Anybody with experience using 203k loan in Chicago?

Chicago, IL · Member since 2017 · 15 posts · 7 votes

I've been thinking of trying to purchase a buy and hold three flat (Multifamily) property in Chicago using 203K loan. If you have done this, what are your thoughts? Do you have any advice?

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Corey D. McCray

Real Estate Agent · Chicago, IL · Member since 2016 · 44 posts · 22 votes

Good product. Your contractor must be 203K certified. Thus they will be licensed bonded and insured. It doesn't necessarily mean they are good though. The bank has checks and balances in place to make sure their money is protected and the contractor is doing their job. Money is disbursed in several draws. The contractor must be capable of doing the job without looking for payment all the time.

The bank will send out a FHA 203k inspector to check out the property and scope of work before you even do anything to the building to make sure it is all above board and accurate.

I like it.

Which one are you looking to do? Streamline or full?

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Corey D. McCray
Real Estate Agent · Chicago, IL · Member since 2016 · 44 posts · 22 votes
8y
Good product. Your contractor must be 203K certified. Thus they will be licensed bonded and insured. It doesn't necessarily mean they are good though. The bank has checks and balances in place to make sure their money is protected and the contractor is doing their job. Money is disbursed in several draws. The contractor must be capable of doing the job without looking for payment all the time.

The bank will send out a FHA 203k inspector to check out the property and scope of work before you even do anything to the building to make sure it is all above board and accurate.
I like it.
Which one are you looking to do? Streamline or full?
5 Reply
John Warren
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
8y
@Account Closed the 203k can be an interesting product to use. You need a good team in place to pull it off. If your contractor and lender know what they are doing, things will move along fine. I would definitely stick with the streamline if you can, as it is a lot simpler for everyone involved. Which area of Chicago are you looking in?
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Spencer Blaney
Chicago, IL · Member since 2016 · 7 posts · 5 votes
8y
I've also been looking into 203k loans to purchase a multi-family property. Does anyone have any recommendations on how to find a good lender? What questions should I be asking when I am talking to lenders to see if they know what they are doing? From what I've read it seems like an experienced lender is the first key step, followed by an experienced contractor. The problem is finding those people for a first time buyer/investor.
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Spencer Blaney
Chicago, IL · Member since 2016 · 7 posts · 5 votes
8y
@Account Closed for what its worth, there is a meetup event this Thursday at Begyle Brewery at 6:30. It is a panel discussion about house hacking so I assume there is a very good chance someone there will have used a 203k loan before. I've never been to one of these events so I can't speak to the quality of them but I've seen them promoted in bigger pockets forums which is how I found out about it. It sounded interesting to me and maybe it will to you as well.
https://www.meetup.com/Chicago-Real-Estate-Investo...
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Corey D. McCray
Real Estate Agent · Chicago, IL · Member since 2016 · 44 posts · 22 votes
8y
@Spencer Blaney email me and I will send you a name.
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Account Closed
OP
Chicago, IL · Member since 2017 · 15 posts · 7 votes
8y
Hey Everyone! Thanks for the replies, and sorry for the late reply on my end.
Corey, I don't actually know the difference between a streamline and full, so now I'll have to research that.
John and Corey, based on your advice, and Corey's, it looks like I'll definitely have to do some research into Streamlining. Ideally, I'd like to try and market for an off market deal, wholesale style, and then try to secure funding my self through 203k and then house hack that for myself. I understand its a moving target in a market that already low on inventory, but for now that's my plan for now. Also, not sure what neighborhood area right now. Just really trying to figure out if it is even feasible.
Spencer, Crap! I actually live on Cuyler 2 blocks from Begyle. I'm kinda bummed I missed this! Did you go?
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Spencer Blaney
Chicago, IL · Member since 2016 · 7 posts · 5 votes
8y
@Account Closed I did go and it was very informative. They have a meetup each month at Begyle so you can catch the next one and I highly recommend going. The best part was talking with a handful of people who were really helpful and had more experience than me. The one thing they all recommended was to not do a 203k loan for your first property. This was a unanimous decision between the investors, brokers, and lenders I spoke with. They all said to save the additional 1.5% to be able to do a conventional loan with 5% down. This has really made me reconsider doing a 203k loan and I think they have convinced me to change course and go that route.
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John Warren
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
8y
@Spencer Blaney and @Account Closed you guys are right that the FHA 203k loan is a pain in the neck. It is inferior in pretty much every way to the conventional 5% loan. The only time I have clients use them is to buy beat up properties that won't pass the FHA appraisal/inspection standards. The issue though, is that you really don't want to go through the 203k process to do rehab. Just get subcontractors to do the work and come out of pocket for the renovation costs. You will always come out ahead.
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Erik ManleyPro Member
Lender · Orange, CT · Member since 2016 · 39 posts · 23 votes
8y
Just my .02, I'm not sure about specific laws in Chicago, but I completed a 203k for my first Duplex since trying to find good deals in my area was really competitive. All in all I had a positive experience and this is what I learned from the process.
1. ONLY go through a lender that has done many 203k loans
2. Contractor doesn't need to be 203k certified, but has to fill out contractor packet, W-9, have HIC License, and carry a minimum of $1 million liability policy and have the lender listed as the certificate holder on the policy (not $500k) which cost me an other week to correct during closing.
3. Streamline is up to $35k with no structural repairs, the full requires a consultant. My project was a full gut and we had to fix a part of the foundation, and cost about $90k and took 3.5 months to complete. I bought it for $151k, reno was 90k, and the house appraised at $300k. This gave me $60k in equity right off the bat and I practically have a new construction house, so it's also low maintenance.
4. The loan is a major PITA, and will take 3 months to close, so plan accordingly so you don't need an extension. If you're able to deal with the headache I'm an advocate for it. Now I'll never do another one now that I'm looking for future deals, but I truly believe I never would have gotten started or would have no equity and low cashflow like many other investors in my area.
That's just the tip of the iceberg, and it is complicated, but definatly not as impossible as everyone (thats never tried one) make it out to be. If you don't mind the bumpy ride, then I strongly suggest looking in to it and would love to answer any questions on it if you have any.
Here's a couple photos to show you what's possible, for $17k out of pocket for a $300k house, it's definitely a great way to get creative.
I have many more if you're interested. Good Luck- Erik
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Jay Helms
Rental Property Investor · Gulf Breeze, FL · Member since 2014 · 1k+ posts · 733 votes
8y
@Account Closed).
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Brie SchmidtBusiness Member
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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
8y
I have had clients do them. I do not recommend it on your first, not only is it a big undertaking but the 5% down program can only be done if you do not currently own property. So if you buy a rent ready one with 5% first you have somewhere to live and learn the landlord part of things before taking on a rehab with the 203k - and you can use 2 low money down programs.
I also recommend Guaranteed Rate - they have a whole team that only doe 203k loans. You can PM me for their info
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Tim Kelly
Investor · Pensacola, FL · Member since 2015 · 49 posts · 16 votes
8y
I will always emphasize, to anyone willing to listen, the 203k loan is arguably one of the smartest ways to get involved in real estate.
There is some “red tape” and may take longer than expected once it’s all said and done; however, leveraging the bank to pay for not only the property but the rehab itself is mind blowing!
Let me know if you have any questions.
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Michael Facchini
Lender · Chicago, IL · Member since 2017 · 438 posts · 193 votes
8y
203k (FHA) and Homestyle (Fannie Mae) rehab is our specialty. We do a ton and really make it easy. I agree with what was mentioned by others in this post. One small point though regarding streamline vs full....if a lender specializes in 203k, then you won't feel much of a difference in the process between streamline & full. Those lenders that do rehab financing "part-time", well then yes you will feel a big difference. But they won' be as fluid in the process in general, even on streamline 203k.
Often my team and I will go full 203k when a project even borders work that could be structral...just to be safe and because our clients don't feel much of a difference either way. Can save headaches down the road. Any questions on it, happy to help!
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Account Closed
OP
Chicago, IL · Member since 2017 · 15 posts · 7 votes
8y
Thank you to everyone for you advice! It has been extremely helpful in deciding which financing will work for my first property and from what it looks like a couple of options to find that lending!
@Brie Schmidt, It looks like your advice for the Chicago market is to go with a 5% first time loan to buy a move in ready 2-3 Flat and be a landlord first (provided the numbers work, of course) and then do a 203k later to dip my toe in the water of rehabbing? So I could do both if the need be? Also, I live on Cuyler, I think Guaranteed Rate is right down the street.
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Michael Facchini
Lender · Chicago, IL · Member since 2017 · 438 posts · 193 votes
8y
@Account Closed - I agree that the 5% down conventional is a great way to go (non-rehab). Feel free to PM me and I can tell you more about that program. That said, often people will advise that you can purchase with conventional and then buy with FHA....so you get 2 multi-unit buildings in the same market with little down. However, that's not easy to pull off as FHA has restrictions against buying multiple properties within 100 miles. Happy to tell you more, just hit me up! My niche is 2-4units, so I know this area very well...
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Mark Creason
Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes
8y
My first property was bought using a 203k loan. Bought 1433 W Gregory in Andersonville on the north side of Chicago back in 1995. I bought it for 145k, put about 150k into it. Converted it into condos and sold for about 550k. 203k was a great start into REI.
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Kevin Kong
Chicago, IL · Member since 2017 · 38 posts · 11 votes
7y
Hello all. First time posting but long time reader. I know it’s been a year since the last post but I was wondering wouldn’t it be better to get a 203k loan so you can fix up the property into running condition and then not worry about the property for awhile? If you were looking at it from a percentage look could you can be saving quite a bit of money and headache if you were to replace right away then to wait for the repair and maybe have more damage in the future?
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Victor SoBusiness Member
Real Estate Agent · Chicago, IL · Member since 2017 · 325 posts · 193 votes
7y
@Kevin Kong That is definitely a good point. However, I think there are pros/cons to 203k loans. While 203k loans ensures low down payments and bundles rehab costs into the loan, there are also tons of paperwork to get through for contractors, homeowners, and consultants and the process may take super long depending on the efficiency of everyone involved.
For example, I just used one to buy my duplex but it took a year for the loan to close. It took 6 months for us to just pull permits - partly due to a difficult municipality where I live, poor guidance by my consultant and contractor, and also my inexperience with the 203k loan in general - and I was finally able to move in 3 months after that. This meant that I had to pay rent where I was staying at temporarily until the rehab finished at my new place and my mortgage for the new place.
With all this being said, despite the inconvenience and inefficiencies of the 203k loan at times, I still do believe the 203k loan is an excellent way to start out especially if you plan to househack.
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John Warren
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
7y
@Kevin Kong the stress level is so much higher when you have all the layers of oversight that a 203k provides. For me to paint an apartment with my painter is maybe 800-1200 bucks. For a GC to do this through a 203k they need to charge way, way more. They may not get paid right away (they have to float the labor costs) and they have to over budget to make sure they don't go over and not get paid from the loan.
I am up to 58 units, and still haven't every done any kind of renovation loan. I am doing a big reno project right now in Cicero, and am doing it out of pocket so I can keep construction costs as low as possible.
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Kevin Kong
Chicago, IL · Member since 2017 · 38 posts · 11 votes
7y
Thanks for the advice! Would you prefer a conventional loan than a 203k loan? I wanted to buy cheap rehab as much of it by myself as possible so I can learn how a building is supposed to actually be and for me to know the costs on most stuff. I work in Bucktown and I live in uK village right now. I'm looking to stay around the area because I have dogs I let out during my lunch break and can't venture too far. I want to buy and hold. Do you have any lenders I would be able to talk with? I'm really eager to get into REI and can't wait for my first project.
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Kevin Kong
Chicago, IL · Member since 2017 · 38 posts · 11 votes
7y
@Victor So thanks for the reply! Would you prefer conventional loan or the 203k loan? I want to put at least 5% down so I may refinance and hopefully try to get a lower APR. I was listening to the BP podcast and they recommended to put at least 5% so you don't get locked into the interest rate for 30 years. Also should I do a turn key in Chicago? I would want to live where I work so the areas I'm looking into are Bucktown, wicker park, UK village, west town, Avondale, Logan square. I walk my dogs at night and I don't want to get jumped while walking them lol.
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Victor SoBusiness Member
Real Estate Agent · Chicago, IL · Member since 2017 · 325 posts · 193 votes
7y
Hey @Kevin Kong

So, I think it’ll depend on preference but for me, if you’re choosing a property with extensive rehab then I’d choose the 203k. If you’re selecting a property with minor, cosmetic rehab type of stuff, then I would do conventional and rehab the property myself.

Also, even if you do a 203k loan, you'll be able to get a relatively low APR. What rates are you looking for? I initially got my 203k loan at 5.1% and I'm refinancing into a conventional loan for 3.99%.

And also, if I were you, I’d househack. The areas you mentioned are great. Network with investor friendly agents who know thOse areas well and grab a good deal!
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Steven Lowe
Real Estate Agent · Scottsdale, AZ · Member since 2019 · 448 posts · 320 votes
7y
Hi Kevin, I've done multiple 203K projects in the Chicago area as a rehabber, feel free to PM me.

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Kevin Kong
Chicago, IL · Member since 2017 · 38 posts · 11 votes
7y
@Victor So thanks for the advice! Do you have any references for agents in the area??
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Daniel Cullen
Member since 2019 · 25 posts · 11 votes
7y
Hi Kevin....I'm a certified FHA 203k consultant but I no longer take that work b/c it's a real pain the behind and doesn't pay enough for the amount of work involved. A successful 203k or similar renovation loan can be a great way to finance a property in need of renovation but it's outcome depends on the team you assemble. The 203k consultant's job is to keep everyone in the project honest and to make sure the buyer fully understands the process. Common problems with this type of loan program are; unrealistic buyer expectations based on HGTV, 'foot in the door' pricing by unscrupulous contractors who hit the client with 'extra' charges in order to boost their bottom line, collusion between buyer and contractor to make some money under the table, failure of the contractor to take out the proper permits, and on and on. The consultant has an important role to play and should be chosen carefully. If you need a recommendation reach out to me. Best of luck!
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