***FHA 203k loan for first investment property?

21 Replies

Hi, i am a 23 year old graduating in May 2015. I plan to relocate and start/build my real estate investing portfolio. I have an end goal of 2-3, 75 unit apartments complexes brining in substantial cash flow each month. 

After doing tons of research (i'm not done and wont stop anytime soon), I feel that using the FHA 203K loan to purchase a fourplex would be the best way to start this adventure. I would live in one of the units, rent out the others and live for "free" while my properties mortgage gets paid down each month. I will continue to purchase more properties over the years, using the equity/cashflow/inflation/refinancing to trade up and purchase larger apartment complexes, eventually retiring at an early age!

**My question is....would the FHA 203K loan be the best way to start my investing career give this mini business plan? I will be working full time as a Registered Nurse (3, 12 hour shifts a week, 4 days off), and dont have much money starting out since i'm literally starting my life from scratch haha. I feel that having this first fourplex would be a great foundation to show me the ropes, while at the same time living for free and focusing on the bigger picture!

Any advice would be great, Thanks!


welcome to BP @Ryan McElroy  !

I am also new to real estate investing and in a similar situation as you. I am 26, graduated two years ago, and currently working full time as an engineer. I dont have a fortune saved up either. 

I am currently working towards owning a duplex using the 203k loan. I personally think this is the BEST way to get into real estate investing with an end goal of buy & hold. 

So far I have found an investor savy real estate agent through BP who helps me find and qualify properties that meet my criteria. I have found a local lender that specializes in 203k loans. My lender has pre-qualified me for a 203k loan so i know what to start looking for. I am now about to start reaching out to contractors to get bids for a property that i have found and that i am interested in. So far so good!

I would definitely reach out to local lenders and find one that is experienced with a 203k loan. You can ask them a bunch of questions and they will help you better understand the process. Also, they can get you pre-qualified...which is the next big step you need to take. 

I wish you good luck and dont stop asking questions! I'll be more than willing to help you any way i can. 

Thats awesome! Can i ask you what your big picture plan is? Do you want to buy more properties, eventually trading up for larger apartment complexes?

Dont forget to @ people you are responding to @Ryan McElroy  so we can continue the conversation. 

My goal is to buy my first duplex to free up my income for other investments. Save up for a conventional loan (20% down payment) on a second property, single family or multi family, rent it out. Rinse and repeat. 

Eventually produce enough passive income to quit my day job and more into real estate investing full time.

I also am planning on flipping houses to produce extra income for my buy & hold investments. 

@Kyle Gregg  will do! Thanks for the tip!

And that sounds like a great plan, very similar to mine. Living in your investment property is such an advantage when starting out, especially with no money haha. I plan to keep trading up the properties i rent out and eventually purchase a 2-3 large apartment units that i can solely focus on. I would hire property managers but still keep a close eye on my investment you know

Good idea! I live in a duplex that I purchased using FHA loan. The 203K FHA is tricky. The repairs loan from 203K FHA is very tedious so I put in my own $8,000 for code corrections, some appliances and other small repairs. The repairs have to be done first and then the bank will inspect the repairs. After satisfactory inspection, they will release the funds. For the repairs, you have to find a licensed contractor, which is expensive. The contractors have to fill out these FHA forms and submit.

If need to repairs to be done before move-in, then it is almost impossible. I am not discouraging you rather helping you prepare for some headaches. You can get approved for FHA 203K loan but obtaining the repair loan is just very lengthy – this comment comes from mortgage brokers. Maybe it is easier now but a few years back, mortgage brokers did not like the 203K part of the FHA loan.

Hello Everyone,

If you have to look for the contractor that is amazing to me as my bank does all the leg work for you.

At any rate I would highly recommend this loan for anyone wanting to move into something that needs repairs. Big or small as long as the loan doesn't exceed the FHA loan limits for your county.

Good luck to all of you and have a great day.

@Shaun Weekes  I agree with you. The lender should be able to produce some good solid contractors if they are experienced with the 203k loan process. If they can't, i would look for another lender. 

Yep, they rock. 

I purchased my first property (four plex) with an FHA 203K in 2013. It went very well and I learned a ton. I've written a few blog posts on it here and my website.

Often it seems everyone knows of this loan but hasn't done it before. I've also completed an "investor rehab" loan on a property (same deal just 20% down). 

Feel free to ask my any questions you may have, it was a lot of work but it paid off. 

I used 203K in a similar fashion.  It's definitely a great product when used effectively.

Some things I would recommend:

  • as @Kyle Gregg said if your bank has solid contractors the recommend, start there when looking for a contractor.  One of my biggest issues was finding a contractor that was willing to work with the 203K method of payment.  I had a pretty bad experience with my contractor, but he wasn't recommended by the bank.
  • Make sure you have a good 203K consultant.  My bank did recommend my 203K consultant, he was definitely a stickler, but he caught a lot of shoddy work that my contractor did, and made him redo it.  In hindsight, I wish I would have reached out to my 203K consultant a little more during my contractor search.
  • Do your best to have a clear cut plan on what you want done, if substantial work is needed, you will most likely use a GC, you still need to be active in the planning stages and you may have to stay on top of your GC as well to make sure things are done exactly how you like them.

Good Luck! It's definitely a great way to get started.

@Ryan McElroy  love your plan! I am looking to do something similar but like @Kyle Gregg  I am thinking a duplex as opposed to a 4plex to start out (less time managing tenants, less appliances, etc.) down the road I think a 4plex can work out but either way both plans seem to work well.

I am still in school and am starting to do my research myself. Would love to continue to network with you guys and see your success unfold! good luck!

@Kyle Gregg  , possibly unmotivated broker; I did not get the loan from that broker.

I later found the property that I live in now. I got my loan from a credit union and the property was in pretty good condition except code violation; it was remodeled by the previous owner for sale and then owner went into foreclosure so I ended up getting a nice property and a good deal since this was REO.

If the mortgage broker can help with FHA 203K loan and repairs for the new homeowner, that will be great! For 1 - 4 unit owner occupied FHA is the best loan (3.5% down); otherwise you need 20% down. You can move out after 1 year and buy SFR owner occupied for 5% down. I have been living in the duplex for few years and don't plan on moving out for another 1 year.

@Kyle Gregg Would you mind saying what 203K lender approved you? Have you actually gotten the loan yet?

203k multifamily is the way to go! Lookin to do it myself! 

@KyleGregg or BP experts!!

Hi there Kyle... I am looking into making this my first move as well using the 203K FHA loan to buy 3-4 owner occupied property.... my question is.. with your experience so far... are you able to also add the USDA loan to cover all expenses and get 100% financing? I was told this could be done with a regular home mortgage using the FHA loans but I am curious ... I am sure I can give the USDA loan a try to add to this and invest with no money out of pocket.. ??? am I correct? could you kindly provide some feedback? Thanks so much!!!!

@Francis Esparza

I dont know anything about the USDA loan. I used a full 203k loan to purchase my property. As for no money out of pocket...i think there is no such thing. I dont know what type of expenses the USDA loan covers but there are a lot of closing costs when it comes to buying properties. I would reach out to a broker who can get you more specifics of different types of loans...then get you pre-qualified. 

@Kyle Gregg

I have been researching the USDA loans and I think they may vary by state so i will need to look into that further.... . thank you Kyle!!

Great info. I plan on investing in Multi Family unit as well in the near future. I am researching and working to pay down debt to improve credit and my debt to income ratio. #SecuretheBag

Good insight everyone.

I purchased my duplex almost 1.5 years ago via FHA, but didn't need to go the 203k route as the property had already been renovated. They were cheap renovations, so I performed my own during the year after purchase and made substantial improvements to the property.

We live in one unit, and after doing work to the rental unit we raised the rent by $350. Our tenants now pay about 90% of the mortgage, so if we leave our unit we'll get a nice monthly profit.

@Kyle Gregg I'm interested in starting out the same way, and I am also located in Baltimore. Could u send me some lenders that specialize in 203k lending?

Hey John - Movement Mortgage does 203k loans in Baltimore. I would be happy to walk you through the process.

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