Anyone in Maryland used a 203K for a Live & Flip?
Investor · Arnold, MD · Member since 2016 · 8 posts · 1 vote
Anyone in Maryland used a 203K for a Live & Flip?
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Contractor · Chesapeake Beach, MD · Member since 2014 · 21 posts · 8 votes
10y@Sean Myers I'm into the first 6 months of my 2 years of this process. Getting the 203K set up did take extra time, but once you get to closing the seller walks away with their money then the construction process starts. There is 2 different types of 203K (Full and Lite) the full is for amounts of work greater than 35K and requires hiring a 203k consultant for the project that ensures that the work is being done correctly. They work as your advocate. The lite version can be done without the consultant.
My property appraised for about 20% above the loan. Still have to pay PMI though until I Refi it.
12 Replies
- Contractor · Chesapeake Beach, MD · Member since 2014 · 21 posts · 8 votes10y
@Sean Myers I'm into the first 6 months of my 2 years of this process. Getting the 203K set up did take extra time, but once you get to closing the seller walks away with their money then the construction process starts. There is 2 different types of 203K (Full and Lite) the full is for amounts of work greater than 35K and requires hiring a 203k consultant for the project that ensures that the work is being done correctly. They work as your advocate. The lite version can be done without the consultant.
My property appraised for about 20% above the loan. Still have to pay PMI though until I Refi it.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes10y
@Marc M. you might want to follow this thread
District Invest Group545 Reviews - Investor · Arnold, MD · Member since 2016 · 8 posts · 1 vote10y
Originally posted by @Shawn Gageby:
@Sean Myers I'm into the first 6 months of my 2 years of this process. Getting the 203K set up did take extra time, but once you get to closing the seller walks away with their money then the construction process starts. There is 2 different types of 203K (Full and Lite) the full is for amounts of work greater than 35K and requires hiring a 203k consultant for the project that ensures that the work is being done correctly. They work as your advocate. The lite version can be done without the consultant.
My property appraised for about 20% above the loan. Still have to pay PMI though until I Refi it.
Thanks @Shawn Gageby I really appreciate the input.
Before the seller walked away you secured a 203K based on an ARV that came in 20% higher than (the traditional loan + the repair costs) allotted by the FHA folks if I understand correctly.
So the PMI makes sense. May I a so whether you know what happens if the repairs come in under budget? I've been in construction for 20 years and I wonder if my knowledge VS the appraisal might benefit me at the end of the transaction. Is the repairs portion of the loan like a HELOC that only charges you for what you ultimately use?
Thanks again for your input. This forum is a great place for getting questions answered. If you ever have an electrical question you'd like another opinion on, drop me a line. I've got lots of experience im happy to share!
Sean
- Investor · Miami, FL · Member since 2015 · 1k+ posts · 390 votes10y
Originally posted by @Sean Myers:
I've decided to make my next investment a "live and flip". The plan is to buy a distressed property at the right price and use a 203K loan to fund the bulk of the rehab work. Once that work is done I'll be an owner occupant for the required two years.
So my first question to you fine folks is has anyone gone through this process in the Anne Arundel County area? My main concern is a seller rejecting an offer he or she would have otherwise accepted for fear of the drawn out 203K process about which I've read so much. I imagine for a distressed property I'd be looking at a "full 203K" and I read some real nightmare stories.
Question #2 is whether anyone has ever rehabbed a SFR to include a legal accessory dwelling unit (In-Law- Apartment) in this area? If so, how did the process with Zoning and Planning / permitting go?
Thanks in advance for any advice.
Sean, great decision to take the plunge, not familiar with Maryland, however, most of the recommendations should hold true no matter where you are in the country.
Here are a few pointers:
1) Use an experienced 203k lender, not someone that has done (1) or (2) just google 203k lender for your immediate area, call (3) get best rate, listen to experience pick (1)
2) Its all about value, in some cases you can go 110% of appraised value, giving you more money for your renovation if you need it, depends on your situation and market. Be REALISTIC! do not get carried away, play conservative on your first deal, leave some room for error.
3) Find a qualified and experienced contractor, do not settle for cheapest, you want experience here, because their is a significant administrative burden not only paperwork, proper formatting, but also financial constraint on the contractor as these sometimes have $0 prepayment to contractor. Keep it simple, search the 203k contractor database, you wildlife one in your area, call a few then pick best one.
These are the basics if you need more help send me a private message, happy to help.
Much Luck!
- Contractor · Rockville, MD · Member since 2014 · 423 posts · 135 votes10y
Originally posted by @Sean Myers:
Originally posted by @Shawn Gageby:
@Sean Myers I'm into the first 6 months of my 2 years of this process. Getting the 203K set up did take extra time, but once you get to closing the seller walks away with their money then the construction process starts. There is 2 different types of 203K (Full and Lite) the full is for amounts of work greater than 35K and requires hiring a 203k consultant for the project that ensures that the work is being done correctly. They work as your advocate. The lite version can be done without the consultant.
My property appraised for about 20% above the loan. Still have to pay PMI though until I Refi it.
Thanks @Shawn Gageby I really appreciate the input.
Before the seller walked away you secured a 203K based on an ARV that came in 20% higher than (the traditional loan + the repair costs) allotted by the FHA folks if I understand correctly.
So the PMI makes sense. May I a so whether you know what happens if the repairs come in under budget? I've been in construction for 20 years and I wonder if my knowledge VS the appraisal might benefit me at the end of the transaction. Is the repairs portion of the loan like a HELOC that only charges you for what you ultimately use?
Thanks again for your input. This forum is a great place for getting questions answered. If you ever have an electrical question you'd like another opinion on, drop me a line. I've got lots of experience im happy to share!
Sean
Since I'm going through this right now myself, my understanding is that if you come in under budget, you pay interest on the original loan amount throughout the project but once complete, the amount left over goes towards paying down your principal.
Good luck, I'm working on finding a property right now myself. And thanks @Russell Brazil for turning me on to this thread, I'll be following the progress.
- Newark, NJ · Member since 2015 · 162 posts · 102 votes10yI understand that you have two options if you come under budget or say, you didn't touch your contingency funds: (1) the balance can be applied towards your principal, or (2) you can use the monies towards additional improvements above beyond those outlined in the loan application.
- Contractor · Chesapeake Beach, MD · Member since 2014 · 21 posts · 8 votes10y
@Sean Myers There is usually a contingency amount that is held in addition to the cost of the repairs. In my case we held out an additional 10%. If the repairs come in less and the contingency is not used then the remaining balance can be put back on the principal. I had some additional items that I wanted done once I got into the property which I paid for out of pocket. You will need to find a good general contractor to do the work and they are required to have their MHIC License to do the work. I recommend getting 3 prices from qualified contractors. The one that you select will have a stack of paperwork to fill out and you will need to develop a good and detailed scope of the work to be performed.
Also, @Steven Gesis 's advice to work with a lender that has experience is very accurate. I started the process with a local 3 letter named bank that totally dropped the ball and forced me to run to another lender. Fortunately I was able to get it done even when the first bank said that it was not possible.
- Investor · Miami, FL · Member since 2015 · 1k+ posts · 390 votes10y
Shawn, this is a common issue we hear when dealing with individuals, we are very keen on this, thank you for reinforcing this statement. Its all about the team you have in place to do this loan with, if your team does not have the experience with this product, it can be very painful.
- Investor · Arnold, MD · Member since 2016 · 8 posts · 1 vote10y
@Steven Gesis @Ro Maga @Marc M.
Thanks for all the great information! I've been looking for quite awhile now for the perfect property in Anne Arundel County to work this type of approach. So long in fact, I'm starting to look in the neighboring Howard and Baltimore Counties.
Anyone have any experience with ADUs in Anne Arundel County? It's legal according to the Code but finding the right property is like finding a needle in a haystack!
- Contractor · Rockville, MD · Member since 2014 · 423 posts · 135 votes10y
You may want to start looking for off-market properties. My first direct mail campaign will be going out in a couple weeks as it's virtually impossible to find a deal on the MLS in our area. We put an offer in on a place in DC yesterday that was listed for 5-6 days and there were over 20 contracts submitted. It's very tough to compete when you're competing with all those people, particularly when your offer includes several mandatory contingencies due to the financing. I feel your pain as I'm in the same boat.
- Investor · Arnold, MD · Member since 2016 · 8 posts · 1 vote10y
Originally posted by @Marc M.:
You may want to start looking for off-market properties. My first direct mail campaign will be going out in a couple weeks as it's virtually impossible to find a deal on the MLS in our area. We put an offer in on a place in DC yesterday that was listed for 5-6 days and there were over 20 contracts submitted. It's very tough to compete when you're competing with all those people, particularly when your offer includes several mandatory contingencies due to the financing. I feel your pain as I'm in the same boat.
@Marc M. I may start a small campaign myself. I spent a few hours on SDAT listing th names and addresses for the owners of homes that fit my plan and are located just where I'd like to buy. I got about 25 target properties and I'm thinking I'll do the same for the two runner up locales. From what I've read, a letter every other month might eventually get some results.
- Contractor · Rockville, MD · Member since 2014 · 423 posts · 135 votes10y
Originally posted by @Sean Myers:
Originally posted by @Marc M.:
You may want to start looking for off-market properties. My first direct mail campaign will be going out in a couple weeks as it's virtually impossible to find a deal on the MLS in our area. We put an offer in on a place in DC yesterday that was listed for 5-6 days and there were over 20 contracts submitted. It's very tough to compete when you're competing with all those people, particularly when your offer includes several mandatory contingencies due to the financing. I feel your pain as I'm in the same boat.
@Marc M. I may start a small campaign myself. I spent a few hours on SDAT listing th names and addresses for the owners of homes that fit my plan and are located just where I'd like to buy. I got about 25 target properties and I'm thinking I'll do the same for the two runner up locales. From what I've read, a letter every other month might eventually get some results.
Yes, though that method sounds incredibly tedious. I *believe* you can get virtually the same info from a site like Listsource.com and you can really drill down on who you want to target. There are also several people on here that handle yellow letters. Jerry Puckett is doing my mailing.
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