A HUD Rehab...

Complete Pro

Got a call yesterday from a guy that wants me to bid a whole house rehab in KC Kansas.

Normally I like these kinds of calls, but a question mark went up in my head when he said that he was doing it through a HUD program that sets up an escrow account to pay the contractor.

According to him, it is allowed for the contractor to take a 50% of contracted draw at the start of the job and then collect the remaining 50% after an inspection at the end of the job.

I meet with the fellow in the morning and I've been trying to figure out just what HUD program he is working under. I've searched the HUD website and found info on a 203K Loan, but not everything seems to jive with the info I have so far.

I don't know if this guy is a flipper, a slum lord, an owner, an investor, or what.

Either way I have a list of questions for the person when I get there.

If anyone has any experience or advice, I am an open vessel.

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buildenterprise

Skip it-anyone that thinks they can hold 50% until the job is completed is high on crack.

rbsremodeling

203k loans are just like bank jobs you get paid in draws after inspections of course.


If he wants a 50% hold back, if you think its a 100k job charge him 200k and get 50% down 100k and collect your profit and the end

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MGSProperties

i agree 100%

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Complete Pro

It would seem that we are thinking along the same lines. I will go put an eyeball on it in the morning and report back later to let you know what info I get from it and what my impressions are about the whole situation.

"Out of the blue" phone calls about jobs that come with stipulations on how I get paid, before I have even seen the job, make me wary of just what I'm getting into.

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Complete Pro

I went by the house and gave it a general inspection. The HO is want to do a 203K streamlined loan. It allows for a maximum of $35,000 for home renovations. 50% draw at contract signing, then scheduled draws until final inspection. He would like to completely gut and remodel the kitchen, master bath, and basement, along with update everything else.

The HO is having champagne wishes and caviar dreams about what can be done on his budget. I gave the house a walk through and took pictures and measurements. Here is what I found out:

• There is an issue with lead paint,
  
• there are no utilities,
  
• the house was built in 1935, approximately 1100 sq.ft.
  
• brick exterior, block foundation walls,
  
• wet and smelly throughout the basement.
  
• Upstairs looks pretty good shape, but dated.
  
• Kitchen and baths need to be gutted.
  
• Windows need to be replaced.
  
• Floors need sanded and finished.
  
• Electrical needs updated.
  
• Mold and cat p*** smell everywhere.
  
• Basement carpet squishes when you walk across it.
  
• You guys get the picture I'm sure.

I spoke with one of the neighbors about the house, ( a good resource I have always found), and was given this info:

Owned by a woman who was an alcoholic.
Son lived in basement and had a crack habit.
Son needed drug money so he stripped any metal he could get and sold for scrap to support his habit.

• A/C missing coil and condenser.
  
• Furnace and air handler gutted.
  
• Gutters and downspouts along with fascia wraps missing.
  
• Water heater gone. Etc. etc.

I let the guy know that he wasn't going to get his dream home done for $30,000. Told him just to get it into livable condition, without bells and whistles would be close to double that or more.
I am throwing a bid to him that is very general and has each of the major areas divided up, (kitchen 18.000, bath 10,000, mechanical 10,000), etc.etc and I will let him go to the bank with this. As I have it added up now, I'm coming in well over double of his $35,000.
Do these actions sound OK with you guys. Believe me I'm not going to waste a bunch of time on it, without a paid design contract in hand.

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Mike Finley

I really don't know why anybody across the country would have anything to do with prospects like this without charging them. These are the biggest dreamers/unrealistic/just-didn't-know-needed-an-idea/ prospects you will ever deal with.

He doesn't even own this place????????? What an absolute waste of your time just to let him know he needs to look at something else. Why in the world are you guys not charging people like this a fee for your time and expertese to solve their problems? As contractors you have services that are worth paying for other than those that involve actual construction. You're basically doing a home inspection for this guy on top of a valuable service of giving him rehab costs. The information you have provided for this guy is worth a minimum of $200-$300.00

I'm not trying to put you down, only maybe bring to light something you might not be aware of or considering that this is probably another source of income you could be capturing.

I invest in realestate and am around rehabbers and investors from time to time and you wouldn't believe the stuff they say about us at their meetings in regard to their "how to" speaches in how to make money in real estate.

Complete Pro

I agree Mike

I took a look at this more out of curiosity than anything else. I was curious about what kind of money HUD was paying for house rehabs, what their expectations were etc. HUD requires the HO to live in the house for five years to obtain the loan, so that stops the flippers. Let's just call it a fact finding mission.

It is in a part of town that maybe 50 or 60 years ago was a great neighborhood. These days it is basically a neighborhood with an incredibly high crime rate and not really someplace I would want to be after dark.

Right now I've not got enough work going where I can charge for the initial consultation...yet. I am getting there though....slowly, but getting there.

Again, if HUD wants to loan this guy enough money to make it worth my time, then it is game on! Otherwise, when the next guy calls that is trying to do the same thing I can let him know that I am not interested.

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rbsremodeling

Hud will typically do a scope of work on things that has to be done. The HO probably did not give it to you. It usually just for repairs to make the house livable. They probably estimated 35k to make it livable he wants a palace instead. I have done alot of them in my early days. They always want more than they can afford. Who doesn't?

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Mike Finley

You could have done that with a couple of phone calls and your internet browser.

That's a whole nother can of worms. I've heard so many stories of rehabbers working for flippers getting their tools stolen on job sites it isn't even funny.

You could be interested if they were willing to pay you for your services.

Complete Pro

All points quite well taken Mike...In fact I did do quite a bit of internet searching before I left to see what was up. I guess I a just curious.

The $35,000 is the max HUD would loan him on a streamlined loan. A lower cost quickie loan that closes quicker from what I gather. The only scope/stipulation that HUD had attached was their lead based paint inspection findings and estimates to fix.

The place is currently owned by HUD, they just back the loan to somebody to get it off their hands and make it livable from what I gather.

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Mike Finley

Yep, if it's really bad, they will hold on to it for too long, then dump some money into it trying to band aid it, then retail it all over again...

Like rbs said, it's about making it livable not nice.

Whenever I get a call from a) investor, b) landlord, c) flipper it's $100 minimum just to show up. 99% of the time, they stammer, or studder and need to go look that up in their "how to make a fortune in real estate" book, cause they don't recall where it said anything about having to pay somebody for wasting their time.

woodchuck2

I did alot of HUD work years ago with another electrical contractor that i worked for. 75% of the time the homes were crap to work in, the other 25% was usually elderly folks who had clean homes but the home was very outdated. The only HUD job i have done so far was a handi-cap ramp for a women about 25 minutes from me. She called for an estimate for a deck at first and didnt tell me it was a ramp until i showed up, then she gives me this sob story that he hubby was in the hospital and couldnt come home until the ramp was built. I felt bad and gave her a bit of a break . A few days later i get a call from the County wanting a certificate of insurance and he tells me the job is a go, that was my notification that this was a HUD job . Anyway the lady tells me while i am putting this together that she does want a big deck put on the front of her home down the road and wants an estimate, the whole time i worked there i listen to her damn dogs bellering all day and the smell of urine. Later in the day she waddles out for her mail and comes back to BS some more and she lets it slip that she just bounced another check . Needless to say she never got her estimate .