203 (k) loans. Anybody?

11 Replies

I am a newbie and I have been doing some extensive reading on Real Estate. I have alot more respect for RE bceause there is so much to learn.

I came across an article about 203 (k) loans. Has anyone every done this type of loan? Do you know of anyone that has used it?

http://www.hud.gov/offices/hsg/sfh/203k/203kmenu.cfm

I just found this great house and I would love to purchase the house. The house needs a great deal of work but I am certain the house is a gold mine. The comps in the neighborhood are very encouraging but the only question is would the 203 (k) be the way to go. Has anyone every beeen an "owner-occupant" of a home while trying to flip it. I can't remember where I read this but I saw an ad about tax breaks to those that live in the house for atleast 24 motnhs-while the house is under construction

Would this be a good way to flip a home?

GA,

be careful buying HUD homes and using gov't loans like the 203k

there are different restrictions and they carry MAJOR FINES if you violate them - even by mistake.

you can't be an owner-occupant and "flip" a property. i presume that you're using the term "flip" to mean rehab and sell ["flip" used in its correct/original way means assigning aka never owning the actual property just the contract].

what i mean is, if you want to rehab and sell a property as an owner-occupant using a 203k - you must live in the property for over one year at least (i think). and you must live there.

if you decide to have your mail forwarded there and have someone rent it from you, like a relative or whatever - you are violating the rules [NOT RECOMMENDED].

purchasing investment homes to live in, fix up and sell is definitely a viable option - it takes discipline and focus - many people who make these kinds of investments can get side-tracked, do too much to the property, get married, have kids...life happens and before you know it, it's not a true "investment" property anymore...it's your home. so you must stay focused.

anyway, original point - you can't "flip" an owner-occupied property - UNLESS you use seller financing or a regular mortgage (and live there for 6 months to a year anyway for loan seasoning purposes).

google:
loan seasoning
investment loans

and look them up on this site and other rei sites.

remember HUD is all about improving neighbhorhoods in low income areas. HUD, generally, does NOT see investors as the ideal for improving neighbhorhoods...why? because it's the gov't that's why! they see investors, especially smaller firms (sole proprietors, small partnerships) as people who want to do shabby work and rent it out to section 8, thus not contributing to the overall good of the community...and generally in my opinion, they're right. i see what many investors do, and they do crappy work, and other homeowners HATE them for adding to the rental scene in their neighbhorhood thus decreasing the overall value of surrounding homes. HUD wants nothing to do with this.

few questions - what are some of the definitive factors that lead you to believe this house is a "good deal".

GOOD LUCK! stay in touch...

what i mean is, if you want to rehab and sell a property as an owner-occupant using a 203k - you must live in the property for over one year at least (i think). and you must live there.

You got it. 12 months. Not good for investment or quick turnover. However, if you can wait 12 months and live there the loan terms are spectacular and the mortgage is assumable. But, think about this option versus a rehab loan for an investor specifically that you can rehab and sell right away. The loan terms might not be as good but you would pay 12 months of payments on the FHA. 12 months of mainly interest.

So if your goal is to get it done and sell it fast then a standard rehab loan would probably be better.

Many ways to accomplish this. What is the price? What is the cost of the repairs needed? How good is your credit? Do you have investor history?

You both make good points and I guess my definition of a flipper is totally wrong. You see, I want to get into RE and flipping houses, right now, its not very logical for me. I don't mind living in the house and making improvements, as long as there will be GREEN at the end of the rainbow.

Noobdog I feel what you'recsaying about HUD and I am willing to do what it takes to make money in RE. Now lets be truthful here, I don't want to go to a BAD neighborhood just to rehab and profit on a sale. I would like to pick a descent neighbord and live there until the project is finished.

Let me tell you why I think its a good deal. I checked the comps in the neighborhood and the highest priced house is selling for about 214,000. I thnk the lowest was around 210,000. The house I am trying to get is not so pretty and it is listed as an REO. My realtor says we can get the house for about 180,000 or 185,000.

Originally posted by "GAinvestor":
You both make good points and I guess my definition of a flipper is totally wrong. You see, I want to get into RE and flipping houses, right now, its not very logical for me. I don't mind living in the house and making improvements, as long as there will be GREEN at the end of the rainbow.

Noobdog I feel what you're saying about HUD and I am willing to do what it takes to make money in RE. Now lets be truthful here, I don't want to go to a BAD neighborhood just to rehab and profit on a sale. I would like to pick a descent neighbord and live there until the project is finished.

Let me tell you why I think its a good deal. I checked the comps in the neighborhood and the highest priced house is selling for about 214,000. I thnk the lowest was around 210,000. The house I am trying to get is not so pretty and it is listed as an REO. My realtor says we can get the house for about 180,000 or 185,000.

I am willing to make this work. I can live in the house for 12, or 24 months. Do you think I can rehab a project and still come clean in 24 months?

24 months would be too long.

What is the approxamate cost on the rehab?

When you say rehab that means to me that it needs substantial improvements. But, rehab really means improvement(s) to some lol

Ok numbers... Let's try worst case. 210-185 = 25k
Then subtract your rehab cost.
Then the horrible part about 24 months is 24 mortgage payments. Assuming 7.5% interest the interest payments over 24 months would be 27750.

Gotta turn it around much more quickly. 6-12 max

Let me know what improvements are needed though.

Ok. From what I can see, Its going to need some work in the kitchen. (floor, cabinets maybe and appliances. The rest of the house doesn't look that bad. I haven't had it inspected yet but from what I can see, not very much. I will probably have the carpet removed and some landscaping done to the front yard. I hope the roof isn' bad because the would kill my buzz...lol

The bathrooms arne't bad. The master needs new tile and I can have the bathtub re-surfaced. The other bathrooms are just right. I see some outdated wallpaper in the 1/2 bath but thats all I see.

I would say 15,000k...if that.

One thing I am going to warn you about is a REALTOR® is a sales person. Whenever I compare the REALTOR® opinion to a certified residential appraiser's opinion the REALTOR® is consistantly higher.

With that being said I would encourage you to see if you can get an opinion from an appriaser or 2. Sometimes they will do free pre-comp reports.

Seems kind of tight on a net sheet. You should try to shave down that rehab cost. Are you going to hire contractors or try to do it yourself?

Can the cabinents be refinished? New handles and maybe even new doors to make them look better?

I think you can make it work if you can rehab it quick. You should be done well before the prime buying season too.

Yeah if the roof is that proably would be a deal killer. Is there any way to convert the living space to have an additional bedroom that would through you into another comparable bracket? ie if it is 3 bedrooms you compare to 3 bedrooms but if you add 1 and make it 4 the value should dramatically increase and the cost would be very low versus the potential gain at time of sale.

I see a lot of big time CA investors converting ranch homes to 2 story and literally increasing profits by 150-200%. Any investors doing that in here.

RE is very complex. I can't find a way to make money. Let me ask you this GREG,

I live in a house now that I bought 1 month ago. I love my house but I don't want to stay here for 30 years. I bought the house in the first phase and hopefully I can make my money at the end of the phase 3.

There were only 4 floorplans to choose from. How much do I have to spend to upgrade my house. I mean, the builder will probably build 25 more houses just like mine. What can I do to upgrade and make my house different. Better yet, how much do I have to spend. I have seen the shows where people upgrade kitchens and bathrooms but how much is too much.

I want to sell my house quickly when it is time to sell. What do I have to do? What is too much or not enough as far as upgrades are concerned. My house was bought at 182,000. I have 3 bedrooms, 2 1/2 baths and I think the square footage is 1956. What can I do to sell quickly? how long do I stay here? Some say 5 years some say 3 years.

Well, it somewhat depends on the type of buyer that would look to live in the development. Most times you will not get your bang for the buck when you upgrade existing kitchens and bathrooms.

But, if the type of buyer that purchases home in this development are fancy so to speak then doing the above would set your house apart from the rest of the development. It would simply help marketability and increase the chances for a quicker sale.

There are so many factors that come in to play. I would sit back and watch what happens to the sales in the development before I would pour any money into it. Most times when you purchase a new build the value increases all by itself.

My father is an investor and he purchased 2 homes that were 220k and 235k in a new development and just sitting there doing nothing they have appreciated to 285-325k

When you add square footage, increase the # of rooms, then you jump up to a whole new set of comparable properties. You get the bang for the buck. usually 150-200% of the cost.

Does it have a basement? Is it finished? That is probably the first thing I would do myself to help marketability. It makes the living space for the buyer more. It does not add to the appraised value so much but when people look at it and the other 25 that would no doubt be a prime selling oint.

Kitchen next I would say. But, what do you feel you could do to it? It is brand new.

I would say you stay until you see a comparable sell for the amount of profit you want or feel would be a good gain for you.

Add to the house instead of replacing stuff that is brand new.

So many idea's.. So many will work. I hope someone else jumps in this thread and shares their opinions too.

You make some very good points. In my particular floor plan, the kitchen is not very good. It is a nice size but I feel like their should be nore cabinet space. I know it depends on the buyer but does more shelf space make a difference.

You are right, the house is new so I better just wait to see how the development goes. Let me ask you this... Do you think upgrading counter-tops in the kitchen will be a good sellling point. The ones that came with house are TERRIBLE. Its an ugly, cheap, funky looking counter top. What would you do? Does a good bathroom sale a house? I mean, if the other 25 houses are just plain and mine has nice features like, tiled shower, tiled floorss etc....Would that help any?

I know, it depends on the buyer and their preference. I am trying to plan ahead because if and when my house gains considerable equity...I am going to do it again at another subdivision

If I was you I would not touch it yet. You have an advantage. You are in Phase 1 and each phase may add features. You can watch every house sell. You can walk through each house and compare. You can track what someone else did and how it benefited or did not benefit versus what others sold for.

Adding space for storage in the kitchen is a good idea. Go ahead and do that. I think everyone likes more space to store stuff in their kitchen.

You will see where I am heading...

But, try and get some more opinions on the counter tops. Try not to lead people into agreeing with your opinion. Just ask them and keep a straight face. See what maybe 5 or 10 say. Heck do you want to take a picture and post it here for our opinions?

If you are planning to wait 2 years before you sell it then all of this makes sense to me.

Your idea's sound great. Who wouldn't want that stuff done? Well, it actually might surprise you. "2k more for this bath versus the one up the street that I can choose my tile" See what I mean? The question is whether it is worth it to you to do so and I feel it is not just yet. It also depends on the cost for all of this though. If you can land the tile for a couple hundred in the bath then maybe you should do it. If you can do it yourself then absolutely. You should make it back or sell more quickly.

Another good idea is to offer some sort of custom choices to the buyers when you are ready. If you or a realtor have a solid sales stradegy where you ask the right questions you might find out someone likes the counter tops which means you keep the money you would have otherwise spent now. If they express they do not like them offer to replace. Chances are if you can do this yourself you will profit without the labor costs.

I wish someone else would come in here. A realtor would have a better grasp on this stuff. One that has time in the business and has sold new homes.