HUD Wholesale Bidding Strategy

45 Replies

BP Family,

I have a question regarding bidding on HUD properties. What percentage of the listed price (or ARV, whichever) are your bids on the HUD site?

I understand that this is a very generic question (considering property values are different all over the country), but my bids have usually been around 11-30% of the listed price and I haven't had any success.  Speaking in generalities, what % have you all had the most success with?

Any pearls of wisdom you all could share would really go a long way in helping me secure my first deal!

Thank you!

Haider

@Anil.. either that was a poor attempt at humor or you weren't reading my question carefully.  Nevertheless, thank you for your time.  

if within the first 30 days, about 10% below list. Experienced HUD bidders may bid more aggressive. I suggest if you want to get the deal then bid based on the #'s and not how much below list you can snag the property for. I have bid over list price on several deals.

bidding 30% of list price will get you zero HUD homes. 60% is the lowest I have heard being accepted unless a home has been on the market for months with no offers.

I bid on a home and received an email for an accepted purchase price 56% of listing price. I will make $5,800 on a wholesale double close. HUD WILL except far less than listing price.

@Mark and @Nathan, those are exactly the kind of insights I was looking for.  Thank you for your guidance.  I'm a newbie and watched a few videos on YouTUBE where the gurus recommended starting off around 11%-21% and then incrementally building up.  

It hasn't been working and I needed to know why.  

Thank you again.

Haider

Haider - the best I was able to do on a HUD property was 15 % off list price. Keep in mind, for me at least, the contract was not assignable and had a 90 day restriction on reselling. Also had to do $1,000 cashiers check upon their acceptance of the offer.

Good luck and keep us posted! 

Tom  

@Haider Zaman  

I've heard stories about low percentage acceptances but I've never actually seen it.  I've been buying HUDs for 20 years and the best that I've ever gotten gas been in the 56-60% range.

Some of the stories that I heard were special cases, like where the Asset Manager was losing the contract and had residual inventory that they wanted to liquidate before the contract expired. Also the highest percentages off that I've seen have been for properties listing over 100 days old. With the HUD price reductions every 30 days or so and the competition, not many properties make it to the 100 day listing category as they are sold before that time.

As I remember a combination of days on market at 30, 60, 90, etc they lower 10% and if your offer is in the negotiable range they will comeback with an offer at their lowest acceptable, found it to be @81% of asking price, so if offered at right time can hit one for 71% of asking almost every time.

Darron,

This is some great information. I am exploring staring my investments with mainly HUD and REO properties. So I assume that if you bid on a HUD in the first 30 days of the extended period, you would bid about 91%, between 30-60 days, 81%, and 60-90 days, 71%? Do i have your math correct here.

Marlon

@Tom S. , HUD has no restrictions in how soon you can sell their houses after closing as an investor. You may be thinking of Fannie Mae.

@Marlon Freeman remember HUD user different strategies in different markets as well. Once a home is over 60 days active on the market they will start to look at low bids. Once over 100 days then you will see bids accepted 60% range on occasion.

Know one truly know how HUD truly operates only guessing.


Joe Gore

@Mark Ferguson, I am aware they do use different strategies. I'm just trying to get a feel for how they work overall. If I can begin to understand how my area works (Fort Worth, TX.) then i can focus on an accurate analysis, and avoid paying too much. Darron gives me something to start with, so that i can watch the results of my area and see how they compare.

@marlo 

@Marlon Freeman  actually 81% from 0-30, then asking will lower 10% at 30, so if started @100k can get for 81in first 30, then 90k - 19% or 72.9k from 31-60, then 81k so will take 65.61k... Hope that helps.

@Haider Zaman  - Each market is different, you need to test yours to see what works and what doesn't.  I've bought quite a few HUDs and the best deal I ever got was at 57% of their list price.  I've never been that lucky again.  Lately I'm in the 90% range.  As @Alex Craig  said, bid based on the deal....even if you are planning to wholesale it.  If you know you can get it at a good price and still do something with it forget about the percentage. 

HUD used to be more predictable a few years ago, now they are only predictable if you are in the 90% range. After that, I think it depends on the mood the computer or asset manager is in :)

@Haider Zaman my apologies for misunderstanding your question. I really wanted to say if the value of the property was 100k offer 95k. I am still learning about buying HUD homes in my area.

@Mark Ferguson 

is an expert in HUD properties, when he speaks/writes, everybody should be listening.

I keep track of the HUD properties that we bid, as well as selected other HUD properties that interest us. For the last 16 HUD properties that we actually won the bid, the high bid percentage of net were:

56%

85%

70%

80%

70%

85%

70%

79%

71%

87%

60%

93%

70%

70%

93%

68%

That averages out to about 75%. Of the 16 HUD purchases 13 are held for rentals. And of the 3 sold 2 were condos that restricted rentals. All 3 sold needed painted, but only 1 of the 3 needed carpeting. The purchase prices were: $38,000, $78,000, & $62,000. The sale prices were: $60,000, $125,000, & $109,000, and the last sales prices before HUD were: $70,000, $137,000, & $120,000. So in each case I sold the rehabbed properties for less than their peak price.

I keep track of all the properties in my target buying market that enter the Extended phase and what they sell for compared to the list price and (previously available) appraised value.  My data shows results similar to what @Darron Stewart has been indicating in his posts. Since he and I are in the same HUD Region 2A that would make sense. It seems to me that its just an automated process that accepts bids based on a formula of net bid amount as a % of list price based on DOM.

@Stan Butler  , in my area they take 90% net until a home is on the market 60 days.  It is very different in different regions. @David Krulac  thank you!  Would you say the houses you got at a significant discount twere on #the market longer?

@Mark Ferguson  The 3 less than 70% were on the market for 97, 101 and 84 days.  But I have also gotten some 70% at day 30 and got one 70% at 8 days.  That last one was listed about 6 months earlier had a contract and fell through, but didn't get re-listed for 6 months.

It used to be that they would significantly discount their properties. A few years ago, I was able to get a couple deals at 50% off. But as the market has gotten better, their discounting has gotten worse - as you would expect.

Typically, I tend to come in around 65% list and see what they counter at. If its only a few weeks ago, I know I'm not going to get it at that price. But it has happened once back in june 2013. Thing was only there for about a month and hadn't even been set to price reduced.  Bid 65% of net and got it.   So now I do it all the time.

For the most part though, I'm seeing 80% in my areas until the house hits about 2 mos. Then they'll drop the list price 10% and usually the discount to 70% or 75% of list. Those are the ones you can really do well on.

Its funny. But the best deals you tend to get are the ones that HUD overprices. Mainly because that causes them to sit in the system longer so then as the lower their prices, their discount rules kick in based on DOM and the discounts can be bigger.

My favorite example: 19538 Lake Shore - Lynwood.
Area is so-so. But the house is really nice and it backs up to this huge retention pond that is almost like having a lake. Great deck in the back with a gazebo.

Anyway, HUD started this one out at 190k. I was buying 70k to 80k houses at the time (that would appraise out around 120k) so this one was out of my league. But I liked the pics. They dropped the price a few other times.

It sat, as you might expect, for about 5 mos before somebody grabbed at when it was listed at 140k. I think they actually got it for 110k (that was when you used to be able to see all the hud bids). 

Then about 2 months later it showed up again at 120k list. So now the thing has been out there for about 7 months.  I picked it up for 54k. Used a hard money loan and rolled in the rehab costs of roughly 11k plus the points and closing costs (71k). It appraised out at the time at 155k I think. Comps show its probably worth about 145k today.

Thing rents for 1,400 a month. Have had the same renter in there since I bought it in early 2010. Built in 94 and I've had very little repair to the thing. Just some minor stuff and a water heater.  I think I owe about 75k on it now as I refi'd it into a conventional loan and pulled a couple grand out as well (even though you can't do cash out refi's for conventional when you go over 4, if you stay under 2 or 3k, they'll let you do it and still count it as a rate/term refi, so I did).

The thing makes me about $500 a month gross profit (taxes are pretty high). 

But man, thats one of those examples where HUD overpricing a house really helps you get a great deal. They create a guaranteed bump in the discount percentage that can lead to some really good deals. Those are definitely the ones to watch.

I actually almost cringe when I see a house priced really low. I know that an owner occupant is probably going to snatch it up before I even get a chance to bid. I'd much rather see them overprice the things than underprice them....

In my area West of Ft Worth (Western Tarrant, Wise, and Parker counties), hardly anything actually makes it to the Extended period any more. My parents picked up two HUD properties in 2012 for 80-90% of list, but both were second place bids after the winner couldn't get financing or something. I am not sure I would try a sub list price bid on something that meets my criteria currently, but I am also in the sub-$40k market. Looking at more expensive homes may be different.

The percentages are fun to look at, but they are each applicable only to the market in which they are derived, and the asset manager. 

I'm in contract with HUD right now, and I'm getting the house for roughly 30% off of list price; paying roughly 60% of original list price. But that should not mean anything to you.

The percentage has more to do with how accurate the original list price was set, and how the purchaser intends to use the property, rather than an indicator of a deal.

Here's an example: Two identical houses next to each other, both HUD homes. House A is listed at $100,000. House B is listed at $85,000. Investor 1 purchases House A for $90,000. Investor 2 purchases House B for $85,000.

Investor 1's percentage was 10% off list. Investor 2's percentage was 0% off list. Now, who got the better deal? 

Your offer should be based on the 70% rule, or whatever analysis you use to determine profit potential. But not on what percentage you're getting the house at. 

In my area there are 3 asset managers. Each one will reduce the properties at different days on market and different percentages. I monitor HUD daily and keep track of the inventory on an excel spreadsheet and keep track of each price reduction and days on market when the price reduction happens. Also, HIUD will list the sales info for a period of 10 days. I keep track of this also. Over a couple of months, you will see the tendency of each asset manager and what % off current list price they will take with each price reduction.

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