FHA 203 (k) & BRRRR?

Question

Hello everyone,

I am currently looking to invest in my first property here in Tampa, Fl. Currently, I am looking to do an FHA 203(k) loan with the BRRRR strategy. I am just unsure if this is possible, and if so, is there any guidance that you could give me in getting started?

Matthew Porcaro · Answer

@Joshua Heilman

It sure is, and it’s exactly what I did!

Essentially I bought a foreclosed duplex property for 270k, and wrapped the 80k rehab into the 203k loan so my total loan amount was $350k

After I rehabbed it, it reappraised for $500k, so I had enough equity to refinance out into a conventional loan.

A short time after I moved in with my fiancée and then rented out both units, so the property actually cash flows 2k a month currently.

I now work with private and hard money lenders and put up the $150k equity I gained in the house as collateral to purchase new deals

Matthew Porcaro · Answer

So the cool thing about 203k’s are you’re able to wrap in your mortgage payments while the rehab is going (up to 6 months max) into the loan.

I unfortunately didn’t find out about this until after the fact (my lender was inexperienced with these loans - BIG no no when doing 203k’s - always choose an experienced 203k lender) but lucky for you, you know now and can just wrap it that way ur not paying rent + mortgage or mortgage + mortgage on a home you can’t even inhabit.

If your lender is advising against it, find a new lender. Google 203k experienced lenders in your market. I could even refer you to some I’ve found do it.

My 203k took forever, again, since my lender was inexperienced and bit off more than they can chew.

But I know a lender that specializes in them and he gets it done typically in 45-60 days.

If you ever have any other questions feel free to reach out. :)

Carrie K. · Answer

The other thing is, when you go to pay your builder, you have to bring out the 203k inspector and submit a draw request. That can take some time. In a way, it's nice training wheels to learn to do a rehab, but sometimes you want to move more quickly or have more flexibility with how and when payments are made. Also keep in mind that a ten percent holdback applies to each draw, so your builder needs to be aware of that.

Good luck!

Joshua Heilman · Answer

Great input Carrie! Thank you so much and I will keep that in mind.

Cara Lonsdale · Answer

Are you planning on living in this property?

FHA is for owner occupied borrowers.  The 203K and 203B products are renovation loans, but they are still FHA products.  So this won't work for a BRRRR unless you plan to live in the property first for at least 12 months before you rent it out.  Hopefully that is your intention and this is coming as a surprise.

Best of luck to you!

Joshua Heilman · Answer

@Matthew Porcaro

Wow, that sounds awesome! I will definitely do my best to find a deal like that one! With it needing so much rehab, were you able to move into the unit as soon as you closed or did you have to wait until it was fully rehabbed? If you weren't able to move in would it still be advisable to do this given that you would have to pay the mortgage while it is being renovated?

I also spoke to the current lender that I am working with and he advised against it because the interest rates are much higher and they take a long time to close, how long would you say it takes to close?

Sorry for so many questions, I just want to make sure I am making the most informed decision as possible as this is going to be my first property.

FHA 203 (k) & BRRRR?

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