So….yesterday I posted my very first blog ever…I can check that off my bucket list. I was surprised by the warm welcome I received from the community…definitely makes me feel good….Thank you every one.
Today I want to talk a little bit about what I do in the Baltimore market in regard to properties that need work. I do quite a bit of renovation financing for both buyers and refinance clients. Over the years it has become a bit of a niche product for me; I even have a web site devoted to nothing but renovation financing:
It is interesting that this site brings in lots of inquiries from outside my market area as well as potential clients within my area. Here at Southern Trust we lend in DE, PA, DC, VA, NC, SC, TN, GA, FL and of course MD, where my office is located. It is a shame that many calls that I get are from people that have tried to go down this road and failed, for one reason or another. The most common reason I see for failure is bad advice, whether it is from the lender they are working with, their realtor, or a friend or family member. These programs are specialized and have very strict guidelines when it comes to what work can be done and how the contractor gets paid. The lender must be well versed enough to be able to say “NO, that is not right!” You can’t use this money for an in-ground pool or a detached garage if they are doing a 203k loan. Anyway, that is not really what I wanted to talk about.
I used to see a lot of renovation loans for properties that needed updating and/or the replacement of items taken from the house when it was foreclosed. I still see that fairly frequently but am seeing more and higher value homes with mold issues. There is no loan product available that will let you finance a home that has mold other than a renovation loan. There is the FHA 203k and the Fannie Mae Homestyle; both of these loans allow for the home to be renovated AND to use the completed value rather than the as is value, when valuing the property.
Mold can be a very dangerous thing, especially in the home where we spend so much time. With so many homes out there that have been vacant for long periods of time without the heat or air conditioning running, mold can grow and once it is in the home and the systems are turned on, the entire system needs to be cleaned and the entire home needs to be tested and possibly treated.
This past August I was introduced to a client by one of the realtors I work with. Together, they had found a home that was listed as a short sale and it had been vacant for over 2 years. The systems were off and had not been run in almost as long. There was mold in the basement and for that reason it sat on the market. The price was reduced every few month. I think the original list price was $650,000. After several months and some brilliant negotiating by their realtor, the bank was willing to accept an offer of $550,000. The mold remediation was only $7800. That may seem like a lot but remember, that not only includes the removal of the few sheets of effected drywall, it also included cleaning the entire heating and cooling system. Every time the house was shown the systems needed to be turned on, possibly spreading the mold throughout the house.
Now, the issue with both renovation loans (FHA 203K and Fannie Mae Homestyle), for a property with a sale price this high, is that the loan limit with minimum down payments of 3.5% and 5% respectively. Once we add in the cost of the remediation and the contingency reserve and the other fees that go into the cost of the repairs, the clients needed to bring $43,000 plus closing costs to buy this house. But remember that the house was originally listed for $650,000 and the market has only gotten better.
The house appraised for $720,000! So the day they bought it and after the remediation, they had over $150,000 in equity. I wish I could take credit for this great deal, I wish there were many more out there just like it, maybe one for me.
Thank you. for the public to see it I would have to go to the fee based subcription, correct? I am not sure that I am ready to make the commitment to blog reguraly enough to make the investment...I say that and then I am not even sure how much it is...