Can Investors Buy A HUD?

the_acrobat profile photo

Hello to all,

I've run into a couple of decent looking HUD listed properties in my newbie travels and in both cases I've been warned away by associates that it's not possible to buy HUDs if you are not going to be the owner/occupant. And yet there are fables out there of flippers having bought HUDS and made decent coin on the trransaction.

Can anyone give an outline on the HUD situaton with regard to investors? Are there any strategies to get around limitations and restrictions against investors? Im not inviting illegal schemes, just looking for a smart strategy.

Thanks folks!

-presley

Comments(13)

  • jksal6th October, 2003

    HUD's can be a good deal for investors. The way the program works is that when first listed, they can only be purchased by owner occupants. This timeframe is 7 days i believe. After that, anyone can purchase them. Remember most HUD homes are priced close to FMV at first. [ Edited by rajwarrior on Date 10/08/2003 ]

  • BAMZ6th October, 2003

    Hi the_acrobat,

    There are a core group of investors around the states that turn a nice dollar on HUD homes. As stated in the reply above, any investor can bid on a HUD home. In my area, they are generally priced at FMV, so there generally are not "Great Deals" on these in my area, but I am sure that there may be around the U.S. The bids for HUD homes are first open to owner occupied bidders, and when that expires (5-7 days) the bidding is then open to both owner occupied and investors. In this 2nd phase, if a homeonwer bids say $100,000 and your bid is higher at $110,000, the owner occupied bid will still be accepted over yours. I didnt know this until I lost a bid on one last year. HUD is funny that way. However, if there are no other owner occupieds bidding for that property during that time period, you just bought a property.

    I know of some investors that will list their bid as owner occupied, and then they fluff it an sell it. They claim that who is going to check to see if they are living in them or not. They can buy a lot of HUD homes this way, but it is fraud. When they get caught, I'm certain that it wont be worth it.

    If you want to make HUD homes your forte, keep your eyes open and you may find many that will do you well.

    Best of Success,

    BAMZ

  • stameyr7th October, 2003

    The owner occupied wait period is correct. I have bought two HUD investment properties with a realtor. Both properties were approxmently 20% below FMV. They both needed some TLC. Turned out they are good rentals for me.

    Does anyone know if you can bid on HUD properties directly without using a realtor?

  • rajwarrior8th October, 2003

    You have to go thru a real estate agent to purchase HUD properties as they are the only ones allowed to make bids. Requirements for bidding are generally a minimum escrow deposit ($500-1000, sometimes more) in certified funds, and a pre-approval of loan letter or proof of funds letter (if cash).

    As far as bidding as an owner occupant. Not only is it loan fraud, it would be a federal crime since you are dealing with a federal office. The penalties are severe.

    Roger

  • jamespb5th November, 2003

    Here in Washington:

    New HUD properties are listed on Fridays.

    There are two sorts of buyers - investors and owner-occupant.

    For the first ten days, owner-occupant bids have priority. Doesn't matter what investors want to bid, they're out of the picture.

    On the fifth day after listing (Wednesdays), all the owner-occupant bids are reviewed. If they don't accept a bid, then they'll review the bids daily for the next five days.

    On the 11th day (Monday), they'll review investor bids as well as owner-occupant bids.

    Plenty of properties lurk around after the 10th day. On the current list (from 10/31) for the Pacific Northwest, there are 279 properties, 84 of which are new listings (listed on the 31st).

    Why you don't want to claim to be an owner-occupant if you're not: $250,000 fine and/or two years in prison. And yes, HUD does check. It's not like it's rocket science to figure out if the person who owns the house still lives there. (OK, you can structure your life around evading these sorts of queries, but is it really worth it to be able to bid a few days early?)

    Can you buy a HUD home without an agent? Yes, but it's probably not going to apply to many people here. There's something called the Officer/Teacher Next Door Program. It's a _great_ deal (50% off the price of the house), but not available on many houses. You have to teach K12 and have state certification, or be an officer with arrest power (not sure on the precise details here; it's meant for police, but I'd investigate it for anyone in public safety). If you're doing the program you can either go through an agent or submit a bid yourself. You have to live in the property, you can't own any other real property, and there are some other restrictions.
    [addsig]

  • jamespb5th November, 2003

    BTW, for the Officer/Teacher Next Door program "not available on many houses" is an understatement. From the web site it looks like there aren't any right now in Washington, Oregon, or Idaho, but at a meeting a few days ago they said there were some in Bremerton (small city a short ferry ride away from Seattle, big Navy base).
    [addsig]

  • Bruce5th November, 2003

    Hey,

    It pays to look at the HUD list but the deals, for investors, are few and far between, for all the reasons that have been mentioned.

    I have purchased two HUD houses. Both of the them were in horrible condition and therefore OO were unable to purchase.

    Also keep in mind that HUD looks at the Net amount they get, so your agent can discount their commission to help you get the property.

    Also, on one of the houses HUD offered early closing bonus and some bonus to the agent.

  • demosthenes5th November, 2003

    You can purchase the hud as an owner occupant for investor perposes. You will just need to sit on it for a year legally an anoying part of the deal but it will help give you an edge over the competition

    You don't have to live their you just can't rent it or sell it for a year. Its like any other home you purchase you don have to live there either.

    As far as teacher next door and officor next door programs go they are only for urban renewal areas I am not sure you would want to purchase a property in heavily gang saturated areas.

  • jackman5th November, 2003

    HUD homes in PA are owner occupied bids only for the first 10 days. after that anyone can bid. deposits are $500 for up to $50k and $1000 for over (if i remember correctly).

    also look for the original listing date - the asking price drops significantly if it's been listed for 6 months and there's a lot of that around here. you could normally find about 70% of FMV in stuff that's been listed at least a few months.

  • jamespb5th November, 2003

    When you make an offer on a HUD home here in Washington as an owner-occupant, you sign the following:

    Warning: Falsifying information on this or any other form of the Department of Housing and Urban Development is a felony. it is punishable by a fine not to exceed $250,000 and/or a prison sentence of not more than two years.

    ...

    I/We certify that I/we have not purchased a HUD-owned property within the past 24 months as an owner-occupant. This offer is being submitted with the representation that I/we will occupy the property as my/our primary residence for at least 12 months.

    The agent signs it as well.

    form HUD-9548-D (1/98)
    [addsig]

  • DaveT6th November, 2003

    Quote:In this 2nd phase, if a homeonwer bids say $100,000 and your bid is higher at $110,000, the owner occupied bid will still be accepted over yours. I didnt know this until I lost a bid on one last year. HUD is funny that way. BAMZ,

    You may want to explore what happened to you a little more closely. During the "all purchasers" bidding period, HUD will award to bid that results in the highest NET to HUD. HUD does not give owner occupants priority over investors unless the net to HUD is the same.

    In the example you cited, if the $100K bid would net HUD $97K while the $110K bid would only net $96K, then the $100K bid will win. It is not the highest bid that wins, it is the highest net proceeds to HUD that wins (provided the net amount meets or exceeds the HUD minimum for the property).

  • jamespb9th December, 2003

    There were quite a few comments on this issue in another forum thread - http://www.thecreativeinvestor.com/modules.php?op=modload&name=Forum&file=viewtopic&topic=13419&forum=18
    [addsig]

  • DanLioz9th December, 2003

    here is the list of what is and is not from the horse's mouth:
    http://www.hud.gov/offices/hsg/sfh/reo/reobuyfaq.cfm

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