As a real estate investor you must always adjust to new market trends, rules and regulations. Recently, as any good investor should know, the industry has been having to make some changes due to the TILA-RESPA Integrated Disclosure rule. These changes have and will continue to affect any person closing a property involving an owner occupant loan.
Investors that renovate properties to sell will need to add at least an extra month or two of carrying costs. Why? Well, while not going into too much detail, all HUDs will need to be approved by the buyer and underwriter at least 3 days before closing. In reality, this will mean that the delay may be as many as 6 days because we all know how long underwriting can take. Some investors may not know this, because it is normally not enforced, but currently buyers are supposed to receive a HUD 2 days prior to closing. However, the norm for most closings is having a HUD prepared the day or evening before or the morning of the closing. I have even witnessed some buyers and sellers not receive a HUD until minutes before closing. This way of doing business will soon be gone and I for one like this part of the change. Originally the changes were to be enforced in August but the enforcement date was changed to October 3rd. Therefore, make sure your lenders and title companies are ready for these changes and do not delay your closing any more than needed.
Wholesalers may be thinking, “These new regulations do not affect me because I do not deal with traditional buyers with traditional financing.” However, you are wrong. Essentially, the investors you sell these “wholesale deals” to will include the extra carrying cost into their calculation, thus affecting the amount they can offer you for the property. Additionally, if you have investors that buy, fix and sell homes regularly, and with limited capital, you may be waiting longer for those investors to return to purchase the next deal.
Now here are some things you want to do to prepare for the coming changes:
- Find a title company that is prepared for the changes. Some title companies have even started offering seminars to teach clients and real estate professionals about the changes that are coming.
- There will be a new HUD. Learn how to read it so you know how to find mistakes and correct them.
- Find lenders that underwrite in house or have an efficient underwriting process. This will help prevent delays.
Most people still believe that “Cash is King,” and these changes may convince the ones who do not believe this to become believers once again. Even today, most people would take a cash offer for a bit less over a finance offer at full price. The reasons to take less may be the waiting time or the possibility of the financing not getting final approval. With the new changes, finance offers are expected to take 45-60 days instead of 25-35 days, almost double the time. Even with all the waiting, the buyer’s financing may still not go though at the final hour. This is one advantage that these changes may bring for cash buying investors.
Change is sometimes good and sometimes bad but we will not know until it is present. Until then, learn what those changes are and be prepared. Remember, always bring something to the table and create a win-win situation when looking for title companies, lenders or other team members.