are an investor, there are no resale time limitations on thee homes? The webinar also stated that if you win a bid, you have so many days to turn in the paperwork to get the deal done, so in that time, he looks for his end buyer, and if he doesn't find one, then he doesn't submit the paperwork and the deal is off, no penalty... ? This is all sounding to good to be true? What am I missing? What are the negatives?

But really, how does this process all work...(Assuming this info was all true)

I bid. If my bid wins, HUD sends me paperwork. Before that paperwork deadline is reached, I am finding an end buyer. I then submit the paperwork. Take out transactional funding? Do a double close with my end buyer and walk away with my money?

The thing Im having the hardest time understanding is earnest money deposits... If I put up $ for a deposit for my contract, take out transactional funding to purchase the home, and my end buyer backs out, what do you do??? Or is there something he signs so that he can't? How does that part work? 

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@Mark Ferguson is an expert on HUD.

I would in no way count on the fact that it was previously financed with FHA implying anything about the property condition. You need to do your own inspections. And you need to do them before you make your offer as there are no inspection contingencies for investors buying HUD houses.

Mark can correct me, but I think the timeline for turning in that paperwork and earnest money is just a day or two.

If you hand over your EM you will never get it back.  Well, there might be some way to get it back, such as the place burning to the ground before you close.  But you should assume that you will lose the EM if you don't close.

The way I've seen this done is to make the offer in the name of an LLC, close, then sell your interest in the LLC to your end buyer.

Thank You for your reply Jon. I'm now following Mark as well. I'm sure Ill learn a lot from you both. Thanks 

I wholesale HUD homes - a ton of them. Here's the proof:

http://www.biggerpockets.com/forums/223/topics/121...

Here are your answers:

1. Yes, you have 2 days to find a buyer from the time your offer gets accepted to the time you need to submit your paperwork and earnest money

2. You might find HUD homes that need major rehabs so it's not true that HUD homes only need minor repairs. We walk from a HUD home with list price of $53K that we got for only $21K because the house needs major structural reconfiguration

3. You don't need transactional funding or to do a double close when wholesaling HUD. In some instances, you can add the name of your buyer to the purchase contract. I wrote a blog post about it:

http://www.biggerpockets.com/blogs/4240/blog_posts...

Thank You Wendell. That cleared several things up for me.

So when you get an accepted bid, you find your buyer within the 48 hours you have to get the contract back to HUD? If you find one you send in the papers and if not you dont? If you do not send in the papers, there is not penalty correct? They just move on to the next highest bid?

My biggest question is, say you have someone who says they want to buy it from you... Do you just go ahead and submit your papers and deposit to HUD on the word that this person wants your house? Or do they sign something guaranteeing they will buy it from you? I would just feel like I was gambling with my earnest deposit without proof and assurance they were going to buy the property.

Also, do you have any tips or trick on if there is a way to get you earnest money back or anything if a contract is cancelled?

Does HUD pay all closing costs and fees? Is there anything else we should expect to pay besides or EMD?

Thanks again for all your help

Originally posted by @Jessica Martin :

Thank You Wendell. That cleared several things up for me.

So when you get an accepted bid, you find your buyer within the 48 hours you have to get the contract back to HUD? If you find one you send in the papers and if not you dont? If you do not send in the papers, there is not penalty correct? They just move on to the next highest bid?

My biggest question is, say you have someone who says they want to buy it from you... Do you just go ahead and submit your papers and deposit to HUD on the word that this person wants your house? Or do they sign something guaranteeing they will buy it from you? I would just feel like I was gambling with my earnest deposit without proof and assurance they were going to buy the property.

Also, do you have any tips or trick on if there is a way to get you earnest money back or anything if a contract is cancelled?

Does HUD pay all closing costs and fees? Is there anything else we should expect to pay besides or EMD?

Thanks again for all your help

You won't get your earnest money back if you send it in and cancel. You have to have the contract to HUD in 48 hours while usually involves overnighting it. You really only have one day to find a buyer if you wait until your bid is accepted.

HUD pays no closing costs. Buyer is responsible for title insurance and closing fees.

If a winning bidder does not submit their earnest money & contract within 48 hours, would the M&M contractor (or HUD) blacklist the bidder from future bidding ?

@Jessica Martin  I'll add a couple of points that weren't mentioned.

The EMDs are standard with HUD - $500 for 50k or less, or $1000 for over 50k purchases.

I wouldn't try this, but you do have only one day to find a buyer because you have to FEDEX the EMD with all required documents to the HUD servicer 48 hours after they accept your offer.

HUD paid $1000 of closing costs on a property I purchased Monday. I'm not sure if that's new or not, but I just closed this deal and that's what they paid.

There are two servicers that have different requirements they follow, Matt Martin Real Estate Management (MMREM) (that's who I just went through), and PEMCO.  You can see examples of what some of their different expectations are just looking at properties on hudhomestore.com.

Updated over 3 years ago

Well, that's a little embarrassing. Haste makes waste. I jumped on and made some quick comments and jumped off, but I stand corrected. There are 3 main HUD servicers, I left Hometelos off. No HUD did not pay any closing costs for me, that was a Fannie

I'm a little confused. If the hud store website is open to the public why wouldn't the investor just skip the wholesaler and just bid on the home himself?

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It is open to the public Everett and they can if they win the bid. You do have to have a real estate agent put your bids in though. We had two bids come back requesting a counter with their net listed. HUD still isn't hurting enough to unload them cheap enough so we didn't counter.

HUD requires that the contract be submitted in the same name as the original bid was submitted. How do you handle this when wholesaling?

My realtor bids on HUD home's for me, so I could be mistaken, but I believe the online bid submitted requires the buyer's information (name, ssn, address, etc). Then, if your bid is selected, the buyer's agent fills out the packet and sends all docs overnight and drops the ernest money check off with the listing broker.

That being said, it's my understanding that once the bid is submitted/accepted, HUD already has the buyer's information and the packet sent in must match what was submitted online... Meaning the buyer of the property can not be altered or they will just put the home back on Hudhomestore and reopen bidding.

Please correct me if I'm wrong, but to wholesale a HUD, don't you have to by it in the name of a LLC and then sell the LLC to the new buyer? Couldn't that run into issues also, as the LLC's member listed on the bid won't match the member on the docs sent to HUD?

@Jody Young  No there could be several reasons why the contract and money weren't sent. That said don't bid on a home if you don't want it.

@Everett Marshall  Investors do use this site and bid on them and win the bids. It's just that most are not savvy enough to look in this direction. Also as @Jeremy Martin  stated you have to have an agent bid for you. Luckily my brother is an agent :)

@Randy King  When wholesaling hud you have to have 2 seperate closings. You can not assign a hud.The way I do it is I have a friend wire the money into escrow close with hud. I'll then do a seperate closing with my cash buyer.

@Terry B. You are correct in saying whichever name is used for the bid has to be the one that closes it. If you bid on a house using the name john doe then you have to close the property in the name john doe. If you close in the LLC name mountain enterprises LLC then you have to close using the mountain enterprises LLC.

There has to be 2 separate closings you can use transactional funding for the first close or find someone willing to loan you the money.

thanks all for yge responses. 

Robert, I believe the management is Martin as well for our area. 

Please keep in mind that there can be repairs needed on the home that are unforseen. I have purchased HUD homes that were in terrible condition and I found this out by inspecting the property first with a realtor. A lot of times HUD will put some work into the property before they sell it, but not always. I hate to say this, but always assume the worst. By this I mean assume you will need electrical. Assume you will need plumbing etc. It is just good to be safe. I have seen new investors purchase HUD homes and get into a big mess and make no money after rehabbing it. https://danielhedges3636.wordpress.com/

Yeah, I feel pretty prepared for the surprises of real estate. In financies I always over estimate cost and under estimate profits so I know there is room for surprise expenses. However, I don't plan I rehabbing these properties myself. The goal is to wholesale HUD homes. I assumed with HUD a double close would have to be done, but we recently found another local investor interested in helping us. People have been surprisingly willing to help and teach us. This investor has said there is a way to wholesale HUD without a double close though. Something about adding a second buyer and dropping out but I'm not sure how that will work yet??? And I'm a by the book kind of person, so I have to make sure this is an acceptable way of doing this by law. Does anyone have a ball park amount of what title insurance and closing costs are from the Martin management HUD group?

@Jessica Martin  @Robert Leonard  @Daniel Hedges  

I am a broker but I primarily flip homes and most of them are HUDs.  I have closed on approx. 40 this year to date and several hundred over the last 25 years

1. There are 3 Asset managers in the Denver Region which is most of the Southwest US.  Matt Martin, Hometelos and Pemco.  The contract process is fairly similar between all of them but they do evaluate properties with 60+ days on the market differently

2. HUD no longer pays any closing costs and you select the title company. You can add up to 3% to your bid for closing costs to be paid but that makes no sense on a wholesale deal. I pay approx. $500 to close with a title company(Excel Title Group) that can do the entire state and was one of the HUD closing companies before the new system. HUD is a pain in the butt for title companies so I prefer to use someone who has experience with them. I typically do not buy title insurance unless I perceive a problem and the cost for title insurance is the same everywhere in Texas

3. Wholesaling- As others have mentioned, you can avoid a double close by adding a person to the contract or by selling the LLC. Both of these require a great deal of trust between the parties and personally I wouldn't feel comfortable on the buy side as there are some risks. I have the ability to close and I do wholesale some but I just close and then resell.

4. HUD does not do any work or repairs to their inventory. If the roof leaks they may put a tarp on it or rig a door jam if it has been kicked in. If you look at hudhomestore.com the do have a PCR report with some info on the condition of the property. You have to take it for what its worth. For instance, the A/C inop, could be anything from a bad coil to a $15 contactor. I do not hire professional inspectors for the ones I buy as I have 25+ years of experience in doing this and I only buy at my price factoring in the what ifs. Inspecting a HUD could costs you $500 or more in addition to the cost of your inspector do to utility connection fees and re-winterizing fee

5. There is no penalty for no turning in the contract within the 48 hours and I have had no issues with asking for an additional 24 hours. Once the contract is accepted by HUD you have either 30 or 45 days to close and Investors will not recive their earnest money back if they fail to close barring excessive damage to the property after the contract was accepted or title issues. I look at the $500 or $1000 earnest money as the price I pay for 30-45 days to further evaluate the property. I have no problem walking away from the earnest money if the numbers do not work. Its just a cost of doing business

Thanks for all the great info on HUD homes. I have not done nearly as many deals as you have, but I hope to. Your info is very informative and helpful. I look forward to reading more of your posts.

@Greg H.  Nailed it. I just didn't want to write it all out lol.

thank you Greg for all the information 

Originally posted by @Jessica Martin :

thank you Greg for all the information 

Jessica, I am a newbie here and looking into the wholesale side of HUD. Have had you any success since your last post and do you have any lessons learned you can share.

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