Rehabbers- Will this work? - Posted by Carey_PA


#1

Posted by JPiper on October 21, 1998 at 02:55:42:

No. See my post above.

JPiper


#2

Rehabbers- Will this work? - Posted by Carey_PA

Posted by Carey_PA on October 19, 1998 at 12:24:40:

Hello everyone,

I’m reading Kevin Meyers’ book for the second time and I have a question about a potential deal.

I went to a realtor Saturday with the intention of talking about a nice home to live in and probably even get it the “conventional way”, but I started thinking (uh-oh).

Please let me know if this will work and if not, do you have any suggestions.

This is a 3/1 single rancher in a NICE neighborhood (one that I would definitely want to live in)
It’s listed at $87,500, and I’ve looked in the window and it appears to need some work. In the MLS book it’s listed as being sold “AS IS” Call for addendums needed for a/s. (BTW, I don’t know what that last line means)

It definitley needs new windows, some CURB APPEAL, and some trash removal in the rear. As for other things, I don’t know, I’ll probably look at it Saturday with the realtor. Oh, the yard is on the side of the house, but behind the house is about 1 to 2 feet of grass, then a fence and then a sloping hill. I don’t know if that’s a big deal or not, it wouldn’t bother me.

Anyway, I didn’t ask the realtor to run comps yet, but I have an older (6/98) MLS book and just by paging through houses in that area, the avergage is $117,000, with most houses at $129,900. Like I said these are only the listed prices, because I haven’t talked to the realtor about this.

Here’s my idea. First of all, myself and my partner would LOVE this house for ourselves if it was fixed up, obviously. #1 is there a way to get FHA to pay for the repairs? I know in Kevin’s book, it says that conventional lenders usually won’t loan money to rehabs.

If I can get money from FHA, here’s my idea…to estimate my maximum purchase price with his formula, then make an offer all cash. I want to know if I could get a private mortgage loan for this amount, to buy the home and then fix it up, then when the balloon payment is due to the private mortgage lender, could I possibly get a “conventional” loan to pay off the private mortgage lender? It’s just a thought, at least I’m thinking, right? Will this work, or do you have any better suggestions?

Thanks,

CAREY


#3

Re: Rehabbers- Will this work? - Posted by Dave Larkins

Posted by Dave Larkins on October 20, 1998 at 15:31:04:

I disagree with the other reply posts as far as 203K being owner occupant only. I was out on the HUD web site and there is full descriptions on how to work a 203K program if you are an investor. The point being missed by many comrades on this site is that to have a property fixed up by an investor, revitalizes a community, and that is what the 203K program is all about !

Go to www.hud.org and do some digging. Here are the specific Web pages.

www.hud.gov/progdesc/203k--df.html
www.hud.gov/fha/sfh/203k/sfhrehab.html

The site quotes:
"All persons who can make the monthly mortgage payments are eligible to apply"
It specifies that an investor can borrow 85% LTV and maybe even 90/95% LTV if the property qualifies. The difference between the borrowed amount at lets say 95% LTV, and the investors 85% LTV is put into an escrow account. The buyer who wants to buy your rehab can then “assume” the loan with no down paymen, being that the escrowed money is the down payment. Sounds like an attractive way to market the home after rehab !


#4

Re: Rehabbers- Will this work? - Posted by Yianni

Posted by Yianni on October 19, 1998 at 21:41:37:

Hi Carey
Since the rest of the team gave you most of the answers to your questions, I’ll keep my inputs in the repair aspect. If you have bought Kevin’s course, use the enclosed inspection sheets, and look at the property carefully.
Exterior: What is the finish? Hard stucco? EIFS (Exterior Insulation finish system)? Siding, etc. If it’s EIFS, I strongly recommend to get an inspector with you. (If you have some experience and they allow you to, get a sharp tool, and dig in some obvious problem areas to check-out the framing.

I would pay close attention to the potential rot that might exist in the framing members around the window openings.

Does it have crawl space? Get a flash light and inspect the foundation, for excessive efflorescence, moisture, and cracks.

The hill behind, could be landscaped nicely, and give you a good and safe feeling. I have clients with such backyards, and they look great! The point Mark is making is serious, and if you don’t have excessive moisture build up, digging some drenches at the bottom of the hill and re-directing water away from the house, would be one of the top priorities.
I could go on and on, but I’ll stop here. As long as the major structure is straight, (check roof line), flat, (check walls), level, (check floors) and square, (check door reveal to door frames etc.), the rest is relatively easy to fix.
Good luck.
Yianni


#5

Re: Rehabbers- Will this work? - Posted by Jimbob

Posted by Jimbob on October 19, 1998 at 14:35:12:

Carey,

You could try to tie it up on a 2 year lease/option, do all the work then refinance your lease/option with a conventional lender. The Realtor wont like it because he has to wait for his commission until you refinance the house, but tell him it’s your intent to turn it around as fast as humanly possible, therefore he wont have to wait long.

The other problem is if you dont have the money to fix it up, then you’d probably want to try a 203K program.

The other problem would be if you fixed it up and couldnt qualify for the financing, then you’d find yourself markting the property to sell and make a profit.

Jimbob


#6

Re: Rehabbers- Will this work? - Posted by Mark R in KCMO

Posted by Mark R in KCMO on October 19, 1998 at 14:32:45:

Carey,

The 203K program IS for owner occupants ONLY, Not for investors Finding a lender that will manage your 203K might be the only thing to slow you down.

The porgram will help you manage the rehab process, and they will manage the process for you. (thier inspectoer will go through the property before they release the funds to the contrators.

You didn’y say which way the yard sloped in the back if it slopes towards the house there could be foundation problems.

Hope this Helps

Mark R in KCMO


#7

Re: Rehabbers- Will this work? - Posted by phil fernandez

Posted by phil fernandez on October 19, 1998 at 13:14:31:

Carey,

If you are going to live in the house HUD has a program for acquisition and fix up costs called the 203K program. They will lend based on after fix up value and fix up costs can be rolled into the loan.

This loan program can not be used if you are not planning to live in the house.


#8

Re: Rehabbers- Will this work? - Posted by PBoone

Posted by PBoone on October 19, 1998 at 12:58:27:

Carey,
FHA has some very attractive programs in place called the 203k which pays for the house and repairs your loan amount would be based on “Fixed up value”.
As far as “Private Money” DO YOUR OWN COMPS
65% of LTV is about what you can expect. This will cost anywhere from 2-10 points approx 12%-15% Interest (depending on the lender)
Pat


#9

Re: Rehabbers- Will this work? - Posted by JPiper

Posted by JPiper on October 21, 1998 at 02:54:10:

Dave:

The FHA 203K program in no longer available for investors. It has been unavaiable for 1 1/2 years or so as I recall. The information you are quoting in not accurate…chances are it has not been updated.

If you care to verify my statements call a lender who offers FHA 203K. Goes to show you can’t believe EVERYTHING you read on the web…even on HUD’s own web pages.

JPiper


#10

Re: Rehabbers- Will this work? - Posted by Jim Wright

Posted by Jim Wright on October 20, 1998 at 16:49:24:

Mark, I pulled this from the HUD FAQ’s concerning the
203 (k) program.

  1. Can an investor use the 203(k) program?

Yes. Investors must have a 15% downpayment and can
purchase (or refinance) and rehabilitate properties for
rental purposes or sell the property (and get their
profit using the Escrow Commitment Procedure) to a
qualified Homebuyer (who assumes the loan).


#11

Re: Rehabbers- Will this work? - Posted by Dave in Philly

Posted by Dave in Philly on October 23, 1998 at 23:18:08:

JPIPER,
Just goes to show you how little I know thus far in REI. I intend to become much more versed with seasoning!


#12

Re: Investors can’t use 203K??? - Posted by Stacy (AZ)

Posted by Stacy (AZ) on October 20, 1998 at 18:56:34:

Okay, my mouth was watering thinking about the possibilities of using the 203(k) program, so I went surfing. I found the following (discouraging) info from the following site:

www.hud.gov/hoc/sna/snat203k.html


About the 203(k) Program…

HUD-FHA insures rehabilitation loans for owner-occupants and non-profit housing providers to (1) finance rehabilitation of an existing property; (2) finance rehabilitation and refinancing of the outstanding indebtedness of a property; and (3) finance purchase and rehabilitation of a property.

203(k) can be used with 1-4 family dwellings, condominiums and HUDHOMEs that require a minimum of $5,000 in repairs. CO-OPS ARE NOT ELIGIBLE. Garden apartment style row housing can be converted with 203(k) to fee simple or condominium with the addition of fire walls every 4 units. 203(k) can be used to bring illegal dwellings into code compliance. Mixed use residential/commercial properties are eligible. A burnt out shell, incomplete shell or empty foundation is eligible for 203(k) financing provided it is over 1 year old. 203(k) can be used by non-profit and local government community development corporations to rehabilitate and sell or rent foreclosed 1-4 family properties and condominiums. 203(k) CAN NOT BE USED BY INVESTORS.

203(k) can be combined with grants,section 108 loans, downpayment assistance programs, bridge financing, Title I Home Improvement Loans, Energy Efficient Mortgages (EEM), Small Business Administration (SBA) Loans and Multifamily SPP mortgages in garden apartment style buildings. In fact 203(k) is the most flexible mortgage product on the market. 203(k) is the mortgage instrument of choice for local governments seeking to aquire and repair foreclosed properties for their affordable housing programs.


What gives…can we investors use these loans or not?

Stacy