Monday, February 28, 2011

203k Seminar In Concord CA

Mike Young, 203K Team Leader

Well we had a nice meeting last night. A borrower and investor learned that he can use the FHA 203k to purchase the home is wants to live in and that he can now get easy financing on his investment properties and a second home if he likes using the FannieMae Homestyle Renovation loan product. Our Wells Fargo Home Mortgage renovation loan expert, Tim Floyd does both.

There were several contractors there whom I offered our book "Contractors and the 203k". They were asking how to become involved more with the 203k work. They learned that they can get from 35-50% up front on streamlined k loan depending on which lender they are working with. Wells Fargo Home Mortgage uses the 35%, Prospect Mortgage uses 40% and Bank of America uses 50% paid up front and they all provide the final payment and only additional draw. The streamlined k also allows several "trade contractors" but they all prefer a single contractor. They also learned that the "Full 203k loan" has no limit on the amount of the construction. We have several under construction that are in excess of $200,000 in renovation costs and many over $100,000 in renovation costs. One we are working on in SF has $250,000 in anticipated renovation with a purchase price over $600,000. Since the maximum mortgage amount in SF is $729,750 the borrower merely has to increase the down payment to get the loan back to the maximum loan amount. we can exceed that by an additional $8,000 if we have qualifying energy improvements. Just the room addition will likely have that much energy improvements.

Realtors learned about the "AS IS" letter that Tim Floyd can provide with the pre-qual letter. This is a powerful letter that an agent or Realtor is wise to accompany an offer to the seller of a property. It simply states that you are making an "all cash offer to seller" utilizing an FHA 203k loan and goes on to describe the process a little in that there will be contractors visiting the site to help identify issues that the borrower wants to get repaired at the borrower's expense, after it closes escrow.

I had to consultants in the room last night other than me. I'm recruiting and they both are on the team now. Wonderful. There is so much business out there that there is enough for everyone. We understand more than most that we are not capable of doing all the consulting needed in the area and are always looking for good consultants or people who are wanting to become a consultant. I think one of our contractors last night will become a consultant just from our conversation last night.

Friday, February 25, 2011

Anyone Looking For A FREE house? I found One Yesterday In Dixon.

Does it need work, of course but it is FREE if you move it to your site. This can be done with the FHA 203k loan program, not a Streamlined k however. This would be a Full 203k loan. This is "perfect for a 203k" and if you think there aren't more homes that you can get for FREE you are clearly mistaken. Appraising a 203k property is a challenge some times. Can you imagine this one being appraised and measured here and then moved to another site, hopefully in town but possibly anywhere in the State. House are moved for many reasons, in this case it is in the way of a subdivision. I've seen them widening highways where blocks of homes had to be moved. The easiest way is the 203k.

Do you have a residential lot in the Dixon area? If so, how would you like to sell it with this house on it?


Monday, February 21, 2011

203k Loan Can Be A Nightmare

I don't really like writing about the nightmares but most are not, and most go very smoothly. Maybe by talking about a nightmare 203k loan we can shed some light on the subject and keep someone else from falling into that trap. Let's give it a try.

1) Finding a reliable contractor - we quite often get to a project for the first time and the borrower has a contractor for the project already selected. That is okay but typically we know nothing about that contractor so we need to start the "validation process" to get that contractor approved with the lender. The borrower on one of our deals last year had her own contractor who bid $298,000 for the work while my bid was $159,000. Part of the consultant's job is to protect the borrower from being exploited by a contractor. Our second bid from a contractor we neither one had ever met was $161,000.

The HUD/FHA "Consultant Agreement" has a "hold harmless" clause that allows the consultant to do whatever the client needs help with and finding the contractor can be one of those things. Frankly I like recommending a contractor or a few to a borrower as we have already had "good experience" with many of them.

2) Know what you are signing. So many borrowers fail to read what they are signing. Our consultants will walk them through the pertinent paragraphs and make them aware of the most common reasons for issues during the course of construction. Once these things are pointed out to the borrower ahead of closing the loan, the process is always smoother.

3) In the Atlantic Northwest a friend of mine who is a consultant failed to make it clear with his clients that the "scope of work" that he and the borrower were creating MUST be followed. He called me in a panic one day and told me this horror story... when he got there the borrower and contractor met with him and said "we want $30,000 on this draw" he told them that they needed to fill in column 3 on the draw request form and sign it. So they signed the form but failed to fill in column 3 and on their own decided to have the consultant just walk through and look at everything. That was the consultant's second mistake. He then went around with them to find that not one item on his scope of work was completeted. The borrower had closed the loan and told her contractor that she had $100,000 to work with and created her own "change as we go" scope of work. This CAN'T BE DONE, you MUST STAY WITH THE SCOPE OF WORK THE LENDER CLOSED THE LOAN WITH. The same one the Appraiser appraised the property for. I thought the consultant just had a renegade borrower and told him to coral these two and let them know there are NO change orders until 90% of the original scope of work is complete and there are no apparent uses of the "contingency money" in sight, then minor changes can be made but the oriignal scope of work is all that you can pay for on the first draw. NO CHANGES.

Boy was I shocked when the same consultant contacted me a month later with another renegade client who did the same thing to him. I then figured it may be his lack of experience or lack of reading the pertinent clauses in the contracts when he did the original consultation. I then read over the clauses that were pertinent to his case and asked that he send that form to the contractor and borrower so they can be reminded of the paperwork they signed.

If you know & understand what you are signing you will be betrer informed and have less issues when you get under construction.

Sunday, February 20, 2011

203k - The Sleeper

It will never cease to amaze me how few people have even heard of the FHA 203k loan program. It also makes me wonder how they have been in business so long and NOT known about it. Then you have those who know absolutely nothing about it and tell everyone else it is a bad thing... loll Yes, there are those out there that don't want anyone to do a 203k loan as they heard from someone years ago that had an issue. I guess if those same people ever had a fender bender they would never drive a car again. Of course not. But they will tell you in a heartbeat of a problem that they heard from someone about that was a disaster. When you pin them down quite often they can't provide any specifics as they really had no direct experience with one.

This is clearly a niche product but you can have a pleasant experience if you merely use an established team of professionals. Many people have asked me why with my background in real estate why I always list my properties with a Realtor... how can they be in the business and suggest I do otherwise. My wife and I have bought and sold over 300 properties and listed them all when it came time to sell them. Then you run into someone like ________, a very astute investor who is sitting on over a hundred homes. Why? I talked to him and found that he is willing to pay a commission on his houses, so why not then list them? I called on a lender in the area where he has many homes and the lender had over 100 qualified buyers and not homes. The lender said most of those buyers were brought to him by a couple of Realtors and he was just waiting for them to find them homes to purchase. I wouldn't wait. But he did and likely is still waiting. I just don't get it. I don't want to get it. There is no reason we can't put these people together for a common good. HELLO, anyone in there? Sometimes you wonder.

Investors, come to one of our upcoming seminars and bring your fixed up properties, we'll put you in touch with some real buyers and help you get them sold. I know of one investor who does list all his properties but wants you to come to his open houses and bring your buyers. I guess we all have our own ways of marketing the homes but we like to do it in the seminar room and write contracts when possible in that room. It really is a kick to see someone join the group and walk out with a new client or house to show, or a signed contractor "subject to" their seeing it. Our host Realtor gets all the leads from the event as new clients to show homes over the next few days but if you have a listing that needs some work bring it and you may be on the other side of that same transaction. We need your participation at these events so please give it some serious thought and if you have a buyer that can't find that "perfect house" then bring them as some of our investor friends bring homes that are already fixed up that aren't currently on the MLS... Whoa, you mean some houses aren't listed? Yes, I'm afraid so, but you can sell them and make a commission on them by writing into your contract. You know that.

Mixed use properties are abundant but when I talk about them I always hear people telling me that they aren't in our area, BS, they are too. They are all around you. I've done 203k mixed use building in SF, Oakland, Vallejo, and on and on. You just don't focus on them but they are larger sales with larger commissions. If you have a four residential property on the 2nd and 3rd floors of a building over two stores, you have a gold mine. You get to count the building SF, all of it for figuring the value but ignore the commercial aspects of it for the purposes of the appraisal. Maybe you have one like the one we did in SF that had eight residential units that we turned in to 4 units plus a grocery store below on the first level. A good one of these and you can be retired with it's income.

Saturday, February 19, 2011

Who Chooses The Consultant?

Ultimately your lender must approve the consultant.  We get quite a few loan leads and send them to the lenders who use us of coures. It insures some loyalty and it completes the circle. The borrower quite often doesn't pruchase a house every day so they need a consultant to guide them through the forest safely. That is about what we do for our clients.

We meet with the client and go over the paperwork pointing out a number of things that other borrowers have had difficulty with in the past. That saves the client from having to learn under fire. We believe as do our lenders that the best client is a well informed client who knows just what to expect and we all can enjoy the process together.

I recently had one of my lenders ask me to take over the 203k draws from another consultant only to be shocked that the contractor and borrower had no idea what was expected of them during the process. I merely stopped and went over the procedure with them so from there out they were informed. There are many consultants that fall short of "consulting" and that is a shame. It makes for an uncomfortable process for all involved. It is easier in the long run to take that time and go over the forms pointing out the fact that there will be a 10% hold back on each draw, they never read what they are signing so on the first draw taking over someone else's project just read to  them the paragraph before their signaure. Or, you can print out the "instruction" page of the draw request. The instructions are actually pretty good and save so much time when the borrower and contractor are on the same page with us.

The borrowers these days are so much better prepared than back in the 90's and quite often will do their homework and find a consultant. In that case we take them to a lender if they don't have one but it all starts with getting them pre qualified for the loan amount they are looking for. In a few cases they find the house and then the consultant, and then the lender. But in the overwhelming sceme of things the lender is the first step.