I think one of the intimidating factors about real estate investing is all the moving parts involved in making it happen. Dividend investing is by no means been easy, but it’s a much more stream lined process compared to real estate. With stock investing you do most of your research sitting in your pajamas with real estate you’re dealing with multiple people as well as their schedules and I’m sure it is no surprise that people have varying degrees of time management skills. I started this experience with the belief that I would be a “project manager” and that it was my job to follow-up with all parties involved and keep everyone on task best I could. This little mental trick seemed to work because I found that I was a lot less frustrated when I didn’t get a return phone call or I had to make multiple calls to get an answer to a simple question.
With this being a cash purchase things were much less complicated than they normally would have been. When you are financing a purchase for a home several other people become involved due to the mortgage holder wanting to make sure that the asset that is acting as collateral for the loan they are making is indeed worthy of such a loan. Even with a cash offer there are still people who are involved and accepting that it takes interacting with those people to make a deal happen is part of real estate investing.
Update: Dealing with contractors is a whole other animal and is deserving of a separate post. Let me just say I have not been impressed with my electrical contractor.
Update II: I’ve since dealt with a total of five contractors for various work on the project and all have been pleasant except for the electrical contractor. I’ve found that your best bet is to get a personal recommendation from someone for whichever type of contractor you are looking for.
Working with HUD to close on the house was actually a very easy process and from the day I made the offer to the closing date was only three weeks! The cash offer is what made the difference here so I can’t say how frustrating or enjoyable the process would be if one were utilizing traditional financing. The RE agent said I would here from HUD within twenty-four hours of making an offer. Sure enough my offer was accepted the next day. I should also share with you that I made my bid as an owner-occupant, meaning I would have to reside in the house for a year before I could rent or sell it. I was fine with this as part of my strategy was to save money on rent/mortgage while I did a substantial amount of the rehab work myself. I was also told by my realtor that HUD favors owner-occupants over investors and I’m sure this helped me seal the deal with little inconvenience along the way.
HUD has an easy to navigate website that offers the ability to search for homes with a variety of filters. It is actually through their website that I found my place. I also use www.realtor.com as well as www.zillow.com when searching for properties. All three have helped me identify multiple properties that fit my investment criteria.
It may be the same with purchasing any foreclosure, but I know with HUD when you bid on one of these properties you do so accepting the property as is. They provide with you an “inspection” but this is nothing more than a summary of property conditions found by whichever property management group performed the “inspection” when HUD took possession of the property. It’s not the kind of document you would receive when doing traditional financing for the purchase of a home. It’s basically an outline of current property conditions.
You do have a few days to do an inspection of the property yourself or to have someone do it for you. I believe it is ten days and during that time you can have the utilities turned on so that you can do the inspection. Two potential problems presented themselves at this point. One, the problem noted in HUD’s inspection documents was a plumbing issue with the words “leaks, does not hold pressure”. That was it, no other description to go along with such a frightening revelation, frightening because plumbing issues can be costly. To make matters worse water is not one of the utilities they allow you to turn on because of the properties being winterized so I basically had to either accept the risk or walk away from the deal. I remember feeling completely demoralized when the realtor was going over this with me at lunch the day I was to sign the paper work. I’m not going to lie, I was scared. I told the realtor I would need some time to decide if I wanted to go forward with the purchase and she completely understood. I spent the remainder of that afternoon making phone calls and trying to get an understanding of what the potential problems could be along with and estimate of costs for repairs in a worse case scenario. With more than a little bit of worry I decided to go forward with the purchase and the plumbing issues turned out to be nothing more than a few leaking fixtures/fitting and a couple of clogged drains. Truthfully I think I had a bit of luck on my side, things could have been much worse.
The other problem was that although HUD allows electric to be turned on during the ten days you have to perform an inspection, the power company would not turn power on to the property without an inspection because the house had been empty for so long. Without power I couldn’t assess whether the heating/cooling worked and would have to move forward assuming another worse case scenario. Again, luck was on my side and most of the upgrades I did to the electrical system were voluntary and the heating/cooling units worked fine.
Overall buying from HUD was a pleasant experience and I would certainly do it again. Having bid once as an owner/occupant prevents me from doing so again for two years, but nothing prevents me from bidding as an investor. I will certainly look at what HUD has in its listings when I’m ready to start another rehab.
Anyone else have experience with HUD or purchasing foreclosures in general? Leave your experiences, good or bad, in the comment section. I would love to hear what experiences others have had with these investments.