Buying HUD properties is a simple, fast way to make consistent profits – quickly putting thousands of dollars in your pocket over and over again. Before we find out some of the tips to working with HUD properties, let’s define what a HUD property is.
What Is A HUD Property?
A HUD property is one that used to have an FHA mortgage, but the homeowner was in default and was foreclosed on. The government owns the home (they insured the mortgage), so the seller is HUD. HUD's process for liquidating their inventory of foreclosed homes is to list all homes at or below bank-owned prices.
HUD has their own brokers with whom they list their foreclosure properties. When they first list a house, it's only available to owner occupants for the first 15 days, not to investors. After 15 days, it's available to anyone.
Advantages To Buying HUD Foreclosure Properties
There are distinct advantages to buying HUD homes. All HUD homes get winterized, cleaned out, properly secured, checked regularly, have a sign-in sheet, and have their own lock system with multiple keys. There are no deed restrictions, and you can do back-to-back closings if you already have a buyer lined up. But to successful navigate the HUD housing pool and make a profit you need to know a few secrets:
- HUD has a back-door bidding process.
- HUD tells you how interested your buyers are in a house (what the public thinks of it) before you buy it.
- HUD will take certain percentages off list price at certain times.
- HUD works off case numbers, not property addresses.
- Sometimes there are not even For Sale signs up in front of HUD homes.
- HUD will accept individual offers over company offers.
- You won’t have to spend any money to fix up the HUD homes – not even change the locks when you sell it – just get a new key made for a couple of dollars.
- If you know the secrets, there are ways to swipe HUD homes right out from underneath the competition.
- Each HUD home has a sign-up sheet in the house that each person who enters or works on the house must sign – this can be a ready-made buyer lead sheet for you once you take over the house. Any Agent who has been through the house is listed on that sheet.
- As an investor, you can make $5K-$8K on every deal. You can buy a house for less than HUD has them listed, and turn them around quickly, sometimes the same day.
- Your exit strategy can vary, depending on whether you want to take the quick nickel approach or the slow dime approach. You can always rehab the house you buy and sell it for bigger profits than without doing anything – the key is whether you’re willing to hold the property and wait.
How Do You Fund HUD Home Purchases?
There are many different ways to fund your HUD home purchases but ultimately it will depend on your chosen exit strategy. Whichever you choose, you don't have to use any of your own money (you can use your own money, especially with the low prices on some of the HUD homes); you should be working with private capital.
When working with private lenders, you will be securing the loan with a mortgage and a note. Potential private lenders will be excited about getting double-digit returns and high interest on their money. Stocks, bonds, precious metals, CDs and others are not getting good returns now, so this is an enticing alternative that you can provide. If you own money or private funding is not an option, then transactional funding is a great alternative when the deal makes sense. The bottom line is, with one HUD foreclosure deal, you can earn more money than most people make in a year. That’s an offer that’s hard to pass up. Again, the trick is knowing how to do these HUD home deals.
How To Sell HUD Homes?
List Them Back on the MLS. What do you do once you have that HUD home in your portfolio? As a real estate investor, you can buy a house really cheap and relist it on the MLS the same day and make a profit. It’s impossible to do within the MLS – people don’t want you to make money on the house, it’s that simple. But there is a very simple way to buy a house, turn around and relist it for a profit, often on the same day. It’s as simple as this: Sound like a bank when you go to sell the house.
By using a couple of very strategic phrases in the property Description and Agent Remarks, it will appear to be a bank-owned listing. In the Property Description, include this verbiage:
“Offers received within the first 7 days of the listing will not receive a seller response until the property has been listed for 7 consecutive days.”
Then in the Agent Remarks:
“Minimum earnest money deposit is to be $1,000 in the form of certified funds. Offers received within the first 7 days of the listing will not receive a seller response until the property has been listed for 7 consecutive days.”
Now, any real estate agents will think this is a bank listing. Then on day 8, you can ask for the highest and best offer. This is a very strategic way to get more for a property then you want. It creates an auction mentality for the potential buyers, resulting in multiple offers and a lot of activity.
Then, you are able to choose the best cash contract or the one that will close the fastest. You’re basically structuring the deal in a different way. This can be used for an REO, HUD wholesale, rehab or even short sale.
For example: If a property is listed for HUD for $50K, and you can contract it for $38K, then take it back to market for $45K, (cheaper than HUD’s original price), buyers will be thrilled – they are getting it cheaper than what HUD is selling it for. If you don’t want to put the house back on the MLS, there are many ways to get the house sold fast:
- Send a targeted, specific email to your buyer’s list – advertise it to the list when you put the house under contract with HUD.
- Put up white, directional signs in the yard.
- Call the Agent’s who signed in on the sign-up sheet in the home and tell them that the house is available at a lower price than when they saw it last.
The best tip of all? Sell exclusively to cash buyers. This will help speed up the turnaround time so you can move on to the next deal and collect your profits. The average hold time is 14-21 days to close with a C buyer. Since HUD has done all the work, you don’t even need to change the locks – often the homes are move-in ready.
Buying and selling HUD homes can be done in a few short hours each week – you can do it in your spare time, literally. Better yet, you can hire a VA (Virtual Assistant) to do almost all the work for you for about $500/month! Doing this involved zero marketing, and can all be done through one very strategic spreadsheet.