Is 203k loan good a good way to get instant equity?

Question

I was originally looking at a multi family for my first deal but recently been leaning towards buying a single family for lifestyle reasons.

I am still looking for this to help springboard my investing career. If buying a single family and do a renovation through perhaps a 203k fha loan, is this a good way to get some instant equity? Then maybe do a cash out refinance to buy a new deal or just keep as is and have a better LTV that the bank would look favorably on when applying for a loan for an additional property?

Any ideas?

Would a renovation even get me equity or just a renovated house that I am paying for?

Thanks

Matthew Porcaro · Answer

This is how I got started! The 203k gave me a huge equity boost on my first live-in flip, that took about 8 months from closing to finishing the project. I now use a HELOC to tap into that equity I gained on the deal, to help finance my flipping business. Picked up the property for $270k, put $80k into it, and it reappraised for $480k when it was done. ~$130k equity.

The key is you really need to aim for deeply distressed deals. Your numbers need to be similar to that of a fix and flipper's numbers. That way you can ensure there's enough "meat on the bone" to tap into via a HELOC or cash-out refinance.

I'd say, if you're going the single family route, the HomeStyle loan will be a bit better suited for you. It has a bit less paperwork and logistics than the 203k does, and is actually considered a "conventional" loan vs. the 203k's FHA denotation.

This market is light on foreclosures right now, but any "as-is" properties on the MLS are going to be your wheelhouse. You need to make a lot of offers, but I know first hand people are doing these deals even in this low-inventory market!

Aim to have you all-in cost (purchase + renovation) to be 75% or under ARV. That way you should have no problem doing a cash out refi or heloc!

Good luck!

Matt

Dave Spooner · Answer

@Bob Ross You've got some great advice from @Matthew Porcaro. I'd also add that most 203k lenders will require you to wait 6 months after your first mortgage payment to even consider a refinance, so getting money back out is not instant, even if the renos and appraisal are all complete and come back with flying colors.

As Matthew mentioned, the key is finding a property where you can create quite a bit of forced appreciation through rehab. An appraisal happens early in the 203k process. I would strongly suggest you make sure you're there to meet them and get their feedback. This will give you a good starting point.

Is 203k loan good a good way to get instant equity?

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