FHA 203K - Indianapolis - Does the house have to be distressed?

[Matt Speer]

I want to do a live and flip over the next 1-2 years. I have 3 roommates that are willing to pay me $475/mo in a home that suits their expectations. I've found a property that is $165K in my favorite, most desired neighborhood but it's very livable right now. The neighborhood supports a 3/2 of this size, if updated at $225K-$245K, but this house simply doesn't have the updates. Thus, the ability to make $15K-30K after living for free. 

Here's my play. I've been pre approved for $200K and want to execute a 203K loan -- I want as little out of pocket on my end as possible. I estimate my total expenses to be around $1,450 (mortgage, taxes, insurance, repairs/maintenance, utilities, wifi/cable). Essentially it will breakeven with around net $0 CF. 

Here's the question: Is this the right property to execute a 203K? My mortgage expert thinks so, but I feel like the BP crowd talks about this being best for distressed properties with TONS of upside. This property has great upside -- the neighborhood is VERY desirable but I'm not going to make $50K+ (unless the market fires up in a huge way -- let's hope). 

Please let me know your thoughts. I'm going to put in an offer unless I discover any red flags in the next day or so. 

[Clay Manship]

@Matt Speer

Seems like I am chiming in on a lot of your FHA loan related questions...haha. Here is what I would do:

Everything depends on how long you plan on being in the house. If it is one year, go ahead and do the FHA 203k loan now. You MUST live in the property for one year under any FHA loan. If you are going to live there several years, go ahead and just do a typical FHA loan for now, and avoid borrowing the additional ~$50k in rehab money for the time being.

Then, once you have said "one year from now, I plan to sell and move on" go ahead and refinance into a 203k loan product. Last I checked, for 203k products, you will still be able to achieve 97% LTV, including the post-appraised value including your rehab. Just make sure it is your only owner-occupied residence. At that time, take the ~$50k FHA will give you in the refinance, make the necessary value-adding improvements, pay the additional debt service for 12 months, and then sell for the appreciated price and be done with it.

That way you are saving on the up-front amount borrowed, but still capitalize on the FHA 203k and the increased "flip" value by forcing appreciation via upgrades. Hope that makes sense. What neighborhood is this in? Happy to give some more pointers. Shoot me a PM if you like...