First Analysis of possible deal, turned into Possible live and Flip?

4 Replies

Hello BP!

Alright I have many questions about this potential deal! First I'll go through and just shoot the info and Analysis, this is my first analysis so I'm sure its rusty. 

This deal is for my Mother and would be her first Real Estate deal ever. Through the many months of me trying to motivate my mom to make a strong push to jump into REI she finally has jumped on it and I couldn't be more proud of her! My goal was to get into buy and hold and make my way up to commercial MF, etc etc, so when I would talk to her about REI she naturally was inclined to do the same. So one day she calls me about a deal she thinks she might have found.

3/2 walk in closet, tile and carpet, screened porch, 1992

1207 sq ft Bank owned asking 128,200 

Comps in the exact same neighborhood with same layout going for 169 -171

rent is going for around 1300 in the area. 

She doesn't mind living in it for at least a year before she sells because she wants to 

do some reno work. (wood floors, cabinets, appliances, paint, crown molding,)

she's on a month to month rent basis right now and this would be a first time home buy due to haven't purchasing a home in so long.

She has up to 6K downpayment if needed.

The thing is I have so many questions about this deal and I'm hoping if i can get some clarifications please!

Okay,  in terms of financing.. 0 down first time home buyer, can you do this with a Bank owned? 

can you do a FHA 3.5?

Can she do a 3.5 with a 203K with added reno costs with a bank owned? 

Doing some estimated numbers, adjusting with all three of those above and an average interest rate, at 30 years, it still doesn't cashflow much, HOA fees are at 880 quarterly. so its looking like a more of a flip kind of deal.

the listing was posted just a few days ago and when visiting the property with the REA she noticed what she thought was an investor taking photos. The only way I see she has an advantage over an investor Is if she decides to live in the property, she will get 30 days advance time to make an offer, but she doesn't want to move in until getting it renovated. Thats where I brought up the 203K to her. She can use 4.5K of her DP, keep the rest, reno the place, live in it for a year, then sell it, hoping it appreciates a little more, for around 170K?

any insight is much appreciated!!! Thanks for taking the time to read my post! 

If you decide to use a 203k loan, 3.5% down payment is a FRACTION of what you actually have to spend to close the loan. I made this mistake going into the 203k loan i am currently working on right now. My Loan Officer also made this false assumption and it ended up turning into a nightmare...but that's another story. 

3.5% will be your MINIMUM contribution. Expect to pay double or triple in settlement costs. I was able to get my seller to contribute 3% for closing costs but seeing that you are trying to buy a bank owned property, you wont have that option. 

Let me know if you have any specific questions. 

Originally posted by @Kyle Gregg :

If you decide to use a 203k loan, 3.5% down payment is a FRACTION of what you actually have to spend to close the loan. I made this mistake going into the 203k loan i am currently working on right now. My Loan Officer also made this false assumption and it ended up turning into a nightmare...but that's another story. 

3.5% will be your MINIMUM contribution. Expect to pay double or triple in settlement costs. I was able to get my seller to contribute 3% for closing costs but seeing that you are trying to buy a bank owned property, you wont have that option. 

Let me know if you have any specific questions. 

Thank you for your reply! 

Wow so you're saying in order to even close on the deal and get into the house you have to provide more than 3.5? Could you explain more on the reasoning behind that? Is that just added stipulations added from the mortgagor due to the cost of reno being attached to the price?   

@Alec Saenz

Yes, i was surprised too when seeing the total closing costs. Expect to pay around 6% of the total loan cost on top of your 3.5% down payment. 

These costs include lender fees, appraisals, inspection fees, upfront MIP, taxes, title company fees, HUD consultant fees, building permits, agent fees, survey fees, credit report fee...etc

That's why its SO important to get the seller to contribute towards closing costs or you'll be left with the entire tab. But since you're buying a bank owned property, that wont be an option. Be prepared to spend some money. 

Break down of my loan i just closed friday:

Purchase price of property: $87k

Rehab: $68k

Total loan amount: $169k

Total closing costs: $15k

-3.5% down payment: $6k (subtracted from total closing costs)

-Seller concessions of 3%: $3k (subtracted from total closing costs)

= additional $6k to close 

Dont let anyone tell you that 3.5% is all you have to pay for a FHA loan. I was told this by my Loan officer and it left me in a really messed up situation. She later on got fired for this and many other reasons. the bank ended up cutting me a FAT check to correct the situation. So PLEASE dont be fooled.

I haven't even thought about this! @kyle Gregg thank you for the insight! I was under the same assumption as Alec! 

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