As a real estate investor, your goal is to make the biggest possible return on your investment dollar, which may require you to get creative in finding new properties in which to invest. Some investors have had good luck investing in HUD homes. Purchasing a HUD home as an investment involves an entirely different bidding system than that of other residential real estate, so it’s important to understand the process before diving in. Read on to learn more about purchasing a HUD home as an investor, and contact a San Diego real estate attorney for more information.
HUD Homes, explained
The federal office of Housing and Urban Development (HUD) insures Federal Housing Administration (FHA) loans. When homes purchased with an FHA loan are foreclosed on, they’re resold as HUD homes by the federal government. These homes can be found by speaking with a HUD listing broker. They are also posted at hudhouses.com, where listings usually include photos and a short description. HUD homes are often sold well below market value and are sometimes sold as-is, making it important for potential buyers to choose carefully when making an offer on a HUD home.
Bidding on a HUD home
Bidding on a HUD home is unlike purchasing other real estate. For instance, purchasers must use a HUD-registered real estate agent. Finding out whether a potential real estate agent is registered with HUD, and even asking how many HUD home deals they’ve brokered, will tell you whether or not they’re versed in the unique HUD home buying process.
Another important difference is that investors aren’t able to bid on HUD homes as soon as they’re listed, but the point at which investors will be permitted to bid varies based on the state of the home. When an appraiser determines that the home has $5,000 or less in repairs that must be done, a home will be listed as FHA-insurable. This means that buyers who will be occupying the home would have the option of obtaining an FHA loan to purchase the home. It also means that the home must be listed for at least 30 days before investors will be permitted to bid on the home. When a home needs over $5,000 in repairs, the home is deemed FHA-uninsurable, and it is available for investor bids after only 7 days on the market. In addition to time limits, HUD home sales follow different rules regarding inspections and earnest money returns when investors decide not to move forward with a purchase.
HUD homes can provide an excellent opportunity to savvy investors, but they can also be more trouble than they’re worth to turn into sellable properties. Among other things, finding funding for an FHA-uninsurable property may be difficult when investors aren’t paying cash, and some HUD home purchasers discover serious issues in the property too late. It is strongly recommended that, before purchasing a home depicted as uninsurable or “as-is,” that buyers consult with knowledgeable real estate legal experts who can help them understand the risks entailed in purchasing a home for the purpose of reselling it when major defects may be present.
If you’re a Southern California real estate investor in need of knowledgeable and experienced legal help, contact the San Diego offices of real estate attorney Jon Alan Enochs for a confidential consultation at 619-421-3956.