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My sister and I recently bought an investment property together. It’s a HUD foreclosure that we plan to rehab and flip over the next several months. I asked my sis if she would write a series of articles about the experience. She is going to give you all the details down to the penny. Here’s her first installment.

I recently became a real estate investor and will soon be closing on my first HUD home. My plan is to completely rehab the home and then sell it for a profit.

Through the process, I’ve learned a lot about buying a HUD foreclosure. In this article I’ll share what I’ve learned, along with the details of the home Rob and I are buying.

What Is A HUD Home

Let’s first clarify what exactly a HUD home is and why it’s a good buy. A HUD home is the result of a foreclosure on a 1 to 4-unit residential property that had an FHA-insured mortgage. The FHA pays off the mortgage, and then the home is sold to recoup some or all of the loss.

HUD homes are often good investments for several reasons. They are typically in less than pristine condition (see pictures of our home below). They are of course part of a foreclosure process and have sat vacant for some time, which typically lowers the price of the property. And HUD is motivated to sell the properties to restore the cost paid out to the bank and to avoid further management costs.

Finding A HUD

Finding HUD homes is easy. There is a government backed website called HUDHomeStore.com. This site enables you to easily search for a HUD home anywhere in the country. You can search by a number of criteria, including city, zip code, street, and even price range. Fortunately, I have a great realtor with over 40 years of experience, and we both check this site regularly in hopes of finding me the best deal.

There are a few things to point out about the HUDHomeStore.com. First, the site is updated every Friday. This is important to know because you can promptly check the site once it’s updated and then plan to visit any properties of interest within the next day or two. Remember these properties don’t last long so if you’ve found one you’re interested in you’ve got to be ready to make a move.

Second, pay close attention to the category field called “Buyer Type.” This indicates who is eligible to bid on the home. Here is the complete list you have to choose from:

  • All
  • Owner Occupant
  • Investor
  • Good Neighbor Next Door
  • Government Agency
  • Non-Profit

HUD Buyer Type

As an investor, I always choose the ALL category or the INVESTOR category. The ALL category means it’s open to all bidders and the INVESTOR category means investors are able to bid on the home. This allows me to see the properties that are available for my bid.

There’s nothing more frustrating than finding an exceptional house only to learn from your realtor that you aren’t even eligible to bid on the property because it’s reserved for Owner Occupants. To be an owner occupant you have to live in the home for no less than one year after you buy it. Usually, a HUD home is first available to owner occupants. If it doesn’t sell within an allotted time, it becomes available to all bidders. The property I just secured was only available to owner occupants for several months before I had a chance to bid on it.

How To Be Prepared

Even with the little experience I have, there’s one thing I’ve learned – HUD homes go quickly! If you aren’t prepared to make an offer when the home becomes available to investor bids, then you probably aren’t going to get the house. The better prepared you are, the better chance you have of snagging the property. There are a few recommendations I have that will enable you to act quickly once you find the right house. Remember, once a HUD home is opened to ALL bidders you are competing with other investors who have the same goal as you. So, the faster you can get your offer in, the better.

First, have proof of funds readily available. When you make your offer you are going to need proof that shows you have enough money to buy the home. If you’re paying cash, this could include a checking or savings account statement, or a letter from a mortgage lender showing their intent to finance the purchase. HUD does not provide direct financing to buyers, which means buyers must obtain financing through either their own cash reserves or a mortgage lender. Having this proof ahead of time will allow you to get your offer submitted right away.

Second, I would suggest to always have all the pertinent information ready to go. This includes name of the buyer, social security number, address, phone number, etc. Obviously, if you are the only buyer then you are going to know this information. However, if you have a business partner, like I did, a simple social security number can sometimes be hard to track down. Losing a great deal over something simple like this could be a big disappointment.

Lastly, be sure you have enough cash for a security deposit. Security deposits are generally between $500 and $1,000. Once your offer is accepted, you are required to submit the deposit. This secures the contract with HUD and your deposit will get credited back to you at closing. It’s not a great deal of money, but you need to be able to quickly access the funds. When it was time for my security deposit I went to the bank and got a cashiers check within 30 minutes of it being requested and off it was sent.

Our First HUD Investment

At the end of this month we will close on our first HUD home. It’s a small 3 bedroom, 1 bath home for the purchase price of $46,051.00. We are paying cash for the purchase, which means we don’t have to pay any closing costs associated with a mortgage. However, there will be a few other fees like the cost of title insurance. If all goes as planned, the rehab will take about four weeks to complete. We plan to share all the details of the renovation, including how we determined the cost of the rehab and our projected selling price.

Here’s a look at our investment:

HUD Home Investement Property

buying a hud home

Flipping a hud home

hud home investment

Investment home

Author Bio

Total Articles: 7
Michal owns a home remodeling company, invests in real estate, and writes for several top personal finance blogs. A former college basketball player with a wicked 3-point shot, she coaches and runs summer camps in her free time.

Article comments

Ryan says:

I’m interested to follow this series. I’ve always been intrigued with real estate investing, either as a landlord or for flipping. It can be a lot of work though, which is the main reason I haven’t jumped in yet!

Rob Berger says:

It is a lot of work. Fortunately for me, I partner with folks who do most of it! This is my first flip, so it will be interesting to see how it all plays out.

vee says:

Thanks for sharing a vital information., very helpful.please, share your realtor’s contact, I’m very interested. Thank you!

Bill D. says:

Thanks for sharing this with readers. I wish you all the best with your project and look forward to further installments outlining your success! My wife and I recently purchased and renovated a forclosure for us to occupy in Virginia. We looked into a few HUD opportunities, but, did not come across a property that was in line with our needs/desires relative to location and owner occupancy. We had a repair budget that was developed before purchasing, but, not met – mostly because of our intended occupancy. However, there were a few things that came up as we proceeded that had nothing to do with factors such as my wife saying “I don’t want that in MY house” … like items/issues hidden by sheetrock or carpet. I was out of work, but, we had to reinvest $$ from prior house sale. I had the time, tools, and talent to do the majority of the work myself, but, costs and market as they are, I could not expect to make any $$ on my labor. Project has worked-out well and, although there is still more we would like to do, we are at the spend limit and able to enjoy our “new” home. Fingers still crossed that this house will at least market value until I want or need to sell it!! Bottom line: stay positive and stay on budget!

Rob Berger says:

Bill, thanks for sharing your experience. It sounds like you got a good deal. And I second your advice–stay on budget! Let’s hope we do the same.

Sandra Hagan says:

One question that comes to mind with HUD homes of any kind is whether they are manufactured homes or UBC or IRQ modulars or stick-built. It can be very difficult to sell a manufactured home especially when they are 10 yrs old or older as almost no banks will finance them. This requires a buyer with cash! Or owner financing. I know of many nicer manufactured homes that just stay on the market forever because of this. I would recommend at least knowing that you may end up the banker on this kind of home or you may never find a buyer. Good luck!

Rob Berger says:

Sandra, I’ve purchased six HUD homes, and none of them has been modular. In fact, several of them have been newer homes in excellent condition. The one my sister and I are buying is obviously older and in need of serious repair. The good news is that the profit potential is better.

Jason Hull says:

We bought a HUD foreclosure initially as an investment, even though we moved into it subsequently. One thing that you NEED to make sure happens is that your agent fills out the bid paperwork appropriately and correctly. Our moron…err…Realtor used our phone number as our Social Security numbers and even though we had the high bid, our initial bid got rejected because of wrong paperwork. I had to contact the HUD regional headquarters in Denver and raise he double toothpicks to get the bid accepted.

Mr. Money Moustache is jealous of your purchase!

Rob Berger says:

Jason, the HUD process can be confusing. I’ve always use the same realtor and he has purchased countless HUD properties. It is important to find a realtor with HUD experience.

angie says:

My realtor had a type o on my social on the bid as well. Did they correct your contract with the correct social security without putting it back up for auction?

Rob Berger says:

Angie, they should be able to correct the offer without putting it back up for auction. But they are picky, so there are no guarantees.

Jason Hull says:

I started out with the local HUD office who claimed to be powerless to change things and said that they were going to put it back up for auction. I just kept going up the chain until I got to a sentient being at the Denver office who saw the error and realized that we had no control over what happened.

That’s the thing which bothers me about this process. It depends on Realtors not to be morons (not a given by any stretch) and screw things up, and doesn’t allow the actual homebuyer to review the process. Thus, when the Realtor screws up, the homebuyer gets the shaft.

The lesson is to make sure that you’re THERE with the Realtor and reviewing the document before the paperwork is submitted, as it takes a LOT of persistence to reach intelligent human beings who are capable of taking action if everything’s not perfect in the first place.

I’ve always been wary of buying foreclosures as investments due solely to the risks involved. What if there is a lien on the property? I read about some auctions where foreclosures are bought sight unseen. Crazy! Definitely not for the faint of heart.

Rob Berger says:

I always buy title insurance, so that takes away the risk. There can be issues with certain auctions, but with HUD homes, I’ve never had a problem.

Dean Huntley says:

HUD homes are a great way to make investments, they range of simple fixes to complete renovations needed.

To address some the above comments, HUD properties are placed into their own title and they tend to have much less issues than saying buying from online auction site. As always buying full title insurance is warranted for more conservative investors. HUD guarantees title for the time they gained control of the property so the title policy they provide free of charge. You as the buyer need to purchase the normal full title insurance you would as a buyer in any real estate transaction.

I have bought several HUD properties but I must warn you that once you bid and your bid is accepted, as an investor, there is NO turning back or getting your earnest money back even after inspection. Unless there is a serious undisclosed defect such as lead paint and you are using FHA financing you are expected to close or lose your earnest money.

As a owner occupant there are bit more generous with outs like losing your job etc.

I agree with the above comments, make sure you have experienced realtor because although your bid is accepted, the paperwork has to be done correctly and turned in time. One screw up is allowed and then your bid is rejected if other mistakes are made after first mistake.

I track all the HUD bids accepted nationally and run a website specifically tracking HUD bids and their respective ratio to list price. I also breakdown the and show the biggest discount of list price to AsIsValues on the houses in website.

I get to see these failed bids show up all the time. For example, I will see a bid is accepted for a house and then 4-5 days or even weeks later I see another bid accepted for that same house. When bids are accepted relatively close to each other then I know the real estate agent messed up or the buyer was disqualified, when it is much later then other issues such as financing are the cause. A backup bid is often selected in those cases.

I am not going to mention my website directly in comment post but please contact me via comments or my personal email myproxy @ tx.rr.com and I will help you out.

I am glad to help anyone interested, especially real estate investors.

Shelby Dargan says:

How difficult is it to purchase a HUD Home as a first time investor that bankruptcy chapter 7 has been discharged and the property will be primary residence for 1-2 years.

Buying a HUD property, whether to flip and sell, or to use as a rental property, can be a great deal. However, there are definite risks involved that even seasoned property owners can get caught up in that might make a HUD property purchase less than ideal. For example, there can be extensive wear and tear that must be addressed, some housing authorities can be difficult to work with, and if using the property as a rental, not only are you bound by the lease agreement with your tenant, you must sign a contract with the government. If you are interested in investing in HUD properties, do your research and make sure this is the kind of investment you really want to make. Thanks for sharing your personal experience!

Thomas Anderson says:

thank you all for sharing your personal experiences with us. how will I purchase the hud property? this will make my own property or like leasing for some years from the government. what is the process to purchase hud property?

Pamela Dowd says:

When investing in a HUD home, what is an ideal ratio between list price and your bid? I see some houses that need a lot of work just to meet the list price after repairs are done. I am just starting out and would be a cash buyer.