Assignments wont work, but there are no flipping rules...Equity Partnering?

General Real Estate Investing
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I was recently made aware by my bank that USDA has no flipping rules and our bank doesnt either. I even called the local field office of USDA that we get our loans done through to confirm this. Now I know FHA lifted their flipping rules as well, but the various lenders that do the FHA loans still have rules about 90 days or multiple appraisals or at min. no more than a 20% increase, and multiple appraisals and all kinds of things that make flipping fun.

What do you think about this…I have been doing some lease option and contract assigning as my core investing business outside of the loans that I close as a loan officer with my bank. No lender will accept an assignment, but there are absolutley no rules what so ever about flipping, or time frames or 20% increases in values…non of that stuff applys on a USDA loan.

I have been considering doing some equity partnering with existing sellers, my investing company gets quit claimed to title based on that fact that I’m bringing the buyer to the table and structuring the deal, possibley doing some repairs (which if I do, I will have the contractor agree to get paid out of escrow, so no money out of my pocket, or my bank will do up to 5K in escrow hold backs, so can cover things that way as well) We can also do this deal with virtually no minimum credit scores as the program allows down to a 300 credit scores, so long as they meet the basics other requirements

There will also be no excise tax due as I’m not giving the seller any consideration, meaning I’m not buying any of their position, I’m just getting quit claimed to title to improve the deal/home and bring the buyer in and structuring the deal. The seller and I come to an agreement as to an as is value and then what ever I can sell for over and above that is my portion.

By doing this, my investment company is on title therefore we can then sell the property as a principal…Same basics as an assignment, only more involved, but the buyer gets 103% financing with the USDA loan no MI with rates in 4.75% range on a 30 year fixed??? Of course the 1 critical issue is that the house has to appraise just like any other deal, but I feel confident that I can find under valued deals, and bring improvments and a buyer and the knowledge to structure the deal, which is of great value to some if not many sellers out there…

Guys…please way in on this? Give me your thoughts?

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Well, unfortunately government loans guidelines are only “suggested” propositions, but not imposed, therefore the lenders have the option to follow them, or not, and they obviously decide not to.
Too much risk, so they chose their safest route, which is their own guifelines and their investors.
Your idea sounds doable and pretty good. I would go that route, at least until the lenders loosen up a little. You can charge a little more on interest rate, since you are basically offering private loans and you are doing a service to homeowners, who cannot obtain a regular mortgage.

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Hi Rasturacing - I like your idea. I am curious if you have put it to test yet in a real situation? Do you have an update? Have you thought about offering the seller a percentage of the profits after your repair and sell the home in exchange for a lower purchase price?

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Hi bdaly

I havent tested that theroy just yet. I have been clearing out some assignments lately. The only update is that even though USDA’s Edge program technically has no minimum credit score, the reality is that no lender will do them less than a 580 mid. score.

I plan to do this very idea soon. The biggest issue that I see is convincing the seller to partner with me and adding our company to title. I have ideas that should resolve this issue though. Also my bank and USDA will allow up to 10K in repairs on the home, so a great way to resolve the homes repair and rehab issues.

Feel free to take the idea and run with it. I would love your or anyone else’s feed back.