When you set out to buy a property, renovate that property and then sell it there are quite a few things you need to be aware as you plan your timelines.
Of course you are going to set down and write out your checklist:
1) Secure the Property, Order Dumpsters and Switch Utilities
2) Order all items that take time to arrive
3) Clean out the house and Start Demo
3) Replace Roof and Make Sure there are no leaks.
4) Replace Windows and or Siding
5) All Exterior Repairs Completed & Looking Good on the Outside
6) Replace HVAC and any system repairs
7) Interior Painting
8) Install cabinets
9) Tile Work Complete
10) Refinish Hardwood Floors
11) Install Light Fixtures & Hardware & Blinds
12) Good Construction Clean
13) Install Carpets
14) Final Clean & Punchlist
Yes your order might be a bit different and you might rearrange a bit due to weather.
Next is list it for sale, right? Then you have a whole new set of timelines.
1) Stage the House
2) Take Lots of Photos
3) List on MLS
4) Blitz the Internet with marketing
5) Hold an Open House
6) Get an Offer
7) Negotiate a Contract
8) Buyer Inspections
9) Buyer Appraisal
10) Go to Closing
11) Get a Check
Or at least something like the above, however we are missing some very key dates that you need to know about.
First, in the State of Missouri there is this little rule called a notice of intent to sell. Designed to protect contractors from not getting paid and new home owners from having liens placed on their homes. It requires the filing of a form stating you are going to sell the property. So when you sell a property that has had major and in some cases minor renovations, you need to have filed this form 45 days prior to closing.
We advise that you file this form the day you buy it and put everyone on notice that in 45 days or more you will be offering this home for sale.
Is there a way around this rule?
The answer of course is “It Depends.” In some cases a few title companies may still close the transaction for you, but require lien waivers from every contractor that you have in fact paid them.
It’s much easier to just file the form when you buy the property, or if it’s a property you have owned for a while then file the form as soon as you decide to start renovating the property to sell.
The second major time line involves the sale of your newly renovated property to a buyer who is getting FHA financing. This rule has changed almost annually for the past 10 years or more.
This rule was created by some person or persons who think that Real Estate Investors are scamming everyone and that if we buy a house today and then sell it for more money, then we have to be taking advantage of someone.
So while this rule was waived during the downturn and no one seemed to be able to get financing, today if you have an FHA buyer, you as the seller must have owned this home for a minimum of 90 days.
Period . . . but that is NOT the end of the story.
Further if you have owned for less than 6 months, you can sell the property to your FHA financed buyer, however as we assume you are buying a house to renovate and sell for more, you will probably be required to pony up for a 2nd appraisal.
This second appraisal is usually required if you are selling the house for 100% higher than what you paid. For example, you buy a house for $40,000 and you invest $20,000 in repairs and are now selling it for $80,000. You have too much of profit to be believable, so you will need to pay for a 2nd appraisal.
Your buyer will pay for the first appraisal, and at closing the second appraisal will be a closing cost for you. So figure this into your rehab costs from the start.
You may also be required to provide receipts showing all the repairs you made to increase the value of the home, so be sure to get those and save them for a report to show either the lender or the appraiser.
Also be prepared for more repairs as usually once the buyer has an inspection, the lender is not going to approve the loan until you as the seller can prove that all of those items called out in the inspection have been repaired. For this reason alone, just plan on fixing everything from the start so you don’t have delays on down the road at the final closing.
You have several options when you are dealing with your resale. The first is to make note on your listing and marketing that in the first 90 days, you will not be able to finance any buyer using FHA financing. Specifically note the buyer will need conventional financing and then once you hit day 91, you can then open it up to buyers using FHA.
Next, once you have a buyer, be it FHA, VA or conventional a nice phone call to the loan officer and the buyer’s agent, plus probably a couple of follow up emails to make sure everyone knows how long you have owned the property and the need to having 2 appraisals. Some lenders wait till the 1st one comes back to order the 2nd, and other lenders totally space it off until the day before closing and their underwriter stops the closing asking for the 2nd appraisal. You make the big bucks, so make sure your lender knows what’s going on so you have no delays in closing.
We hope this helps those starting out in real estate investing with their first few rehab flips.