Help!! Trying to decide whether or not I should walk from SS deal

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Help!! Trying to decide whether or not I should walk from SS deal

Jeffrey Hayes
Investor · Tucson, AZ · Member since 2015 · 64 posts · 3 votes

Hi, I'm a real estate broker from Tucson, Az and I'm just about to close on my first flip deal which happens to be a short sale. I made my offer on this 3 bed 2 bath townhome in Tucson, Az back in August and it's on of the most poorly run transactions I have ever been involved in. Long story short my offer of $86,000 cash was finally accepted, however I just recently found out from the listing agent that Wells Fargo is not going to pay me a commission because I'm a broker. I managed to work out a deal to get half of the listing agents commision however. I just received the paperwork today(the short sale agreement which I should have received months ago but didn't) and I read that Wells Fargo will not allow me to resell property until 90 days after I close which will be on Jan 7, 2016. The numbers work, however, I planned on renovating the home in 30 days and then quickly listing it. Even though the market in Tucson, Az is currently appreciating slightly I'm not sure how it will be on Apr 7, 2016 and I'd hate to have the market start trending downward. I calculated that my profit will be in the $14,000 range so it's not a huge margin. Does any investor out there have any advice on whether I should stick with the deal or walk from it? Any advice would be greatly appreciated! Thanks

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  • Alayne Galley
    Real Estate Agent · Lititz, PA · Member since 2015 · 10 posts · 2 votes
    10y

    So on day 91 the property can be sold? Are there any stipulations about it being listed? How quickly do properties typically settle in your area? In my area, 60 days is pretty average. So in an ideal world, you could buy it, flip it in 30, have it under contract on day 31, and settle 60 days later on day 91.  

    I have yet to get my feet wet on a flip, but $14,000 doesn't sound like much of a profit margin. Unless you've safely over budgeted for all of your repairs.

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  • Michaela G.
    Investor · Atlanta, GA · Member since 2013 · 3k+ posts · 3k+ votes
    10y

    This is your first flip and if you plan on having it renovated in a month, then it will likely take 6 weeks ;-). Not trying to be down on you, but **** happens. Experienced investors think they have it all figured out and **** still happens and delays things somewhere. Rehabs seldom come in in exactly the expected time frame. 

    If you then put it on the market after 6 weeks and get an immediate offer and it takes 45 days to close, you're at the 90 day mark. So, you can stipulate to close after that date and it won't be very far out.

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  • Jeffrey Hayes
    OP
    Investor · Tucson, AZ · Member since 2015 · 64 posts · 3 votes
    10y

    Hi Alayne, according to the listing agent I can't even list the property for over 120% of what I paid for it($86,000) until 90 days after I close.  Homes in Tucson typically sell in 90 days or less and in this particular subdivision many homes sell in under 35 or 40 days.  I feel pretty confident with my repair estimates.  My biggest concern is not being able to list the home until early April due to Wells Fargo's regulation.  I don't understand how the bank can impose that on my title anyway if I own the home or why they even care for that matter? I'm just wondering how risky it would be to hold onto it for an extra 60 days in case the market starts to depreciate?

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  • Don Harris
    Realtor · Charlotte, NC · Member since 2014 · 935 posts · 467 votes
    10y

    @Jeffrey Hayes IMHO $14k is not enough margin for a retail flip. Once your retail buyer gets a inspection and you fix those problems and you pay sellers closing expense on a FHA loan , harldly worth the risk. And I'm assuming you are closing with your own cash, it's even worse if you have HML to pay.

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  • Jeffrey Hayes
    OP
    Investor · Tucson, AZ · Member since 2015 · 64 posts · 3 votes
    10y

    Thanks to everyone for the quick responses! I just called the title company and they still aren't sure if that 90 day no sale restriction that Wells Fargo will place on the title means that I cannot list the property for sale on the MLS until 90 days after I close escrow or if that just means that escrow can't close for the new buyer after I buy and rehab home until after day 90 after I close escrow? Ideally I would like to rehab this home in 30 days, immediately list it, and let's just say it's on market for only 15 days I could then set the closing date for 45 days later(which would satisfy the 90 day restriction on my title for the over 120% of what I paid for the house($86,000) clause. Is that how other flippers deal with this issue or do they just wait the full 90 days before they even list the home they just renovated? Please advise. Thanks

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  • Doug W.
    Flipper/Rehabber · Alexandria, VA · Member since 2014 · 461 posts · 262 votes
    10y

    Are you using FHA financing for the purchase @Jeffrey Hayes? 

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  • Ali Brooks
    Investor · Houston, TX · Member since 2014 · 12 posts · 1 vote
    10y
    Originally posted by @Jeffrey Hayes:

    Thanks to everyone for the quick responses! I just called the title company and they still aren't sure if that 90 day no sale restriction that Wells Fargo will place on the title means that I cannot list the property for sale on the MLS until 90 days after I close escrow or if that just means that escrow can't close for the new buyer after I buy and rehab home until after day 90 after I close escrow? Ideally I would like to rehab this home in 30 days, immediately list it, and let's just say it's on market for only 15 days I could then set the closing date for 45 days later(which would satisfy the 90 day restriction on my title for the over 120% of what I paid for the house($86,000) clause. Is that how other flippers deal with this issue or do they just wait the full 90 days before they even list the home they just renovated? Please advise. Thanks

    @jeffrey Hayes Make sure you ask and see if this is what they were talking about with the 90 days. You can sell the property within 30 days for more than you paid as long as the buyer is using conventional financing or cash type financing. This is a flip rule that came back last year that any one purchasing with FHA cannot buy your house for more than what your paid for it within 90 days.

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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    10y

    Apparetly this is a double post. This restriction is because this is a Fannie short sale. Can't sell/mortgage for more than 120% within 90 days. It has no restrictions on marketing, listing, or signing a contract.....simply that title can not transfer within 90 days for more than 120% of purchase. FHA financing for buyers is different, they can't sign a purchase contract within 90 days of the prior purchase, on any flip/purchase.

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  • Patrick L.
    Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
    10y

    The days are a non-issue,  the issue is your margin is too thin unless you're being super conservative with your numbers.   By the time you complete the the rehab, market the listing and find a buyer, and the buyer's lender is ready to close you're going to be at 90 days.   Loans are closing in 30 days with the new TRID requirements, average time to close a loan now is 49 days.   

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  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    10y
    Originally posted by @Jeffrey Hayes:

    Hi, I'm a real estate broker from Tucson, Az and I'm just about to close on my first flip deal which happens to be a short sale. I made my offer on this 3 bed 2 bath townhome in Tucson, Az back in August and it's on of the most poorly run transactions I have ever been involved in. Long story short my offer of $86,000 cash was finally accepted, however I just recently found out from the listing agent that Wells Fargo is not going to pay me a commission because I'm a broker. I managed to work out a deal to get half of the listing agents commision however. I just received the paperwork today(the short sale agreement which I should have received months ago but didn't) and I read that Wells Fargo will not allow me to resell property until 90 days after I close which will be on Jan 7, 2016. The numbers work, however, I planned on renovating the home in 30 days and then quickly listing it. Even though the market in Tucson, Az is currently appreciating slightly I'm not sure how it will be on Apr 7, 2016 and I'd hate to have the market start trending downward. I calculated that my profit will be in the $14,000 range so it's not a huge margin. Does any investor out there have any advice on whether I should stick with the deal or walk from it? Any advice would be greatly appreciated! Thanks

     Our advice:

    • The deed restriction of not being able to sell it for 90 days is usually not an issue depending on what your Days on Market data supports. If you estimate your renovation @ 30 days & your target buyer is an FHA type it will most likely take them 30 to 45 days to close after a contract is signed. So it's just a matter of your DOM data & potentially stretching it out to close on day 91
    • Regarding not being able to even list it- We've had properties w/ the 90 day deed restriction & listed it before 90 days.  The legal interpretation we have is selling, which means closing within the 90 day period.
    • My biggest concern w/ your deal is the skinny $14K margin.  All you need to find is a $10K mistake in your renovation numbers and your margin is gone or you may end up selling for a loss.  $14K is too skinny
    • My other concern- The deed restriction paper work should have been delivered to you during the due diligence period, not months after a signed contract. I'd call foul on Wells Fargo, cancel the deal & demand the EMD back.
    312-681-7487
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  • Wayne Brooks
    Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    10y

    The deed restriction language comes With the approval letter, as part of the documents the buyer must sign; the approval letter, arms length affidavits, etc.  It should be known however from the get go that it's a Fannie short sale (as long as you know to ask/research) and the 90 day restriction is a given.

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  • Josh Nicolson
    Investor · Tucson, AZ · Member since 2015 · 50 posts · 18 votes
    10y

    Crystal Smiths advice is spot on!

    $15k margin is too small for this size (i.e. $15k on a mobile home is great but for $90k+ risk it's not enough).

    The 90 days is based on the COE and not listing date.

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  • Jeffrey Hayes
    OP
    Investor · Tucson, AZ · Member since 2015 · 64 posts · 3 votes
    10y

    Hi, Thanks again to everyone who has given me advice. I know 14K is not a huge profit but I want to let everyone out there know that I have done thousands of BPO's in the Tucson, Az area and I am extremely familiar with the market. In addition to that I have read several flip books cover to cover, attended several flip seminars around the state, read many blogs, and studied repair costs extensively. I also decided awhile ago to be my own GC not only to reduce costs but to make sure that everything is going the way it should be and on schedule. There are several fresh comps that are model matches in my subdivision that further justified my decision to go forward. I got all of my bids and I'm doing part of the work myself along with my father who has done quite a bit of work on homes before. I decided to replace the fence myself instead of contracting it out which should hopfully put my profit into the 17-18K range. I was fairly conservative with my ARV so in reality I think this home will sell for at least 5K more if this home follows the newest comp trends. I'm closing tomorrow so hopefully all will work out. Since it's my first flip if nothing else it will be a great experience and hopefully my numbers work as I've had about 5 months to think about it due to it being a short sale. Thanks again to everyone that has helped me. That's what this site is all about!

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