Government foreclosures, aka HUD homes, is an important topic for real estate investors to be aware of. You may automatically think the houses need a ton of work or maybe you didn’t even know that you could get hold of these properties.
Let me walk you through exactly where these HUD homes come from:
Many of them are in great condition and need little to no work. There are many advantages to purchasing a HUD home – one being that they are usually winterized, cleaned out, properly secured and checked on regularly since they are owned by the government.
And the best news is – anyone can buy them! In the first 15 days, the homes are only available to owner-occupants. After that, anyone can bid! You will just need to work with a licensed real estate agent who has a valid NAID number.
I personally purchase about 8-12 HUD homes a year. I prefer to do big profit deals where we buy, fix and sell, but wholesaling can get you a quick profit also.
Now let’s take a look at a personal case study of mine, 242 Sandstone Ridge Way. It’s a HUD home I acquired for only $131,000 in a neighborhood where other homes are selling for around $210,00! It needed little to no interior work, we added a deck, new landscaping, new windows, new furnace and upgraded the kitchen appliances.
Check it out:
Now you’re asking, “Josh, where are you finding these homes?” Let me tell you about HudHomeStore.com. This is where all these homes are listed and like I mentioned before, after 15 days on the market, they are open to anyone!
When looking at HUD properties, make sure to pay attention to how long the home has been vacant and take into consideration the problems that the home might have acquired over that time. Homes built prior to 1978 may contain lead paint, so make sure to pay attention to that. Other items to think about are asbestos content, buried storage tanks and other environmental hazards.
Keep in mind though, that HUD does not warrant the condition of its properties and will not pay for the correction of defects or repairs. Since the new owner (you) will be responsible for making needed repairs, HUD strongly urges every potential homebuyer to get an inspection from a licensed professional home inspector prior to submitting an offer to purchase.
Once you choose a property you want to bid on, fill out all information and have your agent enter their NAID number, you will receive a confirmation number in an e-mail. You’ll see a long number then -08 or -21, that number represents how many bids are currently out on the property. If there are a lot of previous bids, keep in mind you might be able to wholesale is back to another interested buyer for a quick profit.
I would suggest setting up a separate Gmail account just for your HUD home bids so you can see all the confirmation numbers, counter offers, etc. When they counter you, that number will be what they want their NET proceeds to be, NOT the gross purchase price. You have to add back in your closing costs and real estate agent commissions. Once you receive the offer you must determine if you want the property or not.
You will get a follow-up email once your offer is accepted with the HUD purchase and sales agreement, so you must fill that out and submit your earnest money. This is a 48 hour window that you can run comps on the house and make sure you really want to invest. If you decide you do NOT want to move forward with the property, just don’t send back the agreement and earnest money.
If you do want the property, send your agreement and money via UPS overnight because they will get it there by 10am the next day. Once you’ve secured the property, decide your exit strategy. Do you want to rehab it, keep it as a rental or wholesale the property? The choice is yours to decide how to move forward.
HUD Facts to Know:
- HUD does everything by case number, not by property address
- If a property is bid on and doesn’t close, it comes back to the market for 5 days for owner occupants then they do a new appraisal
- Earnest money is between $500-$2,000 – usually 1% of your purchase price
- HUD often lowers their asking price by $10,000 or by 5% of the purchase price
- They reduce their asking prices after the house has been on the market for 90 days, 115 days and 135 days
Stay tuned next week for information on a FREE class that my buddy, John Cochran, the “HUD Stud” and I are hosting on HUD to learn more about how to turn buying these properties into an automated process that rakes in the profits.