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Why are HUD Homes Good Investment Options?

January 09, 2021

Post by: Nancy Braun, Showcase Realty

Why are HUD Homes Good Investment Options?

Everyone wants the best deal possible when it comes to investment. That makes it easy to see why a lot of property buyers invest in HUD homes. These foreclosed homes offer a lot of unique benefits, especially for first-time investors.

Here are some reasons why HUD homes offer a big potential to make great future returns:


1. They are often sold below market value.

HUD homes are typically in less than pristine condition because they are sold "as is." They undergo a foreclosure process and have sat vacant for some time. And the longer the property sits, the more it deteriorates. Knowing this fact, HUD seeks to sell the properties to avoid further management costs. As a result, the price of the property becomes lower.

Buying this type of home comes at a great advantage. Many investors look for HUD homes because of its reselling or rental possibilities. To offload these houses faster, HUD often sells them below fair market value. So, if you're looking for an option to buy low and sell high, HUD homes are definitely for you.


2. They come along with lower closing costs.

HUD properties come with lower closing costs than other homes. This is because the Department of Housing and Urban Development covers up to 5% of the sale price. HUD homes offer low down payment requirements as well as sales allowances. That means, extra budget to pay for the rest of the closing costs and renovations too.


3. Fewer appraisal delays and faster closing.

Most HUD homes have already been appraised even before you start placing bids. This equates to more time for renovations and other improvements to increase your ROI. You also have the perks of skipping usual home sales steps, such as negotiating with the home seller.

Typical home sales last 3 to 4 months on the average while HUD home sales close within 2 to 3 months. Negotiating with the home seller is no longer part of the whole process, too.


4. High fix-and-flip profit potential.

HUD homes are some of the best investment properties looked upon as gold mines. This is because the poor conditions of a HUD home are a perfect match for fix-and-flip investments. This is a trend with real estate nowadays. Investors look for properties that need a hefty amount of renovation. They assess if it's a good deal through an inspection. If proven profitable, they will work on increasing their market value and sell them for a profit.


5. Help in financing repair costs.

Since the house will be granted to you "as is," expect that you will need to spend on repairs. The good thing about HUD homes is that you have an option to get a loan that will surely help you with the expenses. But this depends on whether the home comes insured or uninsured.

If the home is FHA-insured, you'll need to be able to qualify for FHA financing. That requires at least a 3.5% down payment and a 580 credit score or a 10% down payment and a 500 credit score.

If the home isn't FHA-insured, it means the home isn't eligible for an FHA loan due to its condition. In this case, you'd need to find another mortgage product to finance your purchase. If the HUD home is insurable with escrows, you can still be assisted by FHA if you agree to make necessary repairs. Strictly no repairs can be done before closing.

Bear in mind that these property types, when investing, tend to be more competitive. So, considering a HUD home as a potential investment may require you to do a little more homework beforehand. In the end, buying a HUD home for investment is a rewarding process, though it can be a bit burdensome.

It may entail a lot of work, from searching through listings to the bidding process. Seeking the help of a specialist in HUD properties could be a great source of further help.


If you need help with buying a HUD home, call HUD Certified expert, Nancy Braun, at (704) 997-3794.


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