Posted by Dave T on July 31, 2001 at 09:40:44:
To purchase a HUD property, you must go through a HUD approved real estate broker. The broker will fill out the HUD bid forms, get you to sign all the required disclosures and addenda, collect your earnest money deposit, then submit your bid. Before your bid is submitted, you will also need a lender’s pre-qualification letter if you intend to use mortgage financing.
Yes, HUD properties can be purchased below market as your own investigation indicates. However, if this is a good property, in a desirable location, owner occupants bidders may drive the price above list.
HUD properties are sold “as is”. You can schedule an inspection before submitting a bid, but don’t expect utilities to be on. You can even get permission to turn utilities on for a couple of days (at your expense) to accomplish an inspection. The realtor will have the keys to the property and can let the inspector in.
Generally, for me, HUD properties do not make good flip candidates. The purchase price, closing costs, fixup expense, and selling costs usually do not leave enough room for profit on the back end. There are always exceptions, but as you say, the renovation cost will be a key factor in limiting your profit on this deal.
Another factor to consider is your holding cost. What if it takes you six months to get the property sold? You have to factor in six months of mortgage, taxes, insurance, and upkeep just in case you don’t get a quick sale.
This property sounds like a good rental candidate. Can you get a high enough rent to cover your mortgage payment plus operating expenses and still leave you a little for cash flow? If so, you may consider holding for long term cash flow and equity appreciation.