Understanding the "fixer" market

The Southern California real estate market in which I am most active is in the Los Angeles and North Orange Counties. Currently, I am working with a number of buyers who will utilize FHA financing. This is great for first time buyers (if you have not owned in the last two years, you qualify as first time) with little capital for down payment (only 3.5% down required). What FHA buyers (and some using conventional financing - 10-20% down) need to understand is that the HOME you wish to buy must also qualify for financing.  FHA has strict guidelines about condition and the property must be habitable. You may have little after-acquisition capital for improvements. Even if you are "handy", all the home's components and systems must be working upon accepting title to a property. Off-street parking, unbroken windows, working heat and other standard health and safety benefits must be in place in order for the property to qualify. Some foreclosure properties have unfinished improvements - those homes do not qualify for FHA financing unless the work is done in a workmanlike manner (and permit status is not always an issue). This is not meant to burst your bubble. Keep reading, I deliver good news!

I have a few buyers who get "antsy" when one after another property we preview is a waste of time because it doesn't qualify for financing. Many agents do not publish this info in the MLS - that's a drag, but it's the nature of the market to find objectionable properties only when we visit them in person. What we have is a number of properties in our inventory that are most suitable for cash investors - this is the perfect market for them - but this can eventually help FHA buyers. While many investors buy properties at a discount to repair and rent, a growing number buy properties to repair and SELL.  This is good news for everyone - the repaired (rehabbed) property then qualifies for financing and the investor has a built-in, approved buyer!

I am in the fortunate position of having both FHA buyers AND cash investors. This means I can identify properties for the investors to buy, repair and sell, based on my buyers' needs. The benefit to the investor is that there is no "wait and see"  period when the repairs are completed and ready for market. In fact, the investor may accept a project yielding a smaller profit margin without factoring in the lengthy, expensive marketing time, knowing there is a willing and able buyer "on deck". The benefit to the buyer is that there is no competition for the home (when the buyer acts within the recommended timeline), the property is in move-in condition and deferred maintenance issues are resolved - an FHA worthy property!

While this seems like a no-brainer, there are considerations: the investor needs to be able to purchase the property well below market values, estimation of repair costs have little room for error and neighborhood value changes must constantly be monitored through completion of the project. The buyer must be well qualified initially and the portfolio must remain unchanged (or improved, i.e. increase in wages) during the project. A buyer must also be committed to waiting for completion of the repairs as their primary interaction doesn't take place until the property is ready for market, when the offer is submitted.

Yes, this is a protracted affair (about 2-4 months, depending on the condition of the property). But so is a short sale, where you are purchasing a property with potential deferred maintenance, competing with other buyers and waiting for the bank to accept a price lower than what they are owed on the property. Unlike a short sale, investors typically have no committee to approve your offer. With my program, most likely, the investor knew you wanted it when he purchased it through me. And while it is possible that the investor will receive other offers, in most cases you will have no competition if the transaction was set-up properly.

This is just "out of the box" thinking, but it's working for me and my buyers. The bottom line is, if I know what you want, I can find it. You have to be up-front about your needs, you must be patient, you must be approved for your loan and you must sign a buyer/broker agreement with me. MY SERVICE IS FREE TO BUYERS, as it is paid by the seller. There are no hidden details and no hard work required of you. You have to take the time to speak with me, get approved and enrolled in the program. I don't know how long this will be a viable situation - it is highly dependent on market conditions - interest rates and price increases. Acting soon would be a good thing...

I am always looking for investors to be a part of this program! Let me know your parameters!

For more details about my "Fixer to FHA" program, please contact me at 562-572-9870.

California's new tax credit starts May 1, depleted May 10?

This just in from the California Association of Realtors:

The $100 million allocated for California's first-time home buyer tax credits may be depleted in about 10 to 20 days or sooner, according to CAR's Economics Team. California's Franchise Tax Board (FTB) plans to begin accepting applications on May 1, 2010 for tax credits up to $10,000 for first-time buyers and for homes that have never been previously occupied ($100 million allocated for each category - on a first-come, first-served basis).

This is CAR's forecast based on projection of May sales and other parameters. It does not take into account the possibility that buyers scheduled to close escrow in April may delay closing until May to take advantage of the tax credit. If a large shift occurs, the California tax credit allocations may be depleted more quickly than indicated.

Remember, the Federal first-time (up to $8000) and move-up (up to $6500) buyer tax credits are still in affect, the qualification being that one must be under contract by April 30th and close escrow by June 30th. With a "perfect storm", it is possible for one to qualify for the Federal and State tax credits, though it sounds as if the California credit may be difficult to acquire. Contact your accountant or appropriate professional for further details. For more details, visit http://www.ftb.ca.gov/individuals/New_Home_Credit.shtml

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