Posted by AB-KS on April 08, 1999 at 19:51:08:
Thanks for your comments guys. Sorry it took so long for me to post, had a LITTLE problem w/ my computer. Deal is gone, the house turned out to be in a neighborhood of crack houses. Didn’t find this out from the realtor, though!
Alan
Newbie question on “Remodeling Credit” for buyer? - Posted by AB-KS
Posted by AB-KS on April 05, 1999 at 13:15:45:
My wife and I were looking at certain properties for rentals. We ran across this situation we had not encountered before:
The realtor was one of the owners of the property with a house listed for $42,500. Realtor said if we would give the full price, he would draw up a sales contract for $47,500, and he would give us a $5,000 check for a ?remodeling credit?.
Has anyone encountered this before? Is it legal? It sounds like a creative option for no- or low-money down deal. My concern is whether or not this would constitute fraud, willful deception of the lender, etc. Advice, please?
Thanks for your help.
Alan
Re: Newbie question on “Remodeling Credit” for buyer? - Posted by guru
Posted by guru on April 05, 1999 at 22:48:20:
Yes this is legal! And its one way for you to come up with some or all of your down payment!
The real question is whether you are going to flip or rent this property out. For a rental, the additional amount financed is paid out of your rents & is a business expense so you might consider it. Remember, you wouldn’t have to spend that $4000 (80% of the $5000 remodeling credit the bank will lend you) so you could maybe buy an additional rental with that 4 grand. For a flip, keep your initial costs as low as possible - see Johnboys post -
In any event, this is one creative owner who wants to deal. I’d work with him. In fact I’d bet he has more real estate to sell
Good Luck
Re: Newbie question on “Remodeling Credit” for buyer? - Posted by JohnBoy
Posted by JohnBoy on April 05, 1999 at 13:47:36:
You can give a repair allowance on the sale of a property as long as the lender allows it. If you add the repair allowance to the purchase price, then the property will have to appraise for that price.
Does the property need the $5k in repairs? If it doesn’t, then offer the $40k with the seller giving you the $5k as a repair credit. If you add the credit to the price then the seller isn’t giving you anything! Your just borrowing that much more against the property that you will have to pay back with interest!
If the property does need the $5k in repairs, then treat it the same as a rehab. Current as is value, $42,500 - $15k profit, - $5k repairs, - $2k holding costs, - $1k marketing costs, = $19,500. Tell the agent you’ll pay what it’s worth if you take it “as is”. $19,500! That’s assuming the house is worth $42,500 fixed up. What would the house sell for in fixed up condition??