How to roll rep. cost into rental property loan?

Question

We are making an offer on a lender owned property that will need 15-20k in repairs.  We are planning on doing most of the work ourselves.  We are bidding 10K below sales price (it has been on the market for many months).

Our agent had several suggestions to get the repair $, including:

get 20k commission to realtor and he 1099's it to us

pd to mtg broker as discount pt and broker gets it to us

find a lender who will loan based on post-repair value

do fix&flip loan, refi when repairs are finished

This will be our first rental purchase, so we are at a loss as to which is the best option.  Not really interested in the f&f loan - 10% int. and having to pay for closing costs again at refi.
I have been reading through the forums, but am still seeking additional info.
Any suggestions/info would be really appreciated!
Thx - Suz.

Grand Wally · Answer

Remember that anything in real estate is negotiable.  You can roll the cost of ANYTHING into the cost of a property........if you can get the bank and/or seller to agree to it!!

S Harper · Answer

This property has been on the market for several months and gone through a substantial price drop.  We lowballed the offer and the owner has already included a partial repair credit.  We put in a straightforward offer, if it is accepted then our agent said we can always amend to include the commission if the seller is amenable.  We were just hoping to not deplete our reserves.

We have been surprised at the market, never having dealt with short sales or bank owned properties before.  This is our fourth offer (full price on the first three) with no concessions and we haven't gotten one yet.  One is still under bank review a month later.  This one we have another day or two until the response deadline.  We are hoping that since it will require some substantial work and it has been sitting so long we won't have any competing offers.
We are also learning about agents who are not above board - verbal offers, etc.  
It is reassuring to know we are not the only ones having difficulty getting a contract - at least it is not s.th. we are doing incorrectly!

Jon Holdman · Answer

So, Suz, in addition to showing the commissions or points on the HUD, you must also show the subsequent transfer of the money from the RE broker or Mortgage broker back to you.  Its that last transfer that will get you into trouble if the lender does not know its occurring.

If you have the cash to fund the downpayment and rehab, or can get it from some other source, that's the best way.

Gregor's right.  The trick is to watch for price reductions and make an immediate offer.  Not sure what part of town you're working, but my success rate is pretty low.  I've closed one REO out of about 15 offers.

Kyle Gregory · Answer

just a suggestion here...  I was looking at a REO that had been on market for several months. The asking price at that time as about $47.5  (and btw it was the ONLY house we looked at that had all the copper pipe remaining) Anyway  after looking at a few more 2 families and about another month or so passing they dropped the price dramatically. To $37K...  My realtor friend said lets see how low they will go and we offered $27K ... ended up settling for $34K....

Why not knock off a few more grand for those repairs?

S Harper · Answer

I didn't ask about the hard money lender, since dh & I aren't interested in going that route.
Adding the commission/pts into the loan would be all above board and transparent - we are very fortunate in that we have no doubt as to this guy's integrity.  
We decided to just put in a normal offer using our regular bank.  Too many options for newbies!  Thank you, though.
suz.

Jon Holdman · Answer

Pretty sure both those first choices are loan fraud, unless everything is disclosed to the lender and the lender agrees.

A rehab loan or hard money loan with a rate-and-term refi is your best bet, IMHO.  Or, some sort of personal loan or a loan secured by some other collateral.  10% would be very good on a fix and flip loan based on ARV.  I'd be curious who's offering you that.