In comparison to HUD houses, wholesale houses are definitely a better option if you’re looking for high profits. If you are wondering how and why, then continue reading…
HUD Homes—What are They?
As compared to conventional loans, an FHA loan is easier to qualify for and acquire. It has a low down payment of barely 3.5%. However, the catch here is that failure to make monthly mortgage payments results in foreclosure on the FHA loan. This means that the house then goes to HUD. In other words, a HUD property is a foreclosed real estate, which is auctioned and sold.
So, if wholesale houses are also distressed properties, then why are they better than HUD houses? To begin with, not all HUD Properties are excellent deals.
Problems Compound as HUD Homes Sit
Problems like leaks can aggravate and compound quickly as foreclosure listings sit. In other words, problems related to the home may worsen over time as the house sits waiting to be bought. For example, if a HUD home has a small leak around the window or in the roof, then that home can be in danger. In a warmer climate, these homes can quickly be overrun by mold growth, thereby lowering the air quality of the house and structural integrity.
No Backing Out
Once the bid for a HUD house is accepted, the buyer is given a settlement time. If their finances are in order, then they can buy the home soon. However, if any problem like wall mold or heater issues arise
during the waiting period, you can’t back out.
In case you do back out from the deal, you’ll lose the offer money. Even worse, if you have already paid an initial equity, you’ll lose that money too.
Paying too much for a HUD Home
Unlike wholesale houses which are available below market price, HUD properties are listed at what HUD calls as fair market value. This is because they are appraised by an FHA appraiser. Thus, the buyer may end up paying more for a HUD foreclosed home. So, before you invest in a HUD home, it is advisable to do a competitive market analysis of the house. This will help you determine the lowest bid that HUD will be willing to take for the property. On the other hand, real estate wholesaling offers tons of benefits. These include:
- Ability to buy homes at below market value (at discounted prices)
- You can engage in a transaction with little or no money at all
- You can earn profits fast
Hence, if you’re wondering whether to opt for wholesale houses or HUD properties, then clearly wholesaling is the right decision.