So I have a lead who purchased a HUD home with intentions of reselling it using a double close. Turns out he cannot find anyone to buy it and only has about a week until the contract expires. My question is how can I profit from this deal? Its 90k under fmv and is pretty tempting. No major issues with home as well, relatively new home. advice?
Either you can buy it, or find a buyer. If he couldn't find a buyer, it may be tougher. When you say 90k under FMV, do you mean in it's current condition(which is what FMV would be). If so, it shouldn't be that tough to move.
Did he purchase the home or he just has it under contract? What is 90 under FMV? If its 90 under 400k home it may not be great. If its 90 under a 150 home might be awesome!
How come it hasn't sold. Is he a lazy wholesaler or is there something that brings up red flags once you do your due diligence?
He has it listed for 90k less then what every other comp in the area is selling for. 390k is what he is selling for. AVR is around 510k.
He said he has had several buyers look but they are either owner occupants and are wary of double closes, or they are investors that think there is something wrong with the house. Sounds a bit sketchy but I cannot be sure. Why would one buy a HUD home in that price range and not be able to close?
Disclaimer: I do not work with wholesalers!
That being said. As a newbie I am always wary of that "amazing deal that I saw and everyone else ignored it"! Yes that it has millions are made but it is also how many newbies get stuck with crap.
In the markets (CA, VA, SC) I operate, it is HOT. If it is a "great" deal people come out of the woodwork.
Therefore if you decide to act on this deal. I recommend you double and triple check the house and numbers out!
Sounds like this property is Not in the same shape, or comparable, to the properties selling for $480k. Look at the property, and the comp.s, yourself. If the comp.s are in "retail shape" then ARV is $480k, not $510k. How much work does it need, what kind of condition is it in?
Since I'm working with limited info, I'm just throwing out a possible answer. If I'm presented a house for $390k and can sell after repairing it for $510k it is very possible there is not enough spread for a profit. What we weren't told is how much of a rehab does it need to get $510k? If it's totally dated and needs a major face lift, in that price range with high end finishes expected in order to attract end buyer it may require a $50k rehab. Then there is a cost of money. If I borrow hard money at 12% and pay 3 points for 4 months that's $27,300 paid to the lender. Then there's agent commissions and closing costs of approx $40,000. So $510,000 minus purchase price minus rehab and closing equals NOTHING. There isn't a profit at the end of this example. It's possible it's too tight for experienced investors which is why they are all passing.
Take out any of my expenses,( assume you have cash and don't spend $27,000 on hard money) and that still leaves a pretty small profit for the risk.
I can understand an end buyer being wary of a double close. It certainly sounds like a sophisticated scam to those not inside of real estate.
I can totally see what you're saying @derek w but the thing is all the pictures show it in really good condition, needs appliances totaling 10k and 1,700k for replacing ac for upstairs. There is an issue with that, but other than that it is in really good shape. So im not sure. Im also a RE agent and if he is involved with HUD im hesitant to get involved. But to me there seems to be a profit.
Is the property outside of the owner occupant only time frame? Hopefully he didn't put it under contract during the occupant only time frame.
$390K + $10K in rehab vs. a $510K ARV makes a rehabber all in at 78%. That's a very thin deal.
Have you actually been in the house? Is the $10K a real number or just a rough guess based on pictures?
If it was truly available for $390K vs. others at $510K and it needs only very minor work then it would have sold. So, there is more going on.
the more responses I get tell me that its probably too thin of a deal. Going to pass on this and keep hunting for a real deal.
Correction: he is selling it for $335,500 and comps are going between $450-550k.
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