Good Afternoon BP,
I'm playing with the idea of doing a 203K Streamline Mortgage on a distressed property, inhabiting it for a little while, and then putting it on the market. I'm looking to do a majority of the work with friends who work in the trades in our spare time. For those who aren't familar a 203K Streamline tops out at $35K you can finance, ontop of the initial offer on the property, for rennovations. I live in Massachusetts where real estate is a little more pricey that a lot of the country and am curious if I can realistically expect to turn a profit with only $35K for rehab costs? What should I be looking for in a property other than structural soundness, nice neighborhood,etc. specifically what makes one distressed property more profitable than another?
Thanks for your input and have a good one.
@Eric Dufault not to come off as preachy, but the 203k loans are not designed for investors but for OO. On the other hand it is a good loan structure, but one of your group will have to be a licensed contractor. You will be going through inspection processes with your lender and the FHA is pretty stringent on the appraisals of the work. Doing it on the side may not work. If you're currently renting, maybe look at the standard 203k loan so that you can lump some of the mortgage payments into the loan. But again, this is for OO only and I wouldn't go the shady route as investors have a bad enough rap out there. Maybe look into a HUD house with a homeopath renovation loan? 10% down for investors with rehab costs included?
I've been wondering about the 203k myself and the feedback that I've been receiving is that it's a lot of extra work (paperwork and actual coordination of extra inspections, apprasials, ect).
I wanted to look into HUD homes, but I wasn't sure what the best resource for them is...on the HUD website there aren't any homes listed in my area, which I find hard to believe since I'm in heavily populated Northern NJ! Are there any other resources to look for these properties?
203k loan may be a good option. I know I have heard of them allowing down payment as low as $100.00. To may knowledge the amount they will loan of coarse is measured by the amount of equity the home may have. And I believe the works has to be completed by licensed and insured professionals who provide the quotes as proof of project cost.
$35k may be more that enough to do the repairs. But the key is to find something distressed but with no real structural issues(foundation, roofs, termite damage, fire damage).
Find something that may just require cosmetic upgrades floor paint carpet maybe kitchen and bathroom. and make sure you are looking at residential homes SFR dwellings, not a multifamily that may require more money. Also 3 things for a flip I feel help yout turn around that people over look is curb appeal, location and floor plan
Curb Appeal- is the property pleasing to the eyes
Location- are you next to major highways, shopping centers, schools, majorty home owner nieghborhoods.
Floor Plan- does the floor plan make sense or is everything od? do you have to go throw to 2 hall ways a room and a bathroom to get to another room?
all this matters for a flip
Thanks @Chris GIllins I'd plan on living there for at the least a year before either selling or refinancing it into a rental property, propbably shouldn't have used the term "flip" in the subject line. Also reading through again, the licensing is the key issue where I'm going to run into trouble. For anyone interested here is a great link to the guidelines of 203K's. I read through it yesterday and probably should have consulted it again before posting this to the discussion board:
Moving along though, I'm curious where you could throw $35K at and expect the most bang for my buck.
Eric, just to add info to the 203k conversation, I did a 203k loan some time ago, and while it was in NH, I had to use only those contractors approved on the 203k program. So not only is your licensing a problem, but you must choose from a small list of contractors. Which gives them license to charge full retail. Second, I was required to do work that I had not planned on: case in point, HUD required me to add gutters where I didn't plan to put them, which of course increases costs and eats into your budget.
Now, for your last question:
I did live on the Cape for 3 years, but wasn't investing way back then, so I'm not knowledgeable enough about the market to offer you any advice on it. But 35K is not a lot of money, so you are basically looking at a strictly cosmetic rehab on a property that is in already liveable condition. Which is what all investors are looking for, so you are facing lots of competition for those properties. In addition, the spring market is hot on the cape. Profitability is achieved by providing what buyers are looking for, on the cape that is proximity to water. Not that that is the only factor, just that it's a big deal.
But I would start networking with other investors if I were you. Try
Eric, Having done 203k loans and again their are many loop holes. I will say being a contractor has it's advantage although in NJ if you work with a good lender and a good 203k person (ooopppsss "consultant" lol) they get real easy after your first one. In my opinion i would not do a stream line as the rules are to strict. The reg 203k allows for a lot more flexibility and better payouts to the contractors (which in part can be you) that allows the flow of quick renovation in my opinion to move more smoothly. Although a little more fee based Reg 203k loan is my choice. Just my opinion. That said I would also strongly suggest you visit the podcasts here before leaping as i am not sure you have a good footing and "plan" on your near future real estate endeavors by the hesitancy in your post. Best of luck
@Eric Dufault "Moving along though, I'm curious where you could throw $35K at and expect the most bang for my buck."
I think you found it in the link: Roof, Paint and Landscaping (Curb appeal)!
As a contractor I have worked on many 203k streamline projects. You will need to pull permits for all work that requires it or the bank will not issue any payments. This includes plumbing and electrical. Your contractor does not need to be certified but they will need to have a license, proper insurance and references for the bank to approve them
I would consult with a local mortgage banker who does these 203k regularly, to consult and help you navigate the process. While it seems like a great program on paper, the reality may differ.
35k is gone pretty quick on a decent rehab, so you really would have to find a cosmetic type rehab that doesn't require major structural repair and permitting.
I actually talked to the second largest 203K mortgage lender in the country and yes they have their approved contractors but if your contractor can provide 3 references which are similar to the work needed, the bank will consider approving them as long as they are licensed, insured, provide tax info. etc. I'm actually taking my test for my CSL and think that being a 203K approved contractor would be a pretty good niche where you could make some money when not investing. Thanks everyone for the great input so far!
I completed two rehab loans last year. One with a contractor (FHA203K) and the second was an investor rehab loan. The second one had a contractor I ended up firing. You can read about that here... Spike TV Catches The Contractor That Screwed Me.
Each lender has different rules, there are lots of grey areas but I will share this with you. I have never in my life been more stressed out and unhappy as I was dealing with the second rehab project myself. Trying to save money I missed out on at least one $30,000 deal, all to save a few dollars on project management.
The first project with a single GC running it? I went to Belize.
If you have any questions on these loans feel free to reach out to me, I know them inside and out. They are fantastic programs but there are a lot of rules that suffocate productivity quickly if you aren't careful.
@Tim Gordon I am in the middle of a small storm regarding 203k. I have a contractor who does 203k's all the time and is charging about 26k and another licenced, insured contractor who will do the same job for 21k but never done a 203k before. Looking at all the requirements it looks daunting. I see your phone number on your website, would you mind if I reached out to you for a few mins?
Sure feel free to.
For what it's worth, $5,000 amortized over 30 years is nothing.
Big thing is be sure to go view past and current projects, ask for testimonials from past clients and not just ones that are active projects.
A well qualified contractor will be your project manager and that is worth a lot.
I literally sat on a beach getting picture messages during my first project, did I pay more? You bet, did I end up in therapy after the project, nope.
Effective October 7, 2014, Fannie Mae is retiring the HomePath Mortgage (HPM) and HomePath Renovation Mortgage (HPRM) products.
That's great, but this thread has nothing to do with FNMA or Homepath.
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