In flipping Michigan homes I talked about which offer would win based on types of mortgage and method of payment. But I forgot to mention one key factor that plays into the equation.
Banks will not, I repeat will not give a loan on a home that needs a lot of work. What I mean by needing a lot of work is:
- no furnace
- no hot water heater
- missing a wall of drywall
- leaking plumbing (broken water pipes, not dripping faucets)
- Missing kitchen
- Missing bathroom like bathtub or toilets
- electrical fixtures
A bank or lender wants good collateral. If you went into foreclosure the bank would need to sell the house. They don't want to go into another deal that the house is hard to sell. They want a finished home. They will not loan money on a house that has missing items listed above.
How will they know? After all you are just trying to flip a Michigan homes. You are going to make it beautiful. They should trust you. You have great credit. You have a track record. I hate to burst your bubble.....The lender/bank doesn't care. It wants good collateral. A decent home.
How will they know it is missing a furnace, or has a missing drywall or no kitchen? The appraiser will tell them. Years ago some appraisers would turn a blind eye. But no longer. It's appraisal fraud and in these years no appraiser will turn a blind eye. The appraiser will note the "issues" and then the underwriter will decline the loan.
They don't give loans to Michigan home flippers on homes that need substantial repairs. So that one more reason why cash deals will be accepted over mortgage deals. You don't need an appraisal on a cash deal.
Sometimes the bank or the listing agent will know that some minor repairs are needed. They may think the bank will turn down the property. They may accept a much lower cash offer than take a chance on taking a mortgage offer. I had one deal this year.... we were bidding on a Livonia foreclosure. I think the list price on the Livonia foreclosure was $65,000. The Livonia home was on the borderline of needing a roof. We offered $81,000 because even with repair the house was worth about $125,000. Well the bank sold the Livonia foreclosure for $55,000. I myself would never believe the bank would take $26,000 less but they did.
So that is just one more explanation of why cash is King when flipping Michigan homes
Flipping Michigan homes - Michigan real estate investing part 1
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