Hi and Good morning!
Straight to the point!. I am a New Real Estate Agent who fell in love with the RE investment world, so I’m looking to buy our (husband and I) first investment property, in the area I want to is so expensive right now, so we decide to look in another market that is 30 minutes commute from this location and we are looking to do house hack in this property.
I'm looking to buy a foreclosure property that needs major works, I know I can apply to a FHA 203 K Loan, but I want to know the pros and cons from this loan. I have the money for the down payment and the rehab, but they will not lend me just a FHA if the house is not habitable.
What are the advice from you, what should I do?
The 203k loan sounds good for what you're doing there. It requires extra paperwork and you won't be able to do the work yourself, because that loan requires you to work with a contractor who is qualified to work with the 203k program. These are the main downsides of that loan.
If you can find a way to BRRRR the property, then you could do work yourself (if you want to do that to help save money) or at least you can work with any contractor you want.
It might be easiest to find a property that needs work, but is inhabitable. This is what I did on a house hack that I did, where I did most of the rehab myself. It needed quite a lot, but when my wife and I bought it, it still qualified for conventional financing. This makes things much easier, and if it's your first project, you might not want to take on something that needs a ton of work.
@Clark Kirkpatrick that was exactly I told my husband, this will be our first project so I want to get involve with the process and save money with the contractor or handyman (if I need one). I want to know how it feels and learn from the experience.
I hope I can find a good deal to do the BRRRR strategy because the market I'm thinking is in NJ and is still a little bit expensive.
Also I was thinking to borrow from a hard money lender... I don’t know (sometimes I get confused with all of this)
I think that doing a lot of the work yourself on your first deal can be a really important learning experience, because that way you'll understand forever how much work goes into that and you'll learn to understand how remodeling works. If you stay in the business, that's really important. But when you get your rehab budget, it will probably be twice as expensive as you expect, and take three times longer. So be prepared for that.
I think you could do well buying an ugly but habitable place with a conventional loan with a very small down payment, then fixing up a unit and renting it, fixing up the next unit and renting it, etc. while you live in one of the units for at least a year. Then when they're all fixed up, you can refinance it. Since it'll be worth a lot more, you can pull your money out just like a BRRRR. It's basically the same strategy, but without the high interest payments of borrowing from a hard money lender.
@Clark Kirkpatrick thanks you for the advice, it really clear my mind.
Hey @Scarlett Noboa - very exciting! I went through the 203k process on my first home purchase, and I'll be honest, it was trying.
Freddie Mac just came out with a new product called the "Choice Renovation Loan":
and I've heard that it's less complicated than 203k.
@Clark Kirkpatrick gives some great insight about the 203k loan and some good alternatives. I would concur with him, find something that you can add value to, but isn't a full gut rehab, especially on your first deal.
You can do exactly what he suggests, take advantage of the low down payment on an owner occupied purchase, add some value, rent it out, go buy another one, and repeat. My wife and I have been employing this strategy for several years and it works like a charm.
Best of luck!