Buying a HUD Home

Buying foreclosed property and foreclosed houses from HUD foreclosure listings can be a great way to get started searching for foreclosure deals. But, there are a few things you need to know in order to make your efforts worthwhile. HUD foreclosure listings are distributed through a relationship from the Housing and Urban Development government agency. HUD has very specific rules and regulations for buying foreclosed property.

2 Sides Of Buying Foreclosed Property

Let’s take a look at a few of the things you want to consider buying foreclosed houses and how HUD foreclosure listings affect what you do. Basically, I’m just going to break your buying foreclosed property effort into two different pieces. On one side of your effort you’ll do research and on the other side of your effort you’ll actually make offers and buy cheap foreclosed houses.

Now, to tackle your HUD foreclosure listing research and actually find foreclosed houses, you can do a couple of things. You can spend quite a bit of time searching the internet for foreclosed houses by yourself, you can subscribe to expensive HUD foreclosure listing services and you can build a relationship with a local real estate agent that understands buying foreclosed property.

Finding HUD Foreclosure Listings

There are some pros and cons to each one, so let’s talk about each briefly. On the one side is the free list option but that requires a lot of manual effort to do all of the foreclosed property research yourself. If you are new to the process of buying foreclosed houses it is going to take even more effort and its going to be confusing. On the other side, the subscription process is okay but it can be expensive. Again, if you are not experienced with buying HUD foreclosed listings, it can be a lot of wasted time and effort and ultimately you will need to contact a real estate agent to help you. So, I believe you might as well do it for free with the help of a HUD foreclosure listing specialist right off the bat.

My recommended method is to contact a local real estate agent that has experience working with foreclosed houses and HUD foreclosure listings. I am not a licensed agent, so I have to bias in saying this. I am a real estate investor and have found that the best way to start buying foreclosed property is to contact a local real estate agent and have them help you perform your initial research. This will save you time and a lot of frustration.

Making Offers On Foreclosed Houses

When it comes to making offers and buying foreclosed property, there are a couple things to consider as well. HUD foreclosure listings have very specific timelines where you, as a real estate investor, are not allowed to make offers on the foreclosed houses. You have to wait for what is known as the HUD owner occupied period to expire before making your initial offer. During this period of time only someone that plans to live in the house can actually make an offer. As a real estate investor buying foreclosed property, you have to wait for that period of time to expire.

The easiest way to track all of that is to get with a local real estate agent who can log into the local multiple listing service, also known as the MLS, and check the HUD foreclosure listings status. They can help you with research, managing your timelines and the status of each HUD foreclosure listing as well as managing the timeline so you follow the rules. I hope this helps you figure out how to buy foreclosed property and gives you a good head start in finding great HUD foreclosure listings.

Randy Bailiff
Dean Graziosi Investment and Life Coaching

Working with a formula that, once applied to the list price for the HUD home you want to buy, will spit out the minimum bid. Unfortunately, that does not exist. The reason you can’t is because (1) the minimum bid calculation is different in different states or regions and (2) it changes, albeit slowly, over time. I might be able to determine all formulas for minimum bids for all HUD regions as of today, but that would take me many, many, many hours and after you got done one or more of the areas would change.

What we can do is use the exact formula that HUD applied to the sales of HUD homes over the time that I have been buying right up to Rob and my purchases of HUD homes as recently as the Spring of this year. I can also show you how we determined the minimum bid formula and a likely method to determine it for your area.

First, the minimum bid formula was, and is, a percentage of the list price. When I first started buying HUD homes (about 10 years ago), the rule was pretty simple–the minimum bid was 80% of list price. The formula had changed by the time that Rob and I started buying HUD homes (about 2 years ago). It also got a little more complicated. At that time, when a property first hit the HUD list, the minimum bid was 87% of list price. However, the minimum bid dropped to 80% after 60 days.

Which brings us to the second point–the minimum bid is a function of time on the market. When the housing market hit the skids, the HUD minimum bid calculation changed. By the time that Rob and I bought The Loft (click here for the name explanation), the minimum bid for HUD homes was 80% of list price when bids opened. It dropped to 70% after 30 days. There were further drops when a home went unsold for several months, but the number of these homes were so few that it was difficult to calculate exactly. I saw one home that sold at 50% of list price at around 150 days on the market.

So, will this most recent formula work to determine the minimum bid for your area? Maybe, but if not you should be able to determine the formula using this information and the published “bid statistics” for home sales. In a prior HUD article, we took a look at navigating the HUD website to find property information for your area. By navigating to the site for your home state, you’ll see an option for bid statistics. (Click on this link to see the screen shot for Colorado, for example: HUD Bid Statistics). On the HUD homes sites, the private firms managing the HUD sales provide a bid statistics category. The bid statistics page shows all bids, accepted or rejected, on each property for a two-month period. With some effort, you can use the bid statistics page to determine the minimum bid formula for the area over time. The difficulty lies in working with a sufficient number of accepted and rejected bids over months to get a good idea of the minimum bid. However, the information above, along with some patience, should get you there.

Randy Bailiff
Dean Graziosi Life and Investment Coach

This is great informatiom.

Thanks

Thank you Randy!

Thanks, Randy. We have alerts set up from our local MLS (Madison, WI), and a lot of the properties that we look at using these alerts are HUD properties. Few of them get to the investor stage, but at least now, by using the minimum bid you mentioned above, we should be able to either increase our chances of having a bid/offer accepted OR simply not bid on properties where the minimum bid is simply to high for investment purposes.

I thought of a couple of things you might add to your post concerning HUD offers. Things that would help new investors thinking of offering on HUDs.

1. Inspection period on investor CASH offers.
2. Period of time between accepted offer and earnest money due.
3. Can you negotiate earnest money amounts or does HUD set the earnest money amount in stone?
4. When does the earnest money become non-refundable on a cash offer?
5. What strategy would be used to wholesale HUDs with no money down?

We bid on and wholesale multiple HUD properties every month. To me, this is not an entry level no money down strategy. Most people on DG have no money to risk losing on earnest money deposits nor do they have the VERY STRONG BUYERS list needed to work this strategy. Not that it can't be done, but I think a very clear picture of what it ACTUALLY takes to wholesale HUDs would be helpful.

Now if you are buying (financing)the purchase of a HUD that is a different story. Hard money, private money or conventional financing ready to go. But again, how many people on here have the ability to finance a HUD purchase? 2%? So I think concentrating on how to wholesale HUDs would be most helpful here.

Just my thoughts, thanks for all you do!

Michael Mangham
Mentoring/Team Building Nationwide
MD Home Acquisitions LLC