Here’s the deal with investing in U.S. Department of Housing and Urban Development (HUD) properties…
They present a great opportunity for investors to acquire incredibly well-priced 1-to-4 unit residential properties as a result of a foreclosure on an FHA-insured mortgage.
BUT, you basically need Jedi Mind Secrets to get your hands on them and make money.
Different system, uses HUD to sell…
That is Yoda Speak for: HUD uses a different system than private owners and banks to sell their homes.
See, I happen to be a Jedi Master in analyzing, bidding, and buying HUD properties and can help you with the system.
That’s right young Skywalker, get ready to strap on a Yoda, hole up in a swamp, and swing a large electronic sword around with your eyes closed because I am going to teach you how to use the HUD investment force…
In case you’ve been living in a nuclear fallout bunker your whole life and missed the reference. (Not going to lie, I am enjoying these movie and television references!)
HUD Jedi Mind Secrets 101
We have three concepts to cover before I can permit you to turn on that lightsaber
- There is a virtual store to analyze HUD properties.
- There are windows for investors to bid on HUD properties.
- Buying HUD properties is an effective way to improve your business.
The HUD Store
HUD helps people by administering programs that develop and support affordable housing. Specifically, HUD promotes homeownership by making loans available for lower income families through its FHA mortgage insurance program and its HUD Homes program.
However, if a homeowner stops paying their FHA mortgage, HUD becomes the owner of this toxic asset and offers it for sale in an attempt to recover the loss on the foreclosure claim.
And, here is the cool part, they put all of these properties on a convenient site for you to analyze called the HUDHOMESTORE.COM
HUD lists every home they have for sale on this website and anyone can view it.
To conduct a search for properties available in your area of interest, simply enter the state you are looking in, and then zip code, city, right down to a specific address.
Anyone who has the required cash or necessary financing can buy a HUD Home. The properties are initially offered to owner-occupant purchasers (people buying the home as their primary residence) then unsold properties are available to all buyers, including investors.
HUD will list some properties differently depending on the repairs needed and potential buying qualifications. For instance:
- Some uninsured properties are listed on HUDHOMESTORE for seven days, but only non-profits and government agencies can bid on them. During this time the home may be listed on MLS.
- The Good Neighbor Next Door Program (GNND) designates houses to fire fighters, police officers, teachers, and emergency medical technicians. These homes are also often listed on MLS
Basically, if you see a property on the HUDHOMESTORE, but it’s not on MLS – check to see who the eligible bidders on the property are.
HUD conducts an inspection of each property before listing it.
So very helpful!
Look under the addendum section on HUDHOMESTORE.COM for a document called PCR – this will list the general condition of the plumbing, electrical, HVAC, and roof. Just know most of these “inspections” are simply a visual check and are not complete. Expect to give HUD properties some TLC!
HUD also does an appraisal on every property before listing it.
Analyzing done you are. (Yoda Speaking)
The HUD Bidding System
HUD uses asset management companies to sell and manage their homes and property preservation companies to maintain their homes. The asset management companies hire real estate agents to list and market HUD homes.
Each region of the country has different asset management and preservation companies and each company has different policies regarding the sales and marketing of HUD homes. So, if you buy a property from one asset management company, you might not encounter the same procedure when buying from another. Heads up!
When can investors bid
The system is set up to offer first dibs to owner occupants, nonprofits, and government agencies. When bidding is open for these entities, investors cannot bid.
HUD conducts an appraisal of each home to determine bid eligibility before asset management companies list them.
Properties eligible for FHA financing are listed as insured and investors must wait 15 days before placing a bid. Those not eligible for FHA are listed as uninsured and investors CAN bid during the first five days.
- Insured – Wait 15 days to bid
- Uninsured – Bid in the first five days if the property is eligible to you (AKA, you’re not a firefighter, teacher, government, or non-profit agency)
- Investors CAN bid the next day after a period deadline expires, just know that a bid might be on the table from the night before and it hasn’t been removed. (It’s the government)
The more you use the HUDHOMESTORE, the easier the system seems. HUD does list who eligible bidders are for each property and when investors can bid – it will say “All bidders.”
Submitting a bid
This is important, so stop playing with the on/off button on your lightsaber, young Jedi.
An investor MUST USE A REAL ESTATE AGENT registered with HUD to submit a bid on a HUD home. If you have a Realtor friend, ask them if their Broker has an NAID number (Name Address Identification Number issued by HUD).
If you don’t have a friend, I am sorry, but you can find a qualified agent here. (HUD always pays a listing broker 3% commission and a selling broker can get up to 3%)
If you need help selecting an agent, check out my blog The Ultimate Guide to Creating Powerful Agent and Investor Partnerships in Real Estate.
Maybe you’re a Realtor. If so, you can register for an NAID number too, it takes about six weeks.
Assuming you or your Realtor friend is qualified, they can submit your bid online. There are no physical documents, they just need your social security number, tax ID or EIN number.
HUD will only respond to an agent, via email, if your bid is accepted – so your agent will have to keep checking on a bid status. (Which is why it’s handy to have a good relationship)
If your bid wasn’t accepted, but no other bids were accepted either, you can bid again – as many times as you want, actually.
There are times HUD will counter your offer and this is valuable information because HUD is basically telling you the amount required to pay off their loss. It’s their bottom line.
A word on bid amounts
You can bid any amount you want on a HUD home, but know there are general rules on bids that HUD will accept and these vary based on the asset management company involved.
My general guide is to bid about 10-15% below the net asking price. The net amount is basically what HUD will receive after commissions and closing are paid.
HUD takes these costs into consideration when figuring out their acceptable net amount – so should you.
Here is an example:
If HUD is paying six percent to agents, the net amount HUD will accept should drop to four to six percent less than the list price.
If the buyer wants closing costs, the net amount should drop further.
If the property is on the market for more than 60 days, HUD may accept even lower bids. I have seen bids accepted at 20% less the asking price based on all of these factors.
What I am saying is…
Feel free to low ball a bid. HUD allows you hold your offer in back-up position. This means if an accepted offer cancels, HUD will automatically accept the next qualified bid which could be yours!
Buying HUD Deals
Congratulations young Jedi, your bid has been accepted!
Go on, get your medal.
HUD will notify your agent by email and provide instructions on how to submit all necessarily paper work to complete your purchase.
You have 48 hours to get all original documents to HUD. The time is extended for weekends and holidays. Here are the documents and stuff you will need:
- HUD sales contract, addendum and disclosures.
- Prequalification letter, unless you’re paying in cash.
- HUD requires certified funds for your earnest money.
Buyers select title companies
HUD allows buyers to select a title company for the entire transaction and will oversee having them registered with HUD, so if you have a favorite, go for it. But, it depends on the asset management company to determine who will hold the earnest money, and sometimes it’s HUD, so read your instructions carefully.
Completing your inspection
It’s a bit different than most REO sellers because HUD utilities are turned off when HUD lists a property. You have to request to have them turned back on.
You have 15 days from when HUD signs to contract your inspection and they allow you a three-day window to turn on utilities.
So, I recommend making your three-day inspection window later in that 15-day period because you need the time to get in your utility request to the property preservation company.
Heads up here…
HUD doesn’t pay for utilities, turn on fees, or de-winterization.
You’ll need to pay for this through the property preservation company. If you find some series issues after the utilities are turned on (or maybe they can’t even be turned on) you can cancel your contract and walk away from your earnest money, or fix em. Flip em. Keep em.
HUD properties are sold as is.
The timing of a closing will depend on which asset management company is overseeing your property. Some allow buyers 30 days to close and financed buyers 45 days. Others allow 45 days for cash and financed buyers.
If you need an extension for your lender, you will get charged a few hundred dollars. I suggest checking out my Investor Insights Elite Program to avoid such headaches and have private money fund your deal. For the next few days, I am offering a free, seven-day trial!
Few things to know for closing:
- HUD doesn’t pay for buyer’s title insurance. Be sure to take this into consideration when you’re making your bid.
- HUD will grant two extensions at your closing, any more will require proof that closing is coming.
- HUD will not make any repairs prior to closing and the buyer is not allowed to alter the home before closing. (It’s a felony)
Don’t be a felon…
Honestly folks, this is just the tip of the iceberg. Here’s the Cliff notes:
First off, Yoda dies and becomes a rather unpredictable ghost – I am still alive, well, and available for training seminars. 🙂
Skywalker ends up becoming a recluse and living on some interstellar island because of his daddy issues – You're kicking butt and taking numbers in this real estate investment business.
Bottom line, don’t stop here. Discover my free guide to generating a steady stream of high-profit real estate leads on demand.
Buying HUD properties are just one of my over 65 (yes, 65!) proven ways to find profitable real estate deals.
If you want Jedi Secrets about the rest, I highly recommend Getting the Deals. I’ll show you how to set up (and automate) your lead flow so that you always have at least 5 viable deals in your pipeline. Don’t wait for your force to awaken…
Have fun. Create value. NOW.