Wholesaling HUD Homes 101
Wholesaling HUD homes is a real estate investing strategy often overlooked by many who simply don’t understand how it works. So could this be a profitable source of new distressed properties to fuel income or is it simply overrated?
HUD homes are often dismissed, even by veteran real estate investors because they are misunderstood or investors have been so spoiled or used to acquiring other properties they haven’t needed to pursue them. However, they may now certainly be worth a second look, especially when many are finding competition for marketing directly to homeowners and for bank owned REOs heating up.
Why Consider Wholesaling HUD Homes?
While banks have rapidly become almost impossible to work with on decent terms in some areas, and homeowners have become immune to marketing messages, the government continues to load up on vacant, foreclosed homes in excess of a couple hundred thousand.
They want and need to be rid of these homes and offer some pretty sizable discounts for investors buying them. Exactly how much they go for varies widely but some investment companies have built sizable wholesale businesses on them and have consistently found properties at 35-55% of ARV (after-repair-value).
What many don’t know is that these properties can be scooped up with very small deposits compared to other options out there today and many are often already being repaired by HUD. Sometimes this simply means new flooring, but in others it can extend to whole new bathrooms and kitchens and even roofs.
How to Buy HUD Homes
‘HUD homes’ aren’t any different to any other homes; they were simply houses which had FHA loans on them prior to going into foreclosure.
What is different is how these properties are advertised and sold. They are offered through HUD’s auction system. Anyone can bid on them and some might be very surprised at how inexpensively some are let go but they must be bid on via an approved real estate broker.
Not all brokers are approved but it isn’t that hard to find one serving every area that is, and a list can be obtained directly from the HUD website. Of course all are not created equal and given that bids are weighted on net proceeds to the seller, it is smart to find a broker who will be willing to reduce their commission so there is more room in the deal and other bidders can be beaten out without giving up spread.
However, while there are big profits and plenty of volume of deals to be had wholesaling HUD homes, investors need to be prepared to deal with government contracts, government time-lines and inefficient systems and dealing with their choice of title company.
Still, for those looking for a new source of discounted property deals, this strategy could deliver a huge pipeline of homes for flipping, which FHA has already approved loans for, potentially ensuring they are easy to turn over quickly for attractive paydays.
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