Adding Value to a House-Hack
Hello all! I'm currently looking to house-hack in Columbus, OH and was wondering if anyone has had experience doing a value add while using an FHA loan. I know there is a 203k addition to this loan, but I've heard it is difficult to obtain. I really wanted to get a duplex and add some equity to it through a small rehab but it seems very complicated. If I can't get it done, I will most likely be going with a turn-key property as my first. Thanks for any and all input!
Hey @Thomas O'Donnell, 203k loans are difficult. You can obtain them but it is hard to get an offer accepted with them and harder to find contractors willing to work with a 203k loan. There is more red tape, paperwork, etc. One of the best things about a house hack is you can take your time to do the rehab. You can work on your unit yourself while you live there for a year or two. You will learn so much and keep your costs down. Honestly, it might be the best learning experience you'll have in real estate.
Quote from @Brad Hammond:
Hey @Thomas O'Donnell, 203k loans are difficult. You can obtain them but it is hard to get an offer accepted with them and harder to find contractors willing to work with a 203k loan. There is more red tape, paperwork, etc. One of the best things about a house hack is you can take your time to do the rehab. You can work on your unit yourself while you live there for a year or two. You will learn so much and keep your costs down. Honestly, it might be the best learning experience you'll have in real estate.
Thanks for the reply! So if I'm planning on house hacking, what condition would be acceptable? It obviously needs to be in living condition but to what extent of a rehab would I be able to do?
I am also planning on house-hacking a duplex. What is your advise for rehabbing your unit while another tenant is next door (if rented out). It seems like the noise from any work would bother people, no?
@Thomas O'Donnell I've done major rehabs to my house hacks & I've also helped a lot of my clients do the same.
Few things:
1. I've always used FHA without the 203K component on my own deals. Reason for this is I've always been up against the FHA loan limits, and so I had no room to add the construction to my loan. I also have construction in my family - and now co-own a construction company with my wife. So, we are in this business as well and understand it, so no need to use outside people.
2. I help a lot of clients use FHA and FHA 203K. @Brad Hammond is not wrong, it is a tough loan. In my experience - you need your lender & realtor to be on the same page and support you with this. You will definitely lose on more properties than you win, but it's not impossible. I don't know your market, but in ours, two-unit properties are less desirable for true investors. Couple that with a property that is in very rough shape - and there won't be a ton of demand on it.
Why is that important? If you're going to use a loan like FHA 203K, you won't be the most competitive buyer. So find a property that also isn't very desirable, and make it work.
My personal strategy has been to find two-family homes (again, less desirable), and add significant value. We try to finish basement space when we can, and add beds/baths. This makes our numbers great - but we don't find as much competition which also helps.
Long way of saying feel comfortable sticking with your plan, but you will need to be both patient & creative. Best of luck!
Quote from @Nick Riccio:Thank you so much for this response! It is truly appreciated. I’m moving to Columbus, Ohio. If I was planning to use an FHA loan without the 203k, and then do a rehab, what would you suggest in terms of financing the rehab?
@Thomas O'Donnell I've done major rehabs to my house hacks & I've also helped a lot of my clients do the same.
Few things:
1. I've always used FHA without the 203K component on my own deals. Reason for this is I've always been up against the FHA loan limits, and so I had no room to add the construction to my loan. I also have construction in my family - and now co-own a construction company with my wife. So, we are in this business as well and understand it, so no need to use outside people.
2. I help a lot of clients use FHA and FHA 203K. @Brad Hammond is not wrong, it is a tough loan. In my experience - you need your lender & realtor to be on the same page and support you with this. You will definitely lose on more properties than you win, but it's not impossible. I don't know your market, but in ours, two-unit properties are less desirable for true investors. Couple that with a property that is in very rough shape - and there won't be a ton of demand on it.
Why is that important? If you're going to use a loan like FHA 203K, you won't be the most competitive buyer. So find a property that also isn't very desirable, and make it work.
My personal strategy has been to find two-family homes (again, less desirable), and add significant value. We try to finish basement space when we can, and add beds/baths. This makes our numbers great - but we don't find as much competition which also helps.
Long way of saying feel comfortable sticking with your plan, but you will need to be both patient & creative. Best of luck!
Quote from @Thomas O'Donnell:
Hello all! I'm currently looking to house-hack in Columbus, OH and was wondering if anyone has had experience doing a value add while using an FHA loan. I know there is a 203k addition to this loan, but I've heard it is difficult to obtain. I really wanted to get a duplex and add some equity to it through a small rehab but it seems very complicated. If I can't get it done, I will most likely be going with a turn-key property as my first. Thanks for any and all input!
Hello Thomas! This is so exciting that you want to get your first investment soon! House hacking is definitely a great way to get into real estate. I am currently house hacking my duplex right now and the advantages that it can offer you is amazing!
Please feel free to contact me if you have any questions and good luck out there!
Quote from @Thomas O'Donnell:
Quote from @Nick Riccio:Thank you so much for this response! It is truly appreciated. I’m moving to Columbus, Ohio. If I was planning to use an FHA loan without the 203k, and then do a rehab, what would you suggest in terms of financing the rehab?
@Thomas O'Donnell I've done major rehabs to my house hacks & I've also helped a lot of my clients do the same.
Few things:
1. I've always used FHA without the 203K component on my own deals. Reason for this is I've always been up against the FHA loan limits, and so I had no room to add the construction to my loan. I also have construction in my family - and now co-own a construction company with my wife. So, we are in this business as well and understand it, so no need to use outside people.
2. I help a lot of clients use FHA and FHA 203K. @Brad Hammond is not wrong, it is a tough loan. In my experience - you need your lender & realtor to be on the same page and support you with this. You will definitely lose on more properties than you win, but it's not impossible. I don't know your market, but in ours, two-unit properties are less desirable for true investors. Couple that with a property that is in very rough shape - and there won't be a ton of demand on it.
Why is that important? If you're going to use a loan like FHA 203K, you won't be the most competitive buyer. So find a property that also isn't very desirable, and make it work.
My personal strategy has been to find two-family homes (again, less desirable), and add significant value. We try to finish basement space when we can, and add beds/baths. This makes our numbers great - but we don't find as much competition which also helps.
Long way of saying feel comfortable sticking with your plan, but you will need to be both patient & creative. Best of luck!
The point of a so3k loan is they finance the renovation loan into the initial loan. Does that answer your questions or am I misunderstanding your question?
Quote from @Remington Lyman:
Quote from @Thomas O'Donnell:
Quote from @Nick Riccio:Thank you so much for this response! It is truly appreciated. I’m moving to Columbus, Ohio. If I was planning to use an FHA loan without the 203k, and then do a rehab, what would you suggest in terms of financing the rehab?
@Thomas O'Donnell I've done major rehabs to my house hacks & I've also helped a lot of my clients do the same.
Few things:
1. I've always used FHA without the 203K component on my own deals. Reason for this is I've always been up against the FHA loan limits, and so I had no room to add the construction to my loan. I also have construction in my family - and now co-own a construction company with my wife. So, we are in this business as well and understand it, so no need to use outside people.
2. I help a lot of clients use FHA and FHA 203K. @Brad Hammond is not wrong, it is a tough loan. In my experience - you need your lender & realtor to be on the same page and support you with this. You will definitely lose on more properties than you win, but it's not impossible. I don't know your market, but in ours, two-unit properties are less desirable for true investors. Couple that with a property that is in very rough shape - and there won't be a ton of demand on it.
Why is that important? If you're going to use a loan like FHA 203K, you won't be the most competitive buyer. So find a property that also isn't very desirable, and make it work.
My personal strategy has been to find two-family homes (again, less desirable), and add significant value. We try to finish basement space when we can, and add beds/baths. This makes our numbers great - but we don't find as much competition which also helps.
Long way of saying feel comfortable sticking with your plan, but you will need to be both patient & creative. Best of luck!
The point of a so3k loan is they finance the renovation loan into the initial loan. Does that answer your questions or am I misunderstanding your question?
Since 203k loans are difficult to execute on, I was wondering if it makes sense to use an FHA to obtain a property that needs a rehab and then finance it in a way other than using the 203k addition.
I guess what I'm meaning to say is that I want to do a house-hack but also add value to it up front so I end up not only adding equity but giving myself a little cushion should something go wrong. Would I still be able to obtain a property that needs a rehab using just an FHA loan without the 203k addition?
@Thomas O'Donnell condition of property definitely comes into play with the standard FHA program. That is definitely something to be aware of if you are looking for properties that will need renovation.
Quote from @Nick Riccio:
@Thomas O'Donnell condition of property definitely comes into play with the standard FHA program. That is definitely something to be aware of if you are looking for properties that will need renovation.
Yeah I understand that. I just don't know what extent of a rehab you can go to when using an FHA loan, if you aren't planning on using the 203k addition.