Anyone Flip a House or a Lender- Need Advice

[Macs]

I have an excellent oppurtunity to buy a commercial / residential home from a family member that just wants to get rid of it. I was wanting to finance about 15k more than the asking price to cover repairs. the problem i am having is with the financing. I guess with the market down turn, things have changed. I would like to borrow 50k, which i think it would appraise for. The places i have contacted so far dont want to finance anything under 100k or they only want to finance what the seller wants with no additional funds. i was hoping to get an interest only loan and figure i could have it back on the market in about 5 months. I also checked into hard money loans but from what i understand, everything i do will be dictated. kinda like having a boss. which i do not like. So my question is if you have flipped a house how did you finance or if you are a lender what are some good pointers.

[Billy Golightly]

Not anything good in the past two years. Lots back when the market was good. Lending is much different now than it was then. Back then, everything always appraised at what the asking price was atleast, most of the time 40-50k higher. You could pretty much go to a bank if you had a decent income and say "I want to buy this", finance it for the purchase price and be good to go. Loan terms differ obviously. If your pretty confident you can re-sell it quickly, try and do a 2-3 year balloon. There is definitely the potential for it to go wrong though (very, very wrong). I've not heard of the lenders not wanting to finance anything under a 100k, that is somewhat strange. Don't expect to get more money than the property is worth though. Infact most of the time they only lend at like 75% of the appraised value. Some federal loans are higher. What you might be able to do depending on your Income/debt ratio is mortgage the property to buy it first, and then do 10-15k line of credit for home improvments, instead of all in one. If your dealing with banks directly, try the following: Mortgage brokers, and also credit unions. Mortgage brokers will typically work their asses off to make the loan happen for you because thats the only way they get paid. The banks and credit unions don't need it quite so much as they have cash flow from alternative means. Most of the times the appraisals are ordered by the lenders unless there is an existing one less than 6 months old for financing purposes. Ensure that the appraiser in question has good comparables or you can really get shitted for the value. You might need to do some of that leg work yourself to double check the appraiser. They will probably get pissed at you for trying to do their job but its your ass on the line for the money, not them.

How old is the most recent appraisal? You really couldn't/shouldn't do anything till you have a valuation of what the property is worth whether its an appraisal or a CMA (comparative market analysis) from a realtor. the CMA will not hold up for lending, but it will give you an idea as an investor, as to what its actually worth. Do not put a lot of faith in appraisers. They are causing a LOT of down here right now putting valuations on properties that are $150K more than its worth and keeping the prices artificially inflated. They give the potential sellers these big #s, and then the sellers are forcing the realtors to list them at these prices when the realtors know its so grossly over valued it will never sell. Find out seriously what the place would need to be listed at to sell in 6 months. That is your price range. Anything else than that is a waste of time and a hell of a liability in my opinion. The appraisers over value stuff so that the lenders will keep having a reason to lend money out, and subsequently have a reason to keep sending them more places to appraise. Its just the way the business and industry is and has been for a very long time.

[harryredtrike]

there is going to be another housing bubble soon.i would be very wary of realestate right now.

[johnny's X]

I went partners with my father inlaw on a one family house that was pretty run down. We got it on a bank forclosure. We both then took a home equity loan against our houses and totaly gutted the house. Everything new from the wiring, blown foam insualation,furnace,pex plumbing to the siding and roof and sofits. Even though the market sucked at the time of us doing this we both still made a good size profit on the house. The house was located in a really nice neighborhood. We put the house on the market and had 3 offers in the first week. The house sold in week 3. We offered a home warranty with it and that was a huge selling point. I paid my loan back and had plenty left over to do the things to my house i wanted. We keep our eyes open for buys like that one again. You really have to pick a location that the house will sell in. Nobody want to buy a house that is beautifull in a crappy neighborhood. Oh we also built a 2 car attached with a breezeway, we did all the work ourself except the insulation and drywall finish.

[Billy Golightly]

there is going to be another housing bubble soon.i would be very wary of realestate right now.

Bubble, as in expansion, you mean. We've been in market contraction for the past 3, probably 4 years really now. There are hella buys out there. If you know where/how to buy some of the distressed properties you can get a house on a lot in town for like $20k. It aint the ritz, but a few thousand to fix up and you can rent it for $8-$900 a month. Banks are taking hellacious hits on stuff right now. Some of our own property that was in foreclosure appraised at 10K an acre in 2005, but ended up getting short saled during the foreclosure to a gentlemen for $2k an acre. I'm glad they didn't hit us up for the deficit/difference in the sale and the note, because they seriously lost their ass on that one. Like, 350k worth. I don't have any money to be buying anything right now (yet) but I can promise you the market is going to bounce back in another 8-12 months. Here, (actual, not appraised) property prices have already decreased about 300%. Historically, when there have been other housing market collapses, thats near the bottoming point. I think locally, the bottoming point is going to be $1250-$1500 an acre. Which is a lot less than the 10-12k stuff was going for a few years ago. We're at about $2500-$3k right now, so once it halves its value one more time, I think we'll be there.

[Dirtcrasher]

Nice job on that one Johnny!!!!

Banks are very reluctant to lend money these days PERIOD! Of course approving people for homes they could NEVER afford was a different story a few years ago. You can thank the banks for all the foreclosures in your neighborhood. I have a mere 4 empty homes which were foreclosed upon if I drive down to the end of my road, it's a terrible situation.............

At least the bailout banks are only giving a few millions to the top dogs now. I read about one SECRETARY that got a 200K bonus last week!! PATHETIC!!

[Tri-Z 250]

My frist question is Who's in the property now? Is it a Rental space today and is it occupied? Whats it pull in rent? Vaccant, have no idea what it would rent for? Think of the investment in reverse but exclude what $ you think it can sell for( You need to establish REAL value). What are the taxes on the property and are they current? Are there restrictions for use on the property from the City/Twp.? Personal banks are lending...credit lines, bridge loans against what you already own. A personal ARM loan can varie but I think there right around 3.5% for 50k. The key is the timing of the flip...Example in my area Memorial Weekend is a BIG town thing...when it comes to rentals in the area. 2weeks before the town paraide all the rentals fill up with the in coming college kids just about to graduate(never fails). The county will show you what they believe the property is worth...If you can do what you want and stay under the tax value...I'd say soild deal. In this soft market most offers are coming in at 10% less the tax value, depending on location...which is a key element as well. Why not help the inlaw fix it up and get paid to do it. have the inlaw carry the line of credit on the building...create an LLC and or Partnership. You as a member can run the job and your partner could be silent. Stick to a soild time line and budget...why change out title if the Family member has no mortgage they can walk to the local bank and establish the line of equity for 50k in less than a 1/2hr...a much simpler approch. Family member just wants out?...Explain the reinvestment, the family/personal oppertunity and the fact that it's a possible $ win fall if everything goes right.

[harryredtrike]

Bubble, as in expansion, you mean. We've been in market contraction for the past 3, probably 4 years really now. There are hella buys out there. If you know where/how to buy some of the distressed properties you can get a house on a lot in town for like $20k. It aint the ritz, but a few thousand to fix up and you can rent it for $8-$900 a month. Banks are taking hellacious hits on stuff right now. Some of our own property that was in foreclosure appraised at 10K an acre in 2005, but ended up getting short saled during the foreclosure to a gentlemen for $2k an acre. I'm glad they didn't hit us up for the deficit/difference in the sale and the note, because they seriously lost their ass on that one. Like, 350k worth. I don't have any money to be buying anything right now (yet) but I can promise you the market is going to bounce back in another 8-12 months. Here, (actual, not appraised) property prices have already decreased about 300%. Historically, when there have been other housing market collapses, thats near the bottoming point. I think locally, the bottoming point is going to be $1250-$1500 an acre. Which is a lot less than the 10-12k stuff was going for a few years ago. We're at about $2500-$3k right now, so once it halves its value one more time, I think we'll be there.

absolutely,if done like that fine.im saying dont overextend yourself on a property you cant afford to hold if you have to.there is going to be another forclosure boom comming and banks will tighten even more.good deal yea great deal hell yea.speculate no.

[Tri-Z 250]

Harry's right the 2nd Wave of adjusted loans are coming due in 6 months time(with the release of all the notes that are in foreclosure)...By June the market will meet bottom...recovery time really becomes a local issue. If jobs keep leaving our area all the vacant land in the world is worth 0 if nobody wants to live in the area. Research the area till the numbers scream NO FAIL! The estimated time for the Country to rebound after the bottom hits...2yrs. Yes under a new President too...not bashing Big O, he's just not gonna make next round I'm affraid...He inherited too much BAD to come out squeeky clean. Although this all stems from the Banks and poor lending practices...I ask anyone if they've felt any trickle down effect. You won't

[Macs]

Lots of questions and i will try to answer them the best i can.
The house is currently vacant and has been that way for about a year. Before it was empty, her daughter lived there. then she was living there. 30k is what is owed on the house and she wants it out of her name and gone. Her answer for this is that there is alot of bad memories in that house and she is ready to move on. The we buy ugly houses people offered her 30k, i offered 35k plus she pays all closing cost. They have came back and said 38k now but we are already in contract. Rental value as residential should be about $1100 a month. got this from talking to a neihbor and thats what they pay. I value it after rehab for 90k - 100k as residential. Not sure how much the commercial value would be on it. i had gotten a repai estimate of everything done, the way i want it. down to the landscaping at 36K. I broke down everything i need and priced it all at home depot for $11000 in material ( that was time consuming). I can do everything myself and it looks as if i will be loosing my job at the end of the month. so i will have the time. It does have a new roof, all new electrical, new complete a/c and heat including ductwork ( but someone stole the outside condesner ), new windows and new siding. all of this was done when the hurricane came through. so the expensive stuff has been done. I am a bit confused on the tax value. The county has it appraised at 38k for taxes and i am not quite sure why. All the homes around it are from 80k to 110k. So i might need to do some research. The taxes are current and there is no liens on the home. I have been fighting with the loan and not making no progress. I am thinking about just taking a loan out against my 401k to cover it at 4%.

[Tri-Z 250]

4% against yourself not a bad way...It's OK that the value is low, infact it's good if you end up renting and need to pay a few 1/2 yrs. As long as comparible homes in the area ARE valued for your projected $110-90k. The Market of your area? Sounds like rental isn't so bad...but the job situation tends me to lean more toward flip. Crunch some more #'s 4% 401K market is crap so thats not gonna explode anytime soon....adverage % of home sales in the area?(7% would be good for a solid rental/with full tenant rent carring the note) You'd be clearnig 2%....So 30K over 6 yrs would be close to $500 per mth.(I'm including taxes). You claim $1000 per mth as a close adverage for the area. Thats an Extra $300 per mth( I'm subtracting $100 to manage property/bills) Sounds pretty solid...Goodluck My only susgestion if my numbers make sence...Long term or at least till the rent pays the note; I might hold on to it and add a rental to my list of toys. When the market does turn in your area you'd be in the cat seat...60k might take 10-12yrs but you'd be FREE N CLEAR sitting in the bird seat. Trust me to have the County to come in and re-evaluate your property to add value to bring it up with compairable houses...just a phone call. Far easier to raise em then lower them.

[Macs]

Thanks for the advice. I actually really like the house and would love to keep it as a rental. I will just need to see what the job situation is when i get done fixing it up. When i heard that this will be my last month here i almost backed out of the deal. But after giving it some thought, i could get this house done quickly without a pesky job in the way. Engineering is projected to have a hefty increase around may and i shouldnt have a problem getting a job with top pay and have the house issue behind me.