Why would a Realtor recommend the FHA 203k or HomeStyle loan programs?
Several reasons come to mind
1) why sell a home that needs a roof or new floor coverings when you can sell it pristine?
When you're selling a home and the roof is marginal at best. Why not have your clients get a brand-new roof after it closes escrow, but include in the loan amount? It doesn't make sense to put yourself at risk. In the event a roof leak occurs, the following winter, it could save you from being involved in a lawsuit. We all know it isn't your fault. The roof leaked, however, you may still have to go to court to defend yourself
2) Sell "hard to sell" properties and gain equity for your client from day one
There are lots of properties out there that may sit on the market for one reason or another for excessive length of time. We had one, not too long ago were we were asked to do a feasibility analysis. The purpose of this feasibility analysis was to help determine the cost to make the repairs necessary to bring this home HUD's minimum property standards. The home had been sitting on the market for 18 months without a single offer. No one could figure out how much the repairs were going to cost due to the excessive structural damage, and multiple failed retaining walls.
We did a feasibility, provided some guidance, provided a report, and the home sold three days later. A feasibility actually empowers the buyer.
3) Sell the sizzle instead of the short sales like everyone else
Apparently there's a lot of you that just enjoy the competition of short sales, not. I gave a talk and could toddy, California, the Association of realtors and just before I got to speak on the FHA 203K program, a realtor requested anybody having a listing in a particular condominium complex, possibly a pocket listing, he had a client. Then he let everybody know that he was aware of that one unit in the complex that was so trashed that he just couldn't possibly show that to his client.
Then I got up to speak and it couldn't of been better, I suggested that he gets a few pictures of that model from previous sales in that condominium complex and create a portfolio of photos. Show those pictures to your client, and asked the magic question "could you see yourself in this home?" Of course say yes, that's when you apply. Have I got a deal for you. We can get this model in the exact condominium complex that you want and you have full latitude to make all repairs to include all new floor coverings, drywall, brand-new kitchen cabinets, brand-new bathroom vanities, new tile shower surround, and anything else you might want. Did I tell you we can get this for a rock-bottom price?
4) Sell mixed use buidlings with only 3.5% down payment with the FHA 203k
For those of you that sell commercial properties pay particular attention to mixed-use buildings. If you are into commercial property sales typically you're looking for a borrower with 40% down as you can probably get him a 60% loan-to-value loan. If this is a mixed-use building that fits the FHA requirements after it is fixed up, how about 3 1/2% down. That is a major in case you don't pick up on. Example: you might have a large building with stores on the ground floor, and three or four floors above that are totally trashed. Maybe this has 20 studio apartments and is in need of renovation. If you convert this to flats on the second, third and fourth floor, possibly the fifth floor, it could be a 203K property.
The income from the stores is ignored, the repairs cannot be made to the interior tenet improvements of the commercial space. However, you could do the ceiling because it separates the commercial space from the residential space. It depicts the entire outside of the building, including the commercial. Typically, tenant improvements are made by the tenant on the commercial portion of the building. If your borrower needs the commercial building. It's even more powerful.
Now you actually have three or four flats four-bedroom units, let's say at three floors above the stores, so we like convert that into two four-bedroom unit flats and then a three-bedroom unit and a studio or two two-bedroom units. The possibilities are endless. Some years ago I actually had a real property that fit this scenario. My client had inherited a building in San Francisco that had stored downstairs that he actually operated, he lived in Colma, sometimes a long way away due to the commute, and as I recall it was three floors of residential space above the store. The residential space had not been occupied in 50 years and was totally trashed. This was actually a fire trap making it unsafe for the neighbors as well as the store operator. Nobody knew it of course.
We actually took the first two floors above the store space turn it into two four-bedroom units which section 8 took for $2600 a month, the upper-level was turned into a three-bedroom unit which the section 8 program rented for $2200 a month, and in the front corner of the upper floor, the borrower install a studio apartment for himself. He was able to get out of the apartment that he was renting in Colma, and with the new income from the additional units was able to retire. In that up leasing the store to his cousin and bring in an additional amount for the store and another amount for the space where the store operated.
5) Loan amounts larger than "Jumbo Loans" by using the FHA 203k
Some of you are into jumbo loans. As you now jumbo loans are loans that exceed $417,000. They usually carry a premium because they are slightly more risky than conforming loans. By utilizing the FHA 203K the penning what County are in the maximum loan amount might be $729,750. It could be twice that in Hawaii and other high rent district. Four units qualify potentially for $1.4 million in total purchase price and renovation costs and in Hawaii twice that amount. So if you're in the jumbo loans and you don't know about the 203K, you're not as much into jumbo loans as you thought you were.
6) Sell properties that no one else can sell
Find your niche. Sell properties that no one else can sell my utilizing the features of the FHA 203K program. You can specialize in this program and not have to compete head-to-head with every Tom, Dick and Harry that wants to do a short sale.