Bought and Resold in 2 months - Bank Scared? - Posted by Pete CA

Real Estate Investing
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Posted by JT-IN on March 07, 2007 at 21:57:07:

Dave:

Going back to the original posters scenario… He was buying at clearly 50% or less of a bona-fide FMV. Whenever you have numbers like that, if a Lender is challenging you on a massaged purchase price, and you are NOT raising the loan amount over what you would otherwise be borrowing had you not raised the price, then you are dealing with the wrong lender. It is that simple.

e.g 125K purchase price, and property is worth 250K. You would ordinarily being buying at 125K, say you are putting down 20%, or 25K, with loan amount of 100K. Now you want to do the same deal, borrowing the same 100K, and increase the purchase price to 200K, showing a 75K credit from seller to buyer on the HUD… As long as you can pull the appraisal for the 200K, or more, and you are still borrowing the 100K, (not trying to raise the loan amount as most folks would), there should be NO issue. I can clearly see the issue when you try to pay the 125K, and raise the price to 200K and then finacne 80% of the 200K, and loan amt of 160K… BuZZ, BuZZ. Outta the game.

Again, if your lender is busting you on the above scenario with the 100K loan amount and a property that is clearly worth 200K+, then you are dealing with the wrong financial folks. My leaning is always to deal with commercial lenders who are doing proprietary lending, and little blips like the one you raise are simply non-issues.

Anyway, so much for that dead dog… LOL Hopefully you can use the technique in the future and legally hide some of the fat profit from your buyers lender… Gleem.

JT-IN

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Bought and Resold in 2 months - Bank Scared? - Posted by Pete CA

Posted by Pete CA on March 05, 2007 at 14:16:03:

I purchased a 2 bedroom house in Crestline, CA for $117,500. 2 months later I sold it for $215,000.

The bank who was doing the loan for the purchase thought I resold it too quickly and they were concered about the appraisal. The appraisal was solid and the comps were great. The only thing they didnt like was that I had only had the home 2 months and done no repairs.

What can I do the next time I get a great deal on a house to have the resale and new loan go smoothly? I can find great deals on homes but when the new appraisal gets reviewed I want to make sure the deals dont get killed.

What have you guys done to make a resale go smoothly after getting a nice discount on a house and immediately reselling it?

I think the appraiser should have explained that I originally purchased the house from a Lender below market value. What do you think?

Thanks. Pete CA

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Re: Bought and Resold in 2 months - Bank Scared? - Posted by Luke

Posted by Luke on March 05, 2007 at 20:47:04:

I have to ask: Where in Cali did you buy a property that was only worth $215K?
It couldn’t have been an actual house so those cardboard boxes are going up in value as well huh? :slight_smile:

Awesome deal man! I would say it’s worth the hassle. JT had the best idea I’ve seen though.

Luke

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cash is king… - Posted by Ben (NJ)

Posted by Ben (NJ) on March 05, 2007 at 15:01:47:

First of all congrats on a sweet deal! I acquire properties through tax foreclosure so I’ve run into this problem enough times that now I give cash buyers an extremely preferential deal. I will accept a lower offer anyday from a cash buyer than a higher offer from a financed buyer. Like the other posters say, otherwise you have to jump through hoops and closely control the appraisal and mortgage process.

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Re: Bought and Resold in 2 months - Bank Scared? - Posted by Larry in Florida

Posted by Larry in Florida on March 05, 2007 at 14:59:01:

If you can negotiate it, first have the seller put the property into a land trust where you are both co-beneficiaries. In the Co-Beneficiary Agreement between you, specify that the original seller gets $117,500 and you get the rest when the property is sold. You could give the seller his money immediately for an assignment of his beneficial interest (probably to another entity that you control such as an LLC). Use and independent third party trustee to hold the title. Then when you sell for $215,000 there is no previous sale at 117,500 recorded anywhere, just a transfer into a land trust with no dollar amount associated. The trustee receives the money from the sale and forwards it to you and your entity.

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Re: Bought and Resold in 2 months - Bank Scared? - Posted by Ben Carmona

Posted by Ben Carmona on March 05, 2007 at 14:37:06:

#1 - Team up with a mortgage broker who works with investors nationwide. They can not only help you in finding funding for your deals (should you need it) but also help you preapprove buyers.

#2 - Even if the buyer wants to use his own source, the mortgage broker may even still help give a 2nd opinion so you feel more comfortable.

#3 - No matter who does the loan, the lender should always be made aware that you purchased the property below market value and rehabbed it. As well, any agents involved should be informed.

#4 - Keep track of your work and pictures before and after. The appraiser for your buyer should be using this info and also noting that you bought below market value.

It will be important for you to communicate this to everyone upfront.

Ben Carmona

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Buy @ a higher price… - Posted by JT-IN

Posted by JT-IN on March 05, 2007 at 14:31:54:

And that will eliminate this problem… Seriously, inflate the price, then have a healthy repair allowance from Seller to Buyer which nets the price down to your original agreed upon figure. This causes no heartburn for the seller since the net to them is the same. The only difference is conveyance fees may be slightly higher and I usually try to offset these to the seller, so their NET is exactly the same. Actually, I will have the title company usually prepare 2 HUD-1’s, one for the original sale price and one for the adjusted sale price, with the NET being exactly the same.

The sale price for the adjusted HUD-1 is the one that gets recorded, thereby showing that you made a small amount of profit. This makes the weenie Bankers feel better about things, and there is absolutely nothing wrong with putting the deal together this way. What they don’t need to know, won’t hurt them. It is when they get TMI… TOO MUCH INFO, that they self destruct. Work in the best interest of the Bankers, limit the info that they need to process…

Also, it is best when you have been on-title for just a short period of time, regardless of the amount of profit, to make certain that the buyer is going to a Lender that has no restrictions as to Title Seasoning. Most of the time when the buyer has A or A+ credit, there is not much of a concern… except when they start spotting 100+K profits… So be nice to Bankers, limit the amount of info that they need to process…

JT-IN

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Re: Bought and Resold in 2 months - Bank Scared? - Posted by Kristine-CA

Posted by Kristine-CA on March 05, 2007 at 22:45:49:

California is a big place and I can assure there are plenty of houses
under 200K. I haven’t bought one for that much yet. I live in on the
coast and the average is over 800K. But if you drive over any of the
ridges into the valleys (deserts) things look really, really different.

Luke, you have so much figured out already because of the practice
you get living and doing deals somewhere where appreciation doesn’t
mess with your head. You know how to crunch the numbers and not
rely on some idea of future value. You’d do great here…come on
over. Kristine

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Re: Bought and Resold in 2 months - Bank Scared? - Posted by Pete CA

Posted by Pete CA on March 05, 2007 at 15:06:47:

Sounds simple…lol. How long would this process take and would a bank be interested in selling to me like this in the first place? Most of the properties I find are lender ownered.

thanks.
Pete CA

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Re: Bought and Resold in 2 months - Bank Scared? - Posted by Pete CA

Posted by Pete CA on March 05, 2007 at 15:11:12:

#1 - Team up with a mortgage broker who works with investors nationwide. They can not only help you in finding funding for your deals (should you need it) but also help you preapprove buyers.

I AM A LOAN OFFICER/BROKER AND HAVE MY OWN OFFICE.

#2 - Even if the buyer wants to use his own source, the mortgage broker may even still help give a 2nd opinion so you feel more comfortable.

SOUNDS GOOD

#3 - No matter who does the loan, the lender should always be made aware that you purchased the property below market value and rehabbed it. As well, any agents involved should be informed.

I DONT DO ANY REHAB

#4 - Keep track of your work and pictures before and after. The appraiser for your buyer should be using this info and also noting that you bought below market value.

SEE #3

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Re: Buy @ a higher price… - Posted by redave

Posted by redave on March 07, 2007 at 11:30:39:

I thought lenders limited seller credits to 3%, have you had a different experience?

Dave

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Re: Bought and Resold in 2 months - Bank Scared? - Posted by luke

Posted by luke on March 05, 2007 at 22:50:33:

I suppose that’s true.

Thanks for the invite Kristine. I actaully recently moved from San Diego (carlsbad) back to NY after living their for about 1 1/2 years.
I was in the Marines then and moved back to my hometown since is no competition here.

I’ll be back in SD one day. Afterall it’s the best city in the USA in my opinion!

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Re: Bought and Resold in 2 months - Bank Scared? - Posted by Larry in Florida

Posted by Larry in Florida on March 05, 2007 at 15:25:07:

My idea probably doesn’t work if your source was a lender. Only for private parties. And it doesn’t take very long to put together once you have done it once.

If I were in your shoes, my next idea would be to sell it to the buyer on a short term lease/option, just long enough to get by the seasoning issues. As you are probably aware, you could pull all of your investment out by refinancing the property. You would just have to wait a few months to get your profit.

Good luck!

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Re: Bought and Resold in 2 months - Bank Scared? - Posted by S. Nathan

Posted by S. Nathan on March 05, 2007 at 22:02:13:

O K you know only a newbie would ask this question!!! Let’s see ,you are a mortgage broker who buys and sell real estate, that has come from mortgages that have been foreclosed. Is not this bordering on inside information or something. Bet investors love you man!!

That awesome deal making man!!!

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Re: Buy @ a higher price… - Posted by JT-IN

Posted by JT-IN on March 07, 2007 at 17:44:12:

Dave:

The limitations that you raise will not be an issue for the sale of the property. I think maybe you are confusing the purchase and the sale transactions…

When the investor is buying the property, there is no limit as to what can be added as far as repair allowance, as long as you are NOT attempting to borrow more money as a result of this. Additionally, I got the idea from the original poster that he was buying outright, and in that instance you could have a mil $$ sale price and a 950K repair allowance and the sale is reported at a mil, and who cares…? No one.

Relative to the resale of the property, they are going to look at the recorded sale price, and as long as nothing is out of whack there, the new lender doesn’t know anything of a repair allowance, etc… They only see the transfer amount at the higher price. In the posters case, had he done so at a higher price and showed himself making 25K in profit, then the new lender would not have questioned the deal one bit.

Now I would not recommend an investor attempt to use this strategy to actually inflate the price and attempt to borrow the repair allowance amount. That will run into far more scrutiny from any lender on a purchase. However, my advice really didn’t address the buyer/investor needing to borrow funds for the purchase to begin with. In the event that a lender involved in your purchase had an issue with this you may simply need to accomplish the higher price via a 2nd transfer to another entity, once the purchase loan is in place. Honestly, most investors wouldn’t do the 2nd transfer to another entity because of the conveyance costs (to themselves). This is penny wise and pound foolish, because the paying of an extra transaction fee will save you lots of headaches down the road when a large profit is involved. I will gladly pay a 2nd transaction fee, when necessary to camoflauge a whopper of a profit.

Like the old saying says, “things are not always as they appear”… and this should be especially so when there is a large profit built into a retail flip. There is absolutely nothing wrong with doing so… and I take every advantage available in order to minimize these type of headaches, and eliminate some title guy or lender dictating to me what amount of profit is reasonable on any deal…

Just the way that I view things…

JT-IN

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Re: Bought and Resold in 2 months - Bank Scared? - Posted by Pete CA

Posted by Pete CA on March 06, 2007 at 03:22:50:

The city of San Diego was rated the best overall climate in the entire country…it averages 72 degrees almost the entire year.

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Re: Bought and Resold in 2 months - Bank Scared? - Posted by Pete CA

Posted by Pete CA on March 06, 2007 at 03:36:03:

Oh, and stellar grammar and use of the exclamation point!!!

Just so you know…I use the MLS to find lender owned properties and make low-ball offers. I have nothing to do with the properties that are in foreclosure. I simply buy them from banks below market and resell them to my investors. :slight_smile:

THAT NOT SO AWESOME ANALYSIS OF SITUATION. YOU DONT WIN GOLD BUTTON!!!

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Re: Bought and Resold in 2 months - Bank Scared? - Posted by Pete CA

Posted by Pete CA on March 06, 2007 at 03:19:14:

Was that a hint of sarcasm that I detected?

Thanks for the positive reinforcement and have a wonderful day.

Pete CA

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Re: Buy @ a higher price… - Posted by Natalie-VA

Posted by Natalie-VA on March 07, 2007 at 21:25:01:

JT,

I tried that recently. We bought a condo in a small 18 unit complex. The 2 most recent sales were for 427k and 400k. We bought for 325k. I tried to make the sales price 385k with a 60k credit, but the seller wouldn’t go for it. They were afraid there would be a tax impact, and I didn’t want to shake the deal up over it. This one’s a keeper for me, and I was trying not to ruin the comps since it’s such a small complex. It didn’t occur to me to try and do this on our flip deals. Thanks for the idea.

–Natalie

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Re: Buy @ a higher price… - Posted by redave

Posted by redave on March 07, 2007 at 19:49:06:

Great ideas!

If there is no loan involved in the purchase, I agree, no lender issue, either on the purchase (obviously) or the resale?credit away.

If the original purchase involves a loan, then with a conventional lender they will not allow more than 3% seller credit, this is based on what I?ve hear from more than one lender and more than one mortgage broker. This is how I understand it?for example, if you are getting a 80% (ltv) loan with 20% down against a $100k purchase price and a 3% (or less) seller credit, the lender says okay, fine, this is an 80% loan and we can sell it on the secondary market, no problem. If you are getting an 80% loan with 20% down against a $100k purchase price with, say, 10% seller credit, then the lender starts to wonder if they are really lending 80% of the value, it?s now starting to look more like a 90% loan. I?m pretty sure they draw the line at 3% credit. Hard Money, Private Money, Sub-Prime lenders tend to have their own wacky rules, you could probably find an exception to the 3% rule somewhere in there.

Your point about deeding to an entity after financing is in place is a brilliant idea, again you can credit away without an issue, and I don?t see any fraud whatsoever. I suppose there might be a seasoning issue but that would happen either way. I feel the same way you do, there is a hog line, paying a transfer fee, and possibly entity costs, to get a quick, hassle free whopping profit is the way to go in my book. Regarding transfer fees, in my county (Los Angeles) the fees are only on the equity being transferred, if that makes it a little more palatable.

Dave