Buying Houses Archives - Page 3 of 3

One of the most challenging aspects of flipping houses can be trying to find a property to flip. Which is why it's so important as a house flipper to constantly be on the lookout for potential flips and to have several different sources for property. One such potential source of property are HUD homes. You might be wondering though what are HUD homes and does buying HUD homes to flip make sense? HUD homes are properties owned by the United States Government through the branch of government known as the Department of Housing and Urban Development or (HUD) after the property has been foreclosed on. Does Buying HUD Homes to Flip Make Sense? Yes, buying HUD homes to flip is a great investment and can be an excellent source of house flipping inventory. As a house flipper myself I personally love HUD homes. In fact, the default picture in this article is of a HUD home that I personally bought and successfully flipped. Pros of Buying HUD Homes to Flip One of the first steps to flipping a house successfully is to buy the house at a good price, because, as a house flipper you make your money when buying the house right. This is why HUD homes are so popular with house flippers because they provide an excellent opportunity to purchase a property below market value that can potentially be flipped for a nice profit. Before any HUD home is listed, HUD will complete an appraisal on the property to determine the list price for the home. The great thing for investors is that appraisals on HUD homes can come in substantially lower than fair market value leading to great buying opportunities. HUD homes are also very easy to find and locate thanks to the HUD website hudhomestore.com. While some HUD homes can be listed on the MLS, the best place to find HUD homes is on their website directly. Cons of Buying HUD Homes to Flip While HUD homes are a great source for house flipping inventory there are a few negatives and things to keep in mind when buying a HUD property. The first being that HUD homes have what is called a first look period where only owner-occupants, non-profits, and government agencies can bid on and purchase their homes. This can be problematic for real estate investors trying to buy a house to flip because they have to wait until the first look period is over before they can bid on the home. This means that oftentimes many good deals might be gone before they are even eligible to bid. If your thinking that you'll just ignore the first look period as a real estate investor and bid anyway this is a very bad idea, as HUD clearly states that if any investor bids as an owner occupant when they are an investor they can be subject to two years in federal prison and be fined up to $250,000. If you're wondering how long HUD's owner occupant only period lasts there is no clear-cut answer as it can vary depending on the property and its condition. But it's not uncommon for the owner-occupant period to last for at least a week or two and potentially longer. The best thing you can do as a real estate investor trying to buy a HUD home is to stay vigilant and refer to their website often to see when the home will potentially be opened up to all bidders including investors. Another drawback to buying HUD homes to flip as a real estate investor is that HUD considers real estate investors "savvy" when it comes to real estate. Because of this HUD will not refund an investor's earnest money if they back out due to a home inspection or the property's condition. In addition, if an investor is using a loan to purchase a HUD home and the loan falls through HUD will only refund half of the investor's earnest money. So as a house flipper it's always best to exercise caution and know what you are getting into when it comes to HUD homes. How Do You Buy a HUD Home as an Investor? The first thing to know when buying HUD homes to flip is that HUD sells their property through an online auction process on their website. Where they set a deadline when all eligible bidders must have their bids in buy. Once the bid period has expired HUD will review all bids and either accept a bid, counter bids, or reject and cancel all bids and open the property up with a new bidding process and a new bidding deadline. As an investor, you will usually be forced to set on the sidelines through the first few bidding periods as they are typically only open to owner-occupants, non-profits, and government agencies. If however the property is not sold during these initially bid periods eventually HUD will open the house up to all bidders. After the owner-occupied period has expired and HUD opens the house to all bidders you will place a bid for purchase directly on HUD's website. Keep in mind though that you can not place an offer directly on HUD's website as an individual as you must use a real estate agent to place the bid and to negotiate on your behalf with HUD. Also, when picking a real estate agent to place your bid, know that not just any agent will do. As the real estate broker you work with must be HUD-approved before they can place a bid on HUD's website. The easiest way to figure out if an agent is HUD-approved is to ask if the brokerage he or she works for has a NAID number. If the broker does not have a NAID number they cannot submit an offer on HUD's website for you. When it comes to buying houses from HUD as an investor speed is the name of the game, as good deals don't last long on HUD's website. Remember that if the deal makes sense to you as a house flipper it probably makes sense to other investors as well, so make sure to have your bid in on the first-day bidding is open to all bidders. How Does a Property Become a HUD Home? To understand how a home eventually becomes a HUD home we have to go back to the previous owner of the property. When the previous owner of the property bought the home they used an FHA loan which is a type of loan product that is insured by the U.S. government. FHA or the Federal Housing Administration is a government agency created in 1934 that sets standards for construction and underwriting and insures loans made by banks and other private lenders. One of the main goals of the Federal Housing Administration is to encourage broad homeownership by U.S. citizens and one of the main ways it does this is by insuring loans made by banks and private lenders. When the previous owner of the property defaults on their FHA loan, the property will be foreclosed on by the bank to protect their investment and recoup their money. Once a bank has foreclosed on a home insured by FHA, there is a good chance the home will become a HUD home. Want to know more about flipping houses? Check out our article "How to Flip a House the Complete Guide".