This post originally appeared on the Hermit Haus Redevelopment website on 2019-12-05 and on the Hearts, Homes, and Hands blog on 2019-12-04.
We have learned a lot from the Sarita project. It feels like almost everything that could have gone wrong did…but that’s not really how it was. We had one major pain in the ass, and that was the buyer’s lender. Even the buyer’s agent said she will never use that lender again. Here is a brief rundown of what we learned.
- You never know where you’ll find a deal.
- I never expected to find a good deal on a property in my own family, but my brother and his wife just wanted out from under a house they could no longer maintain.
- People first.
- We ended up making a little money outright for handling the sale and taking over the debt, but most of the profits are going into a fund to help take care of my brother and sister-in-law going forward. As I said, they would have been happy to let us take it all, but that’s not how we roll. They actually objected to taking a promissory note to cover their future care, but we insisted on taking care of them.
- You need a local team.
- Redevelopment is a team sport. You can’t do it all yourself. You need good contractors, which we didn’t have in the Brazosport area.
- Since this house is well outside our area of operations, we decided on the prehab exit strategy. We cleaned up the house and maintained the laws to keep the HOA happy. But we did not go looking for contractors. Instead, we offered the house at a substantial discount to its after repair value (ARV).
- We offered the listing to an old Realtor friend, but she had also moved out of the area. (I may have mentioned, I grew up there but left as soon as I could.) While we were trying to find a Realtor, we were approached by an investor who found the house while driving for dollars. We couldn’t find a place where the numbers worked for both of us, but we did list the house with her. She turned out to be a great person to work with, and I hope we can do stuff together in the future.
- There is a new type of FHA loan.
- FHA now offers a loan—the FHA 203(k) Rehab—for homeowners wanting to renovate, either to make the home more affordable or to participate in a homestead flip. I don’t believe the loan is available for investors since it is an FHA vehicle.
- Because FHA allows for up to 100% financing, FHA lenders are notoriously hard to deal with. So, we usually don’t accept offers with FHA financing, but we were intrigued with helping someone obtain a family home for renovation, instead of just turning the project over to another investor.
- It’s not closed until it’s closed.
- We learned that this type of financing doesn’t make the FHA any easier to deal with. In fact, the lender arbitrarily delayed closing now fewer than five times. One of these times caused me to miss a trip to Hilton Head we had planned for more than a year. The next one, move closing out of that trip window and came the day after going on the trip became impossible for me to arrange.
- They also refused to authorize closing until seconds before it was schedule for the penultimate time, knowing I had to travel four hours to close. We thanked them very much, and I drove down the next day anyway.
Okay. We’ve already talked about most of that, but it never hurts to go over lessons learned. And as of now, the deal is done. The money is in the bank. We have helped a homeowner get a (soon-to-be very) nice home. We have helped and can continue to help my brother’s family. And we have additional resources to start hiring staff to help others stay in their homes.
