My name is Ed Chister, a rather new residential property investor. As recent as March 2010 I went to Fort Worth, TX to explore the trustee sale opportunities and to meet a local seasoned investor, Jesse, who was introduced to me by my brother who did some repair work for Jesse on some previous occasion.
We picked up a total of 6 SFR's on the first day that we went at the county recorder's steps that required a fair amount of cash infusion for repairs. Still according to our estimate, we would profit from 17,000 to 30,000 per unit after resale.
Once we got back to Jesse's office, we received an email from one of our private money sources that Jesse had contracted with on some previous transactions that he would not be able to provide us with promised funds we needed to fix all 6.
After crunching some numbers, we had realized that now we enough resource funds to fix 4 of the properties but not all 6. Still we were dedicated with the end in mind of flipping all 6. Having been in the loan business for over 25 years, I knew that FHA had extended for another year the moratorium which allowed new property owners (investors included) to sell their properties to owner occupying buyers under the FHA 203K program (FHA financing was prohibited previously for recently acquired property flips). The 203K program permits all the property repair costs to be added and included into the new purchase loan amount with as little as 3.5% down payment from the borrower.
We immediately began calling all the people on Jesse's database who had wanted to buy in Fort Worth and packaged a deal together where we credited the buyers with some closing costs to sweeten the deal. The 203K loan program allowed us to market the property “as-is” and with an “after improved value” after all the property repairs were factored in.
Furthermore, on one property, an additional bathroom was also factored in to the repair/addition items. So whereas the property had originally 1 1/2 baths at the time of our purchase, by the time the property repairs were to be completed, the total bathroom count would increase to 2 1/2 baths. On both properties, energy efficient upgrades were also factored in because summers and winters can be brutal in Texas.
We were actually able sell these 2 homes within a 2 week period and did no repairs at all to them and still our overall profit was $29,650.00 for both…not bad for immediate returns and no additional cost out of pocket.
I'm glad I had my lender experience to draw from in this case. I personally interviewed the local lender to make sure she knew how to structure the 203K loan and gave her some little counseling along the way and the loan closed in less than 45 days. It is very much a specialty loan that requires specialty know-how. This just shows that the more knowledge one has and properly applies, the more deals abound.
Thank you for allowing me to share. Should you have any inquiries as to how properly structure a 203K for deals you may not want or cannot repair, it is a good “exit strategy” to use. Feel free to shoot me an email.