Real Estate investor · Atglen, PA · Member since 2011 · 90 posts · 21 votes
If I buy a house at a significant discount and do very little work, what problems might I run into when I try to sell again at market value within a month?
Here are the numbers:
ARV $185,000
Repairs $11,000
Purchase Price $70,000
This house is in probate and has not been on the MLS.
Does anyone have suggestions how to circumvent any issues that may arise with appraisals or lenders trying to nix the deal?
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
13y
Originally posted by John H.:
Can someone clarify something for me, is this for all types of properties, or just single family homes that you will see these issues with a quick sale? Would a 2 family with rents that could justify the price would be ok on a quick flip with 100% profit?
It has less to do with the type of property and more to do with the type of loan. This would apply to any FHA or residential conventional loan.
Real Estate investor · Atglen, PA · Member since 2011 · 90 posts · 21 votes
13y
Originally posted by J Scott:
For FHA, it's going to be more of an appraisal issue. You'll likely be able to sell it for whatever the appraiser says it's worth, but the appraiser will probably not say it's worth more than you paid for it if you haven't done any work and little time has passed. And even if the appraiser does raise the value, the underwriter can do whatever they want -- it's their butt on the line if the loan can't be sold.
Also, if say I do wholesale this to another flipper, won't he run into the same issue?
If he tries to resell to another FHA or conventional buyer? Absolutely. In fact, he'll have more trouble reselling because of the extra title transfer.
So how do I make a profit if I don't want to hold for a long time and I don't want to pass resale issues on to another investor?
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
13y
Daniel Fisher with the type of margin you are talking about you can afford to pay for financing in the form of private money to provide financing for a new buyer. Pay points to lower the rate for say something like a 7 yr loan.
For me it would make a great rental. Can't you get your original investment out and hold for a while?
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Buy it and seller finance it to someone who won't have loan issues in say 14 months.
Would you be interested in trading properties with another investor?
Trade it to a retail buyer who is down sizing, usually works better, you buy their house and borrow on it, pay yours off. The trick here is that your purchase price will be found and your LTV adjusted, but you will receive the credit from your buyer at the contract price. If it's an even trade there may no or fewer issues.
Here's my question...... why? Why do you need to sell quickly and take a hit on taxes? Is your lunch money going into this purchase or is there a reason you can't hold it? Seems like the brain damage or expenses or lack of profits in wholesaling aren't worth the opportunity cost of holding it for a year. Is this just an issue of faster gratification of greed (LOL) or is there a better reason that 12 months is not worth 30/40K? :)
Real Estate Investor · margate, FL · Member since 2013 · 5 posts · 0 votes
13y
Hi guys. I had a similar situation. Purchase for $52k two months ago spent 70k in rehab and house appraised for $225k. I'm in south Florida. Luckily I accepted a cash offer from an investment group. I had no idea it would've been a problem to sell to regular FHA or conventional buyers because of the short time and price increase.
Investor · Canton-Akron, OH · Member since 2012 · 917 posts · 477 votes
13y
I see the comments about the "impossibility" of getting fha to finance this deal, I dont know if there has been a recent change, but out of 9 houses this year, only two were we even asked for a list of repairs from the lender. Two apprasials are always required. But list of repairs are not, in my experience, especially lately.
We have one under one pending right now, purchased for 65,200, under contract to sell for 158,000. We are selling at the top of the market for the neighborhood. They required two apprasials, second one just came in at selling price. We are scheduled to close on the 15th.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
13y
Originally posted by David Beard:
Originally posted by Will Barnard:
Why would a quick financeable sale be out of the question?
Will, most agree that bank underwriters will balk at a 100%+ markup on a quick flip with very minimal rehab done. Do you disagree?
I simply suggested he try to get a longer-term private/HM loan, to enable him to hold the property for 12 mths to get the necessary seasoning that these bank/FHA underwriters like to see.
Is that clear?
Depends on what you mean by balk. I totally agree that the loan associated with that purchase will be scrutinized very closely, will almost always require two separate appraisals, both ordered by the lender, and a letter of explanation on how the property was acquired for such a low price along with an itemized list of repairs completed may also be necessary. I can say that if all that us supplied, the loan is possible, I have experienced same in the past, admittedly not in the last 18 months though.
The longer term loan - That makes sense David, thank you for the explanation. Your suggestion of an alternate exit strategy is a good idea and a viable one at that.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
13y
If you do not want to hold, then sell. Any related problems to your new buyer are theirs to worry about, not yours. To skip that all together, sell to a buy and holder.
Retail or wholesale, so long as the buyer intends to hold the property, then no resale issues are there.