Seasoning Question - Posted by Todd

Posted by Vic on February 15, 2001 at 24:32:08:


Appreciate you giving it that little extra effort, especially when no one would have even known. That says alot about you. That’s probably what sets you apart from your competition & enables you to do deals, while others think about doing them. You go a little further than the norm.

Good Luck & thanks again for going that extra mile. Hope to meet you in person one day.


Seasoning Question - Posted by Todd

Posted by Todd on February 12, 2001 at 20:17:20:

I have a question for the flippers out there. I have a signed agreement to purchase from seller for 75K and a signed purchase agreement by new buyers for 90K with a 10% down and a $1000 earnest money from my buyer.His credit has some dings, 4 or 5 judgements against him. She is employed and has a 620 credit score. I took the package to a morgtage broker who thought it would be a slam dunk until his lenders balked at the lack of seasoning. How do I get around this issue? I really dont want to carry a 2nd on this if at all possible. Thanks for any input in advance

Re: Seasoning Question - Posted by JoeS

Posted by JoeS on February 13, 2001 at 06:37:20:

This type of deal I have been doing for 5 years, and it is getting extremely difficult to get a mtg loan on a flip. The reason being, these type of deals have the highest foreclosure rate, and also the highest fraud rate. It makes it tough for the honest guy when banks do a blanket swipe of rejection, but that’s how it goes. Even selling a note on a flip is getting harder. Before too long, the only way to sell a note will be to hold it for 12 months at least. In NY, just recently, Associates will NOT fund notes on rehabs, no matter what condition or credit. We have to adjust to the new parameters.

Re: Problem Solved?!? - Posted by Todd

Posted by Todd on February 13, 2001 at 16:07:42:

I think I might have found a way. I am thinking of putting a lien on the house with the sellers consent, for my part,15k. This way I do not appear in the chain of title. We raise the price to buy from seller for 90k and I get the 15K out of the procedes at closing. I think I can convince my sellers of this. They still get their 75K and the house closes on time. Only problem I see is they now know what I am making on the deal. What do you think??

Re: Seasoning Question - Effects on REHABS - Posted by Frank Chin

Posted by Frank Chin on February 13, 2001 at 08:21:12:

Hello Joe:

My neice and her husband were active Rehab contractors (in Central Massachusetts) till a year ago when their investor partner went on to bigger and better things. I’m considering investing in a number of rehabs with them.

Our plan is to pay cash for foreclosed/vacant properties, rehab it, then we hope to:

1- Find a qualified buyer who’ll get his/her own mortgage, OR

2- Give the buyer a mortgage ourselves - then sell the paper. OR

3- DO a L/O, OR

4- Rent it out if all else fails

Sounds from your experience that we may have to go to option 2 or 3 and wait 12 months. Looks like buyers will have a problem with option 1 (getting a mortgage directly)

Is problem is with flips - or are they negative on rehabs as well??

Have you tried other lenders or is this the general trend. How are you coping with it ??

Re: Problem Solved?!? - Posted by JoeS

Posted by JoeS on February 14, 2001 at 06:32:03:

Todd:, I have tried this method, but to little avail. That does not mean it will not work, anything creative will work. I probably will try it again, given the new difficulty for obtaining rehab funding. Keep in touch, Joe

Re: Seasoning Question - Effects on REHABS - Posted by Ron (MD)

Posted by Ron (MD) on February 13, 2001 at 16:26:31:


Your post below referred to my post about seasoning problems in Baltimore. Just to clarify…

I sell every one of my rehabs (1 or 2 per month) without any seller financing or other creative approach. Every one of my buyers borrows over 100% of the price of the house. Their first mortgage is either FHA or conventional for 97% of the price of the house. In addition, they get a settlement expense loan from the city (available in Baltimore and many other places) for most of the down payment and the closing costs. I kick in $2,000 of their closing costs.

I don’t believe in holding a second…I want my money and I want it now. I also don’t believe in seller financing and selling the loan. When you do that, the note buyers want your buyer to have decent credit (in which case, who needs them anyway?) or for the interest rate and loan discount to be relatively high. Notebuyers crow about how easy it is to sell a home with seller-financing, which is (I suppose) true. However, when I’m looking at $15-$20k in profit from a rehab, I’m just not going to give half of it to a note buyer.

Most buyers are not qualified. Some banks won’t lend on unseasoned properties. FHA is nervous about unseasoned properties. Despite all that, I do find buyers (with some work) and they do get qualified and I do get paid at settlement.

Ron Guy

Re: Seasoning Question - Effects on REHABS - Posted by JoeS

Posted by JoeS on February 13, 2001 at 10:10:39:

Frank: The main problem seems to be focused in NY State, where there were recently 2 areas of fraud, and so the main mtg buyers opted to put things on hold. I see their point, with the foreclosure rates being so high. In Mass. you should check with the major mtg buyers to see what thei parameters are. I do know that across the board your end buyer will have some trouble getting a mtg loan unless either you or them hold title for a period (usually 12 months). Again, check with your local banks, this will give you some indication of the way it works. If you have questions, feel free to e mail
or 315-768-4784. Hope this helps, Joe

Re: Seasoning Question - Effects on REHABS - Posted by Frank Chin

Posted by Frank Chin on February 13, 2001 at 18:28:07:

Hello Ron:

Thanks for responding.

Sounds like you’re able to do FHA even with the seasoning problem then. You mentioned that the FHA is very tough on unseasoned sales, and yet you’re able to do most of it through them. Do you then have to document the repairs and substantiate the price through comps?

The trick then is to really screen the buyers. Do you use Realtors with pre-qualified clients only?

My niece and her husband are experienced rehab contractors in their area having worked with another investor who appears to have made enough to move on. In taking on the role of the new investor, I just want to make sure that I can take my money and run when the rehab is done.

Do you suggest I line up the right lender/mortgage people in the area before I even get going? In my case, identfying the properties and good contractor is not the problem.

From what I’m told, they can knock one out per month, and if I can get it sold and financed, doing one a month is no problem. He tells me the other investor made 20k or so per unit. Its not bad if I can keep turning my money over. Is this your experience as well?

Re: Seasoning Question - Effects on REHABS - Posted by Ron (MD)

Posted by Ron (MD) on February 13, 2001 at 19:02:02:


When my buyer is going conventional, I don’t have to do anything. As long as it appraises (which mine always have), it is just a matter of the buyer qualifying.

If the buyer doesn’t qualify for the conventional program, or has a particular lender they want to use, the deal is usually FHA. Before I will even accept the contract, I call the buyer’s loan officer (whether it’s a loan officer the buyer had or one that I referred him/her to) and confirm that the buyer is likely to get the loan and the lender is willing to lend on unseasoned properties.

If the deal is financed FHA, I always have to provide something. Usually, I prepare a one-page summary of my scope of work so that the lender and FHA can quickly see all of the work I’ve done (or, at least the larger things). I also provide my detailed scope of work that was used by the contractor for the job. (I doubt that anyone wades through this 5-6 page document.) In one case, the lender asked for a copy of my receipts, which I did provide. In another case, the appraiser asked for the receipts, which I also provided.

I have a strong preference for the conventional program for these seasoning issues, plus a few others. First, I’ve had absolutely no problem with getting the appraisals at the selling price. Sometimes, the FHA appraisers are so nervous they want to hold down appraisals, even though your house is completely redone and a cut above anything else nearby. Another reason I like the conventional program is that it is a CRA program (Community Reinvestment Act) which means the lender makes it more attractive to city buyers through lower interest rate, no mortgage insurance, and lower closing costs. (Bottom line, less cash needed by my buyers and lower monthly payments…which both make my houses more attractive to my buyers…putting my fully rehabbed payments on a par with rent payments for lesser homes.) Finally, FHA loans require the seller to pay certain buyer lender fees. These typically amount to about $500, which I don’t pay with the conventional program. (I have to admit, however, that I think I can be smarter to including wording in my contracts that include these lender fees in the $2,000 buyer closing costs I typically pay.)

I would like to simply reject buyers who don’t qualify for the conventional program. One problem is that the loan officers make only a modest commission on the CRA deals, so they aren’t very aggressive working them.

I try to avoid deals with realtors. I usually don’t multiple list my homes, trying to save the commission. I do usually mitigate the commission expense by paying less of the buyer’s closing costs if there’s a commission involved. Another problem with realtor deals is the realtor usually has a lender and title company he has a relationship with. That takes me out of control of the situation and, usually into an FHA deal. You would think that another drawback to a realtor’s involvement would be that they try to drive down the price to the benefit of their client, the buyer. In fact, my experience has been that they will push hard for whatever terms I tell them I’m looking for. (Usually, buyer’s agents will call me before writing up the contract so they can move the buyer’s offer toward what I’m looking for.) Clearly, agents are usually interested in protecting one interest above all others…their own.

It is important to try to find loan officers and lenders that you can work with. Will they handle unseasoned properties? Are they interested in loans in your price range and geographical area? Are they too busy to follow up with your clients? Can they handle different grades of credit? The best way to find good lenders is through referrals. Many are too busy working on bigger loans for more qualified buyers. You need someone willing to work harder, which is often what’s needed in lower price ranges with first time buyers.

Finally, when I make offers for fixer-uppers, I target a profit of $20k. (Usually that means you start your offer a bit lower, so you can “give” a little when the seller counters.) If I run into problems (e.g, repair costs are higher, etc.), I just don’t worry about it because I’m still likely to make $15k. Most of mine average very close to $20k, but I don’t even feel a little bad if it’s only $15k. (Fifteen deals per year times $15k per deal is still a pretty good living.)

I does take a fair amount of capital to do this many deals per year. I typically own 8-10 houses at a time, each in a different stage of repair, sale, or contract.

Hope that helps.

Ron Guy

Ron, Are Most Of Your Rehabs… - Posted by Vic

Posted by Vic on February 13, 2001 at 23:53:20:

in the inner city?

If so, can you kind of describe the areas?

I’ve kind of been toying with the idea of doing some inner city rehabs. One thing that holds me back though is knowing how hard it is to actually get some of these people financed. How have you dealt with this? Also, what is your average hold time?


Re: Ron, Are Most Of Your Rehabs… - Posted by Ron (MD)

Posted by Ron (MD) on February 14, 2001 at 06:30:08:


I don’t work in the inner city. I work in blue-collar, homeowner areas, which are outside of the heart of the city. My houses always re-sell for $60-$80k. Some investors do real well in lower priced areas. I’ve never tried it. My concerns include personal safety and quality of buyers.

Right now, the monthly payment for a $70k home is around $600 per month and the buyer needs less than $1k cash. Even in this price range, the large majority of buyers are unqualified. I don’t want to move down a notch.

My hold time is normally 4-6 months. Sometimes it’s a bit less, but I’m happy to be out in six months. I’ve had a few disappointing occasions where I’ve owned houses over a year, but those are unusual. I’ve been doing this full time for three years and my average hold time is decreasing…primarily because I’ve gotten better at knowing exactly where to buy and where not. In Baltimore, a block or two can make a huge difference. This market knowledge is one reason I have a strong preference for focusing my deals in a relatively small geographic area.

Ron Guy

Ron had some Excellent Posts on 2-8-01/2-9-01 - Posted by Frank Chin

Posted by Frank Chin on February 14, 2001 at 06:01:01:

Ron posted some very detailed info on doing rehabs in Baltimore on 2-8-01. Try looking it up on


As for financing, Ron seems to be saying that he tries to do conventional if posssible, then FHA with documentation. Uses his own mortgage people to keep control of the situation.

The trick is finding qualified buyers. But you have to do rehabs on blocks where qualified buyers would want to buy. It all goes down to knowing the inner city block by block.

Re: Ron, Are Most Of Your Rehabs… - Posted by Vic

Posted by Vic on February 14, 2001 at 22:28:14:


Sounds like your market might be similar to ours (New Orleans) in that one or two blocks can make a huge difference. Here you can go from a 30K value to a 200K value in a couple blocks. So I know what you’re talking about.

I totally agree with you about trying to get buyers qualified. I’ve been having 2 houses for sale since before Thanksgiving. As I write this I am still amazed at the number of people with bad credit. Could have had both houses sold 10 times over were it not for the bad credit. And these 2 houses were in relatively decent areas too. Have to keep trying though.


Re: Ron had some Excellent Posts on 2-8-01/2-9-01 - Posted by Vic

Posted by Vic on February 14, 2001 at 22:31:52:


Thanks for those links. Even though I couldn’t get them to work, I will search the archives for them.
Much appreciated though.


How are you selling them ? - Posted by Frank Chin

Posted by Frank Chin on February 15, 2001 at 19:06:37:

Hello Vic:

Just curious, are you selling through Realtors, or on your own through Newspaper ads? Are these houses in the 50K range or the 200K range.

This is one of the issues I have to resolve going into rehabs. I’m wondering if the economy has anything to do with it - though as a seller in New York City - I haven’t seen the effects yet!

I noticed one thing in New York City though. Asians tend to be savers and put down large downpayments. Marginal areas tend to go up in price quickly as Asians started buying. When I had my property for sale, I approached Asian brokers who had plenty of Asian buyers with cash.

I joked with one broker showing me properties in New York to skip the Asian areas since buyers have overpaid there. I’ve been wondering if there’s a way to tap this market by offering moderately priced real estate generating higher incomes than they can get in New York City.

Just a thought.

Try these links, I fixed it for you - Posted by Jim IL

Posted by Jim IL on February 14, 2001 at 23:29:46:

Re: How are you selling them ? - Posted by Vic

Posted by Vic on February 16, 2001 at 02:55:23:


Hi! I’m a licensed real estate broker so I am my own broker. Usually, when I want to sell a house, I will put it in the MLS plus I’ll run newspaper ads. Of course I also have for sale signs in front of property along with a sign that says “Owner Will Finance” or “Zero Down - $650/mo” or something to that effect.

These 2 houses are both under 100K - one is 88K & the other is 94K.

As far as getting buyers qualified, I really don’t think that it has anything to do with the economy. People who don’t pay their bills, don’t even know if the economy is bad or good - usually. Of course, you do have some exceptions, but overall I think it’s just lack of responsibility.

As for whether or not to buy in Asian neighborhoods, I really can’t help you with that. Haven’t had any experience with that. One thing to keep in mind though is that joking with your Realtor about not showing you houses in Asian neighborhoods could possibly get your Realtor in trouble for violating fair housing laws. You can tell your Realtor what “geographic” areas you are int’d in, but I wouldn’t specify that he not show you areas occupied by certain ethnic groups. Since you know the neighborhoods, just tell him which ones you’re int’d in & this will solve the problem.

Lots of success,