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The FHA 203K and Competing with Cash Offers

When we work with homebuyers who are trying to purchase REO or foreclosure properties, they often find themselves competing against cash buyers and cash investors.

Banks or foreclosure representatives typically sell properties for more money when they’re dealing with end-customers rather than cash investors, which tends to make end-customers more desirable for them.

I’m a cash investor myself. I buy property on the side, and I’m always looking for a good deal to turn around and flip.  I try to pay the least amount when I’m paying with cash, because I want to close quickly.

Most people think you can’t do that with a FHA 203k. I’m here to dispel that myth, which I can do by citing a particular transaction we recently closed at one of our offices.

I intend to go into greater detail about this project in an upcoming blog post. But just to provide a brief overview, the buyer purchased the property for about $410,000, and put $140,000 of renovation money into it. Now that property is going to appraise for well over $700,000, which is pretty amazing.

One thing to keep in mind is that we actually had to persuade the seller to allow us to get that property for our client. We accomplished that by convincing the seller of our expertise, and our ability to close quickly. This isn’t always the case, but we were able to close this particular 203k transaction in 27 days, beating out two cash offers in the process.

It’s mind-blowing when you think about it – the fact that we could create that amount of equity out of nowhere for our client. It was also one of those fortunate situations where everybody benefits. The property’s seller got more money by using us instead of accepting the cash offer, and the real estate agent ended up with a higher commission.

Long story short, using a FHA 203k is a viable option for competing with cash offers on certain properties. The important thing is to go into it with an experienced lender who knows how the process works. That lender should have a dedicated team that understands the process as well, including the processor, underwriter, closer, funder, HUD consultant and contractor.

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