I’m Done With Selling HUD Homes….

…for now.

I have four pending transactions with HUD owned homes.  Or do I?  I just have a hard time knowing.  As a real estate agent I have to sit here and wonder how the buyers lost any control over the process whatsoever.  Buyers have the cash.  Buyers have the will.  Yet buyers cannot close on properties under contract because of the inefficiency of HUD an HUD’s contractors.

Want an example?  After 60 days (or so) of no contact from Luna & Luna, HUD’s contractor for Missouri closings, I get a blank, unsigned form letter saying everything from “everything is great” to “you’re screwed.”  (So I’m paraphrasing, a little.)  Seriously, there are 5 check boxes with an assortment of possibilities that I’m supposed to worry about, yet they are all blank.

Dear Scott Luna of Luna & Luna, your business is run horribly at this point.   Yes, I know you are an attorney and yes I know you will probably read this one day and threaten to sue for something.  But everything I’m stating is true.  I have over 80!  (yes I said eighty) un-returned phone calls from your company.  I have sent dozens and dozens of emails to your company, most of which have gone un-returned.  Representatives of Matt Martin Real Estate, Pemco and HomeTelos all agree there is a problem.  I have had my properties supposedly put on “hot lists” but I sure as heck can’t tell nor am I able to verify anyone knows what’s going on nor can I give my client any idea of when we may, or may not, be able to close.

I simply have to tell my clients and anyone else that will listen that unless they want to join this endless morass of uncertainty that the best thing they can do is pass on HUD owned homes.  I certainly don’t have the time.

Luna & Luna and HUD are a Train Wreck

Ok.  So I’m gonna rant and you need to know that before you read further…

I had a HUD closing scheduled for July 29, another for August 1, and still another for August 8.  It’s now August 2nd and I have no idea what the hell is going on.  Because no one from Luna & Luna (HUD’s prescribed closing fiasco that I have to work with) won’t return calls or emails.

Of course this is HUD’s own fault for the way they dealt with their contractor situation to begin with.  AMRE, a HUD contractor who oversees the properties, made the mistake of emailing me and asked how the transaction was going.  Here was my response:

I have to say I’m greatly disappointed with Luna & Luna.  I have/had a closing on the 29th of July and the 1st of August and have never heard anything from them…including whether or not they even acknowledge the extensions we sent them!!!!!    

The property you oversee is scheduled to close on August 8 and I have no idea whatsoever whether it will close or not.  Communication is virtually non-existent and it’s only one sided in terms of they will email me a statement but not answer any follow up questions.  It’s absolutely ridiculous and it’s no way to clear inventory.

 I have three (yours being one) cash closings that we may or may never close on because of the incompetence of Luna and Luna and the fact that HUD couldn’t negotiate their contracts in time to avoid slamming Luna & Luna with hundreds of files at once.  It’s train wreck of HUD’s own making. 

 Sadly, once again, my customers are caught not knowing what the hell is going on and whether or not we can close on any of these properties.  HUD has/had no problem taking our earnest money, but has never communicated why there was a closing moratorium and Luna & Luna won’t communicate when we will close.  It’s really sad.

Buying Foreclosure Real Estate

Buying foreclosure real estate can be a real hassle.  Just viewing the properties can be dirty and a health risk and getting the right combo codes to the key boxes is sometimes comical.  Then there are the offers.  Some require supplemental bank documents before they’ll look at your offer and others won’t.

I sell about 30-40 foreclosure properties each and every year to clients looking to make money investing in real estate here in Kansas City.  Money is there to be made.  No doubt about it.  But make no mistake, there are tons of papers to sign and the bank addendums are only written to the favor of the seller.  If you don’t like it, tough.  You can walk away.  You can bitch and moan.  But there is not much else you can do…besides sign and close.

Right now, to make money in real estate investing in Kansas City you have to have two minds simultaneously.

1. You must buy rental property that will rent, stay rented and provide healthy cash flow.
2. You must buy property with “havestable equity.”

Cash Flow
Do you believe you can be “all in” on rental property that rents for about twice your investment?  (So to speak.)  I mean you can buy a house for $25,000 and then invest another $15,000 in repairs/updates and then rent for somewhere between $795 and $850.  And yes, vacancies are at or below 6%.

True enough these aren’t “A” neighborhoods, or even “B.”   But they are safe neighborhoods.

These homes are challenging and competitive to find.  But they exist.

All day long I can find you single family homes that you can be “all in” for about $60,000 – $65,000 and rents would still be about $795 to $850.

Harvestable Equity
My term.  Don’t google it.   🙂

Basically what I’m saying here is that your “all in” price is somewhere 15% or more south of the ARV.  In other words, you have value sitting there waiting to be harvested when you sell the house when the market improves.  Is that a year from now?  Two?  Ten?  I don’t know either.  But the harvestable equity I speak of is based on today’s comps.  I’ll show them to you when we are negotiating and you make your own judgements.

I Charge Extra
So there are no surprises you need to understand I have commission surcharges.  Every once in a while someone moans and groans that I add on a fee of $375.00 for each closing to whatever commission I earn.  Really?  I’m using my years of expertise to identify properties that will make you ~$300/mo cash flow and ~$25,000 to $50,000 in extra equity and you want to argue with me for making money?

It’s the only way I can make a decent living with houses that are selling for less than $90,000.   Just so we know, that’s the fee if we work together.

HUD Owned Homes Viewings

Yesterday I went out and looked at 13 HUD owned homes that are on “daily bid” status.  I was hoping to turn up one, maybe two possible investment property for Kansas City area real estate investors.  And I did come up with two real good possibles.

Side Note:  It’s amazing how trashed some of these houses can get in just a few short years.  What’s up with that?  🙂

HUD owned homes are purchased a little differently than your regular real estate transaction.  To see more about buying a HUD owned home you can look at a page I wrote on another website title Buying HUD Owned Homes.  Now if you are a primary home buyer you can also take advantage of FHA 203(k) rehab financing.  Sadly, seasoned income property owners know you cannot use the FHA financing for investment properties.

Anyway, one of the homes I identified is located in Kansas City, Missouri.  The other home is located in Shawnee, Kansas.  (Shawnee is a suburb of Kansas City on the Kansas side to the southwest of the city.)

Starting Monday I’m rolling out my new mailing list to people who want to be in the know.  The mailing list will come out 1-4 times a week with foreclosure real estate or other value-oriented REO property where I believe there is money to be made.  To join the list, just click below.

BBQ Captial:  Kansas City real estate investing well done.
Chris Lengquist
Keller Williams Realty
Diamond Partners, Inc
Olathe, Kansas
913.322.7500 o
913.322.7515 d

HUD Homes

HUD homes are a blessing and a curse to the real estate agent.  Recently here in Kansas City I’ve been looking at quite a few HUD homes on the Missouri side.  Sometimes they are quite the buy.  Others are overpriced junk.

Working mostly with real estate investors I look for properties that would be good rentals, have sweat-equity to be earned, are below market even after purchase+repairs+sweat equity and would cash flow with 20% or less down.  HUD homes are plentiful.  What I just described is a less so.

The Blessings are that HUD homes pay us real estate agents 5% commissions.  So that sounds great.  At least until you get to the Curse part.  There is unbelievable attention to detail in the mountain of paperwork that is required.  And the government loves false deadlines.  On any given transaction I’ll have to spend at least $60 in FedEx fees and worry endlessly as to whether or not I forgot one set of initials somewhere which will cost me more.  Then there is the interchangeable terminology that HUD has on their contract addendums that confuses everyone. 

If you need them to sign forms you request?  Forget about it.  You have to jump through all of their hoops but they aren’t doing crap for you and your local real estate requirements.  And they seemingly always pick someplace to deliver that earnest money that is at least 30 miles from my office. 

Now, what does all of that have to do with you?  Well, it really doesn’t.  I just like to gripe.  🙂  I’m dealing with three HUD homes right now.  I’m grateful for the business.  It’s just so much more cumbersome than a non-HUD transaction.  It is comical, really. 

Keep in mind that as a real estate investor HUD homes are only available to you after the first round.  So some of the best deals are gone before you are eligible.  Unless you commit fraud…which I really do not recommend.

Kansas City Foreclosure Property And Your Real Estate Investments

Foreclosure property in Kansas City is still a hot topic.  Though not boiling over as it was a couple years back.  Still, not a week goes by that a stranger will call and ask about entering the foreclosure market.  Or bank owned homes, whatever you want to call them.

Here are a few facts as I see them regarding Kansas City and the foreclosure boom;

• Missouri has more foreclosures than Kansas
• Kansas City, MO proper has a higher foreclosure rate than either the Missouri or Kansas suburbs
• That said, Kansas City is WAY below the foreclosure hotbeds of Ohio, Michigan, California, Nevada and Florida  (Click here to see heat map.)
• Foreclosure properties are not nearly as profitable as the public thinks
• Banks are not giving away homes

Is there money to be made buying bank foreclosures in Kansas City?
Yes.  But you’ll need cash on hand.  Both for the down payment and the necessary updates and repairs.  I’ve never seen a bank foreclosed house that didn’t need at least carpet and paint.  Most need significantly more repairs and/or rodent/flea controls.

A good model?  Buy a foreclosure and rehab and then rent.  A sure way to have a jump start on equity and to keep your overall costs low compared to a buyer going straight retail.

A better model?  Buy a pre-foreclosure.  Pre-foreclosures are homes that are steamrolling into foreclosure that have some equity in them that will allow you to “buy-out” the existing homeowner and do the necessary repairs and still make money.  This also involves short sales.  It’s a very complicated process.  Well, more time consuming than complicated.

True Story
We put in an offer 63 days ago on a short sale house over in Kansas City, Missouri.  63 days.  Consistent follow ups by the listing agent (and I’m sure he got tired of hearing from me) finally yielded a response yesterday.  The response from the loan servicing company was that if we could close with cash on Thursday (that’s THIS Thursday…two days from today) they would accept our offer. 

So let me get this straight.  We have to wait and wait and wait and wait and wait and then jump on your request on a day’s notice?  Well, yes.   And of course the buyer is going to do it because he’s going to have equity city when the sale is completed.  But what a hassle.  And not a lot of buyers are set with cash ready to go…know what I mean.

The foreclosure market can be profitable.  It can also be annoying. Scary at times, too.  (Ever walk into a vacant home only to hear rustling noises and when you walk into a back bedroom you find an open window, the smell of a freshly smoked cigarette and fresh urine in the closet?) 

So my advice is to think twice before delving into bank owned homes (aka REO – real estate owned) or HUD homes, as well.  The foreclosure market can be profitable and exciting.  But trust me, it’s not for everyone.

Still not scared?  Then give me a call and I’ll help you through the process of buying foreclosed homes.  But be forewarned.  I don’t mess with $5,000 or $10,000 houses.  Not my style.  In neighborhoods I don’t feel safe, generally.  And I don’t see the long term rewards in them.  But still feel free to give me a call to discuss.  Just dial 913.568.1579 to discuss buying Kansas City bank owned homes.