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Buying HUD Homes as an Investor: the Complete Guide

When looking to invest in property, most people like to search for the best deal possible. This way, their initial outlay is less, with the potential to make some great future returns.

Currently, one of those better ways to earn is with buying HUD homes as an investor. For many, especially those first time investors, the purpose of a HUD property often provides as attractive a deal as you can get.

But, these property types, when investing, tend to be more competitive!

So, when you do consider a HUD home as a potential investment, you may need to do a little more homework beforehand.

Here we define a HUD home, discussing who can qualify for one and how best to go about investing in this fantastic property option.

Buying HUD Homes as an Investor – What Is a HUD Home?

HUD stands for the U.S Department of Housing & Urban Development. In short, a HUD home for those unaware of such a prospect is one that an owner once had an FHA insured mortgage on. Yet, for one reason or another, as they were unable to make these mortgage payments, the home went through foreclosure.

An FHA loan is a Federal Housing Administration loan designed for those lower to moderate of income earners. Issued by the government, if defaulted on, the Federal Housing Association will simply pay off the balance to the lender. Then they proceed to take possession of that property.

Understandably, a government won’t hold on long to such homes because of the financial aspect here. Thus, they tend to sell them on quickly. But, because of this swiftness, HUD homes often sell for way below their fair market value. This is what makes them the most attractive of investments.

Who Can Qualify for a HUD Home?

When it comes to investing, HUD homes offer fantastic potential. This is because many more people than usual can qualify for these types of properties.

But the rules when it comes to those investors looking to buy HUD homes are slightly different.

For an owner occupant buying a HUD, they’re required to live in it for at least a year and be present for around 50% of the time. Yet, those looking to buy a HUD as an investor will not be planning on living there at all.

So, there are two types of HUD homes. This means investors need to be sure they seek out only those investor type properties here. That is, before getting too excited about the prospect of such returns!

The Two Main Types of HUD Property

The two types of HUD properties are Insured HUD homes and Uninsured HUD Homes:

Insured HUD Homes:

Usually presented as the better condition of homes, those insured HUD properties are eligible for FHA loans. Requiring fewer repairs, these are more favorable for those first-time owners.

Uninsured HUD Homes:
Those uninsured HUD homes will more than likely need a large amount of repair work. For this reason, they don’t qualify for FHA loans. Therefore, it’s good to use the services of a property inspector before bidding on such properties.

Which HUD Property Is Better for Investors?

In general, experts suggest that insured homes are better for those looking to own a home while uninsured HUD homes make better investment property.

When it comes to bidding, though both potential owner-occupants and investors can potentially bid on HUD homes, there are additional rules for investors to abide by.

Owner-occupants will get the first opportunity to bid for HUD homes. This is all due to the HUD and its goal to promote that of homeownership.

This doesn’t mean though that investors can’t try for an insured HUD. It simply requires them to wait until the 16th day that the property is listed for sale.

For those uninsured of HUD properties, investors only have to wait until the 6th day of it being listed for sale until they can bid on it.

Though it’s a personal decision for each investor, those uninsured properties are usually the better choice for many investors. This is due to there being less competition here from owner-occupants. They are also the clearer choice for those looking to fix up and sell on for a profit. Just another step in the process of real estate investors such as taking a hard money loan or finding the right deal

However, some investors prefer those insured HUD homes as they require the least amount of work on them. Yet, it’s those insured HUD homes that attract more attention from owner-occupants, and which tend to sell before the investor bidding period even begins!

It’s worth stressing here, though that any potential investor considering pretending to be an owner-occupant to stand a better chance of getting a HUD investment property will be caught and punished appropriately. This includes heavy fines and, in some cases, even potential jail time! Therefore, those seriously interested in investing here will need to adhere to these waiting times and rules.

How to Find and Bid for HUD Homes

Locating those HUD homes is a simple process. The government-backed website, also known as the HUD Home Store, is the best place to begin your search.

This website is where the most updated content can be found regarding what homes are currently available via this route. Better still, once HUD homes are sold, they are then removed from the website – thus, you won’t be bidding on unobtainable homes.

The search process of this HUD site is straightforward, but best of all allows for a buyer type category. This is a clear indicator of who is eligible to bid on the property in question. The investor category here will allow you to see which homes are potentially open to investment opportunities in an instant.

However, it’s well-known amongst investors that HUD homes do not stay on the market for long! So, when you do find one of interest for investment purposes, you’ll need to be ready to make your move.

Preparing Yourself for a Successful HUD Bid

To ensure the success of obtaining a HUD property for investment, you need to be ready to act. This means you stand more of a chance or acquiring such property.

  • Have your proof of funds available to hand. HUD will require investors to show proof of how they will be funding the property ahead of time. So by being able to refer to this in an instant, you can get your offer submitted straight away.
  • Have all the necessary information to hand and be ready to give any specific details required for the HUD property. This includes all such items as phone numbers and social security numbers.
  • Have the necessary security deposit to hand. Once your HUD offer is accepted, you’ll be required to submit a security deposit. This will secure your contract with HUD. Though you will get the money back, you will need instant access to such funds.

Final Thoughts on Buying a HUD Home as an Investor

Undoubtedly, buying a HUD home for investment is a rewarding process. However, it is one that can be the most arduous method!

With so many owner-occupants, this is an extremely competitive market for those looking to make some good investments.

However, there is potential here if you have the patience and are willing to actively seek out such properties regularly.

Alternatively, seeking the help of an estate agent specializing in HUD properties could be a great source of further help, should you wish to actively pursue this attractive investment option. 

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