Seller concessions for a Coliving house hack to use on Renovation
Member since 2023 · 10 posts · 11 votes
Seller concessions for a Coliving house hack to use on Renovation
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Real Estate Agent · Atlanta, GA · Member since 2020 · 416 posts · 233 votes
3yHey @Tyler Ferguson - please don't spend 10k on this guy's course.
In a real estate transaction, you can pitch anything. However, the likelihood of a seller reconfiguring the house for you is loq if you don't have a previous relationship or they are in a dire situation. I can't speak for Austin, but in the Atlanta market I cannot see this working if you're asking for this straight up.
With that being said, it isn't that uncommon to push up the purchase price within reason to ask for the equivalent in credit back. If you're putting 10% down on a 100k property it could work something like this:
Asking Price 100k with a 10% down loan -> Offer at 110k and ask for 10k in credit back. In this case, you could receive a credit for 9k towards closing which frees up 9k of your down payment money to fund the renovation of reconfiguring the walls.
I'm not entirely sure what your situation is, but if you can put 15-20% down on a house hack deal you may want to consider hard money for a medium-heavy rehab to perform the reno and reconfigure the walls and refi into a conventional after the fact.
FHA 203k is another option - but I have been told that process is slow (have not done one myself)
If qualify for conventional - you may be able to get a construction loan + mortgage to help get you through the rehab. Feel free to reach out as I am happy to chat through my thoughts on this!
13 Replies
- Real Estate Agent · Atlanta, GA · Member since 2020 · 416 posts · 233 votes3y
Hey @Tyler Ferguson - please don't spend 10k on this guy's course.
In a real estate transaction, you can pitch anything. However, the likelihood of a seller reconfiguring the house for you is loq if you don't have a previous relationship or they are in a dire situation. I can't speak for Austin, but in the Atlanta market I cannot see this working if you're asking for this straight up.
With that being said, it isn't that uncommon to push up the purchase price within reason to ask for the equivalent in credit back. If you're putting 10% down on a 100k property it could work something like this:
Asking Price 100k with a 10% down loan -> Offer at 110k and ask for 10k in credit back. In this case, you could receive a credit for 9k towards closing which frees up 9k of your down payment money to fund the renovation of reconfiguring the walls.
I'm not entirely sure what your situation is, but if you can put 15-20% down on a house hack deal you may want to consider hard money for a medium-heavy rehab to perform the reno and reconfigure the walls and refi into a conventional after the fact.
FHA 203k is another option - but I have been told that process is slow (have not done one myself)
If qualify for conventional - you may be able to get a construction loan + mortgage to help get you through the rehab. Feel free to reach out as I am happy to chat through my thoughts on this!
- Developer · Decatur, GA · Member since 2011 · 1k+ posts · 1k+ votes3y
I agree with @Josh Bowser. Don't buy the course and minimize your emphasis on this type of approach.
DO learn how to add some concessions when the seller will tolerate it. I can't imagine you'd really want to unless it's something like painting the house -- but not adding a bedroom/bathroom. Mortgage company wouldn't allow it and you'd have to pay through the nose to get someone to do it while under contract.
- 3yAndrew PostellPro MemberLender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
@Tyler Ferguson 100% agree with above posts. No need to pay for this. Any money you get as a concession is less money you have to come to closing with...so if your closing costs were $10k...and the seller is giving you $10k...then that's basically $10k back in your pocket to use as you see fit. Now, you can ASK for seller concessions on any transaction...but actually getting them is another thing. And getting enough concessions is something else. The type of loan will limit your amount of concessions as well. There's all sorts of little nuances that make this suggestion not very likely.
But why not just buy any ol' regular home and just rent out the rooms? What's the problem with that plan? That's how the rest of us do it. This strategy is so simple that there's no real reason to make it complicated. There are down payment assistance programs that can help people buy their first homes (as long as they qualify for them) and there are even renovation loans that can help people fix up a property...but if it's your first time buying a home I wouldn't suggest this route (again, too complicated). Just keep it simple here. That usually works best.
Thanks for the post!
- Investor · Cincinnati/Fort Thomas, KY · Member since 2015 · 207 posts · 183 votes3y
@Tyler Ferguson
I have student rentals- the original co-living. ;-) No need to buy a program. Please DM me and I can answer questions.
- 3yRyan ThomsonBusiness MemberReal Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
@Tyler Ferguson who is doing this class that you took?
Concessions come from the seller during the initial offer or during the inspection negotiation period.
1. Offer - with the offer you could ask for 5-10k of concessions. You could even raise your purchase price by that amount so the seller gets the same net, but you get the cash now.
2. Negotiation - during inspection, you could ask for the big items to be fixed and paid for by the seller OR you could ask for a concession and you will manage that process yourself.
How to use those concessions? You can use those concessions towards closing costs or buying the interest down. OR those checks could go towards a contractor to do the bedroom additions (or other work you want done).
If they go towards covering closing costs that is just as good as cash because now you don't have to come out with that much cash to pay the closing costs.
There are some rules around the most amount of concessions you can take. For an FHA loan I think it's 3% of the purchase price. Maybe @Jeremy Stebbins can weigh in here.
The Assumable Guy544 Reviews - Member since 2023 · 10 posts · 11 votes3y
Quote from @Ryan Thomson:
@Tyler Ferguson who is doing this class that you took?
Concessions come from the seller during the initial offer or during the inspection negotiation period.
1. Offer - with the offer you could ask for 5-10k of concessions. You could even raise your purchase price by that amount so the seller gets the same net, but you get the cash now.
2. Negotiation - during inspection, you could ask for the big items to be fixed and paid for by the seller OR you could ask for a concession and you will manage that process yourself.
How to use those concessions? You can use those concessions towards closing costs or buying the interest down. OR those checks could go towards a contractor to do the bedroom additions (or other work you want done).
If they go towards covering closing costs that is just as good as cash because now you don't have to come out with that much cash to pay the closing costs.
There are some rules around the most amount of concessions you can take. For an FHA loan I think it's 3% of the purchase price. Maybe @Jeremy Stebbins can weigh in here.
Hey Ryan,
The course is from Sam wegert . Yep, thanks for confirmation on the standard concession limitations. Just wanting to make sure my understanding is correct and that the case he speaks of in the course seems very edge case and likely a negotiated deal outside of the closing with the lender.
- Member since 2022 · 6 posts · 8 votes3y
@Tyler Ferguson @Ryan Thomson - yep FHA should allow up to 6%, VA 4%, and conventional 3% but possibly up to 6% with higher down payments. Although I am not 100% sure that is always true I have only ever hit max concessions on a conventional deal.
Just keep in mind concessions only apply to eligible costs when using a lender. This means all fees and start up costs (including prepaid interest, home insurance premiums and collections for property taxes and ins. to go into escrow) - and as crazy as it may sound, for VA loans concessions can even be used to pay off the buyers debts to help qualify. Concessions cannot be applied to down payment! If you need to add costs to make sure you get your money's worth on concessions - your lender should be able to coach you on adding things like mortgage points, 2-1 buy downs, upfront mortgage insurance premiums and more to make sure concessions don't go to waste.
- Realtor · Charlotte, NC · Member since 2017 · 357 posts · 292 votes3y
Quote from @Tyler Ferguson:
Quote from @Ryan Thomson:
@Tyler Ferguson who is doing this class that you took?
Concessions come from the seller during the initial offer or during the inspection negotiation period.
1. Offer - with the offer you could ask for 5-10k of concessions. You could even raise your purchase price by that amount so the seller gets the same net, but you get the cash now.
2. Negotiation - during inspection, you could ask for the big items to be fixed and paid for by the seller OR you could ask for a concession and you will manage that process yourself.
How to use those concessions? You can use those concessions towards closing costs or buying the interest down. OR those checks could go towards a contractor to do the bedroom additions (or other work you want done).
If they go towards covering closing costs that is just as good as cash because now you don't have to come out with that much cash to pay the closing costs.
There are some rules around the most amount of concessions you can take. For an FHA loan I think it's 3% of the purchase price. Maybe @Jeremy Stebbins can weigh in here.
Hey Ryan,
The course is from Sam wegert . Yep, thanks for confirmation on the standard concession limitations. Just wanting to make sure my understanding is correct and that the case he speaks of in the course seems very edge case and likely a negotiated deal outside of the closing with the lender.
Every type of loan has a different stipulation on how much the seller can contribute towards your purchase/expenses. @Jeremy Stebbinsmentioned a few limits with different loan programs, I'd talk to your lender about those for your specific situation.
Seller contributions can only legally be used for certain costs. If you run out of costs to use the concession for, then you're leaving money on the table. The seller may not agree to lower the purchase price the same amount of what is left over. (For example, if you agree up front to $10k in seller concessions but find out later you can only use $5k, then the seller isn't necessarily obligated to lower the purchase price by $5k. So then you've left money on the table).
Also, talk to your agent about it. There's a difference between needing those concessions and 'nice to have'. It'll also (at least in NC) potentially affect the inspection negotiations so that's something to weight the pros and cons.
Lastly, if he's doing these deals on the side outside of the buying/selling transaction, that seems super shady to me (as does charging $10k for this course). Any lenders can chime in here, but how I understand it and have always been told, is anything to do with the transaction and money changing hands needs to be on the final closing disclosure.
Hope this helps!
- Member since 2023 · 3 posts · 3 votes3y
What's up Tyler! Was great to see you on my LIVE 5 Day Challenge and happy to give some thoughts on this.
1. @Josh Bowser actually has the right idea. What I will do a lot of is offer asking price and instead of using any negotiation for a lower purchase price I will simply have the seller pay my contractor at closing for all the work that needs to be done on the property.
Every lender is very different so you need to know what is allowed and what is not allowed and some lenders are adamantly against this but there are many times where the sellers will cut checks at closing from their side for 20-50K for all the items that need to be done on the property.
What is the money for?2. If you are doing this model in the way that I teach it, you usually are going to be adding 3-5 bedrooms/closets and at least a full bathroom or two. Sure, you could just rent out the rooms that the house currently has and that is 'house hacking'. 'CoLiving' takes that strategy to another level. You are turning most additional space into additional bedrooms.
The formula I use goes like this:
1500 square feet = 4 rooms.
Every additional 250 square feet is going to be an additional room.So, if I buy a 3000 square foot home I am looking to create 10 rooms out of this. Sounds crazy, right? But it is happening and working around the US.
Of course, regulations, systems, tenant complaints etc are all concerns that I am sure people will mention here but hey, that is why it is nice to have someone handhold and coach your way through this process as the coliving wave takes off. ;) But of course that is not for everyone.
I just recently had a home that would normally rent for 1985 a month and it filled in 2 weeks to 8 members at a 6450 soooooo it can be worth it but of course this is like anything else: you have to do it correctly with the right systems and processes in place for it to run smoothly. That is what I have spent the last 15 years doing/perfecting and crafting. I also lived in coliving homes for 12 of those years.
If you are just looking to rent 3-4 rooms out of a house you live in - I 100% agree with the comments above. No real need to overcomplicate it. When you are ready to scale to more of a 'business' that is where I come in with Financial Freedom University. When I hit 30 coliving doors was where I really needed to craft systems big time - I use those same systems now for over 200 doors.
On a slightly different note but something I am incredibly excited about:
HUD just came out with a recommendation as well saying that they believe CoLiving could solve the affordable housing crisis in US AND that they will now allow HCV (housing choice vouchers) to be used for CoLiving.
Wish you all the best. Let me know if you have any other questions - happy to answer...just dont' get on here very much. I also run a free facebook group called CoLiving Investors Community and I answer a bunch of questions in there. :)
Here is to your financial freedom. - Real Estate Consultant · Austin, TX · Member since 2020 · 95 posts · 88 votes3y
Quote from @Samuel Wegert:
What's up Tyler! Was great to see you on my LIVE 5 Day Challenge and happy to give some thoughts on this.
1. @Josh Bowser actually has the right idea. What I will do a lot of is offer asking price and instead of using any negotiation for a lower purchase price I will simply have the seller pay my contractor at closing for all the work that needs to be done on the property.
Every lender is very different so you need to know what is allowed and what is not allowed and some lenders are adamantly against this but there are many times where the sellers will cut checks at closing from their side for 20-50K for all the items that need to be done on the property.
What is the money for?2. If you are doing this model in the way that I teach it, you usually are going to be adding 3-5 bedrooms/closets and at least a full bathroom or two. Sure, you could just rent out the rooms that the house currently has and that is 'house hacking'. 'CoLiving' takes that strategy to another level. You are turning most additional space into additional bedrooms.
The formula I use goes like this:
1500 square feet = 4 rooms.
Every additional 250 square feet is going to be an additional room.So, if I buy a 3000 square foot home I am looking to create 10 rooms out of this. Sounds crazy, right? But it is happening and working around the US.
Of course, regulations, systems, tenant complaints etc are all concerns that I am sure people will mention here but hey, that is why it is nice to have someone handhold and coach your way through this process as the coliving wave takes off. ;) But of course that is not for everyone.
I just recently had a home that would normally rent for 1985 a month and it filled in 2 weeks to 8 members at a 6450 soooooo it can be worth it but of course this is like anything else: you have to do it correctly with the right systems and processes in place for it to run smoothly. That is what I have spent the last 15 years doing/perfecting and crafting. I also lived in coliving homes for 12 of those years.
If you are just looking to rent 3-4 rooms out of a house you live in - I 100% agree with the comments above. No real need to overcomplicate it. When you are ready to scale to more of a 'business' that is where I come in with Financial Freedom University. When I hit 30 coliving doors was where I really needed to craft systems big time - I use those same systems now for over 200 doors.
On a slightly different note but something I am incredibly excited about:
HUD just came out with a recommendation as well saying that they believe CoLiving could solve the affordable housing crisis in US AND that they will now allow HCV (housing choice vouchers) to be used for CoLiving.
Wish you all the best. Let me know if you have any other questions - happy to answer...just dont' get on here very much. I also run a free facebook group called CoLiving Investors Community and I answer a bunch of questions in there. :)
Here is to your financial freedom.From the king of coliving himself, that HUD HCV would be a gamechanger!
Without the right people in your corner, could easily see how someone could make a well above 10k+ mistake, esp if you get into the wrong property, wrong location, wrong renovation plan, ect.
- 3yRyan ThomsonBusiness MemberReal Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes
@Samuel Wegert I love the idea of co-living and house hacking helping with the affordable housing crisis. I have been thinking the same thing. That strategy provides a lot of affordable rooms here in Colorado Springs. Glad to hear HUD thinks so too.
The Assumable Guy544 Reviews - 1yRene HosmanPro MemberRental Property Investor · Denver, CO · Member since 2024 · 583 posts · 653 votes
Hey @Tyler Ferguson it's been about a year since you posted this so I'm curious if you went through with the process of buying a house for co-living and how it worked out?
Also BiggerPockets just released a new co-living book by Miller McSwain who is also a pro in the co-living space and it's only $10 right now so it's .1% of the cost of that 10k course haha https://store.biggerpockets.com/products/co-living-cash-flow...
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