203k deal is going very poorly, advice?

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203k deal is going very poorly, advice?

James H.
Philadelphia, PA · Member since 2018 · 18 posts · 6 votes

I decided to jump into the deep end for my first home purchase project, it is much deeper than I wanted..... I purchased a property for 129k in August of 2018. It was in pretty banged up shape but didn't look outrageous to replace. The total loan amount is around 298k including contingency to get it all done. From the get go, the primary focus was on tying into the sewer system since it has a septic tank now, which is failed. I finally got that process in motion and have the permits from the state EPA for work to start on that once the engineers wrap up. The expense for just that will be somewhere around 30-50k (engineers, water crossing permits for the stream, excavation, old tank removal, more permits, etc.). The contractor showed up for a township meeting and sent in a few checks to keep things moving along but didn't do much else in the way of coordination. I have been project managing this whole thing. ARP is somewhere in the 300-400k range. It's a special parcel of land because of the water way and community and the school district.

I'm pretty handy with carpentry and some masonry so I got to work on the rest of the house in the meantime while the sewer saga played out. There is a lot of smaller scale carpentry work that needs to be done, which I have been doing. But....the way the stucco was done originally, in the 60's means that they didn't use a weep screed and around the entire house the sill plate, rim joist, and at least some of the joist ends are toast because of the water that got into the walls and couldn't drain or vent anywhere. The foundation is hollow block and also in seriously bad shape, which was hidden behind finished basement walls. These oversights are due to my inexperience (which I am wising up to pretty quickly) and incompetent people who have been working on it. The 203k consultant didn't find the foundation a concern at all and mentioned smearing concrete over foundation cracks to fix the one that was visible. In reality, and knowing more now, there are vertical cracks near the i-beam, pushed in walls, horizontal cracks, a lack of a sill plate in some locations, etc. I didn't know and they didn't know, and there was much hidden behind some finished basement walls. It has been a massive oversight....I consider this my 1 year accelerated renovation PHD program. I digress....

My general contractor is very poor at responding/communicating and I deeply regret not doing more about this sooner but since August this is what he has done:

  • replaced the shingles
  • replaced the heat pump unit
  • sealed the flat roof with elastomeric coating, but got the silver material all over the dark brown gutters so it looks horrendous
  • Replaced the outside A/C unit
  • Replaced the well motor/pump, but no further testing of the well or plumbing has been done.

This is what I have done (keep in mind, I have a full time job and also run a small side business):

  • Built a new front door from scratch (it was pointed and not rectangular so no off the shelf options). Had to get custom locks and learn how to do that since the locksmith wanted $1500 alone because of the odd dimensions and backset
  • Demoed the interior and single handedly filled two flat bed dumpsters, need atleast 1 more for the trash still present 
  • replaced the wood siding and framing for one of the balconies, will be laying down the epdm waterproofing this week
  • Bought a few french doors from craigslist, which happened to be the exact size I needed
  • installed a new cross beam section (old one was rotted and sagging) above the old 4 panel french doors
  • I also removed the stucco from most of the house and am putting up new plywood and homewrap on as much as I can, keeping in mind the bottom portions will need to be replaced due to the sill plate/foundation issues
  • Replacing the fascia as I come to it with PVC Azek
  • I also have some tile, toilets, chandelier/lighting, and various other components I need but have not started to use yet. Purchased from Habitat/goodwill to save costs
  • Removed vines from the entire house and cut down probably 10 trees that were encroaching
  • And I have a pile of scrap metal I'll deal with later

What's on deck to complete the project:

  • replace the sill plate
  • repair or replace the foundation
  • need to buy and install several french doors
  • various bottom plates will need to be replaced
  • entire kitchen
  • bathrooms are mostly ok and I might just leave them to "finish" the 203k, then remodel later
  • remaining stucco needs to be removed
  • new plywood siding, new stucco
  • upgrade the electrical box and have the wires looked over in the house
  • Plumbing needs to be addressed
  • drywall

What's clear to me is that the contractor is either a con-artist or completely incompetent (leaning towards latter). He always mentions all of his other jobs like mine is an afterthought despite this being a massive project, he gravely misstated the scope of. I also am deeply concerned about him tackling the foundation since when he says "he will have a guy look at it," I read that to mean this will be really amateur work and in no way will it be done correctly. This is unacceptable. 

The two main hurdles have been the sewer system project and the new one is the foundation since I can't really finish the siding/framing until that is squared away. I have a foundation expert looking at it this Saturday and I will find a way to pay if that's the road I have to take. 

Since this is a 203k, the GC should be fronting the money for all of this, which he has been for smaller scale stuff. They he files for a draw periodically as milestones are reached. But, I think that for the bigger more expensive projects he is not able to do so, hence the slow progress of the work and his fixation on other projects. He even mentioned talking to the lender so they could issue the money to pay for the job instead of him, which as far as I can tell isn't kosher. So far, we have completed only one draw for about 10-15k for the work he did to date.

I'd like to fire him but I am concerned that he so severely underbid for this project that no one else is going to be able to get it done. I've been filling this gap by doing the work myself, which works for some things but frankly I am not going to fix the foundation myself, I will leave that to the pros. 

I want to do the work too, just not all of it: nothing you need training for or professional equipment, which IMO rules out me doing any plumbing, electrical, foundation. I'm basically a novice carpenter. I am finally accepting that this is way beyond where things should be and decided to tell my story and seek advice. Every time I have complained to the lender, the 203k consultant, or the contractor things seem to move briefly but then it dies again and we are back to nothing happening.

Some questions:

  • Is there a legal case against the GC or consultant, is that worth it? What are the pros and cons and if the pros outweigh, when to bring any action (now, after project completion, etc)
  • Am I at risk of losing the property since its not going to be done any time soon and as I understand 203k's, they should be done within a certain timeframe....now by my estimation. Is there a time limit at which point the bank takes some kind of action?
  • I have been on time with mortgage payments, which because they are on the full value of the loan, I'm paying for an expensive house
  • Is there a risk that much of the work has not been done by a licensed professional contractor but by me instead?
  • What are the other risks?
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Diana Muresan
Lender · Chicago, IL · Member since 2018 · 352 posts · 147 votes
7y

@James H. I am 203k Fha and Fannie Mae HomeStyle certified. First of all, GC receives 50% of material costs at closing and 3-4 draws after, secondly, you don’t need to make mortgage payments during renovation up to 6 months if property is inhabitable and thirdly you have about 9 months to finish the renovation. Yes, GCs at always the weekest link in a reno loan, reason why I never get involved to recommend one.  How did you find yours in the first place?

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  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    7y

    How much experience with real estate investing did you have before taking on this project? This sounds like a monster of a property with pitfalls every where. It's like working vehicles from the late 80's- early 90's, everything covered in rust, dry rotted gaskets, the more parts you touch the more you spend. 

    I can offer advice regarding the water well if you have any details about it (diameter, material, age, and detail about the pump installed). A legal case against the GC, do you want to spend more money to hire a lawyer and take that route? It sounds like a waste of time at this point. 

    0Reply
  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    7y

    I would say you're not at risk of losing the property but 203k loans are weird. Hopefully someone with more experience can add to that. As a novice investor I never considered that type of loan. I want complete control of the contractors.

    0Reply
  • James H.
    OP
    Philadelphia, PA · Member since 2018 · 18 posts · 6 votes
    7y

    Thanks for your help. The well system looks like a big blue tank in the basement with a motor. The pipe goes into the wall and outside. The yard has a few pits on the hillside where the pipe looks to be going to. That might be where the actual well is. I picture a well as one of those old stone ones with the bucket you drop in. Ha, so clearly this is a buried and sealed unit but it would be helpful to know where the well is dug since they will be digging around the property soon for the sewer and foundation. The property abuts a stream and its very wet, so I doubt it has to go very deep. What should I know about wells? I added this to the end of the list some time ago and haven't looked at it.

    This is my first project. I think any pitfalls I would have experienced with real estate after several years has been condensed into the last 9 months. At this point I can see certain things that if I open them up, will delay the project. I think I have the bare minimum exposed now and will deal with the rest once we can call this done. I checked in to see what needs to happen for a 203k to be finished, so then I can refinance, and its basically "livable condition" per the township occupancy minimums. A far way off from where I am but I consider the sewer and the foundation to be the hump, the rest should be relatively basic stuff. 

    1Reply
  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    7y

    That's good to know! If you're handy I'm sure you can fix the smaller issues. That type of water well is called a swallow jet pump. The entire system is buried underground and most likely is the original house well. The tank is an expansion tank and it's under pressure pulling the water via the pump you replaced. Drillers don't typically install wells like that anymore due to faster installation methods and maintenance. Sounds like you have good water. I wouldn't be concerned about it. 

    1Reply
  • Franklyn Williams
    Real Estate Broker · Nassau County, NY · Member since 2019 · 22 posts · 11 votes
    7y

    Hey @James H., it seems you've indeed jumped in on the deep end as you've acknowledged, and not only have you done substantial work yourself, you also have a positive attitude about the contractor hiccups along the way.  You'll survive it with invaluable lessons learned, but first you'll need to get through it.  A friend had similar hiccups with a 203K contractor for her SF renovation recently and she fired him.  If you're not comfortable with your contractor, get estimates from other ones and seriously consider doing the same without delay after finding a suitable replacement. This time around, get a contractor you can work with, detail your scope of work in your own document if necessary, and consider adding a reasonable work schedule with penalties for delays beyond a certain amount of days, among other things.

    I can't advise you on PA law. Still, while you may consider suing the contractor (if, say, you agreed on a certain price/scope of work and b/c of his negligence or breach of contract you have to pay a higher price/do additional work or you're put in a worse position), it may be best to focus on what's in front of you - the project - and consider suing thereafter once you have more information about costs, delays, damages, etc, and an opportunity to reflect on whether it's worth it. 

    I doubt you're at risk of loosing the property.  Lenders are expected to act reasonably and if you're making reasonable efforts towards completion, you should be ok, though it is best to consult the lender and consultant on any timing issues (and to the extent you feel necessary -  a PA atty if your legal rights become an issue).

    At least in NY, not every repair/maintenance in a home requires a license contractor (as opposed to the homeowner) or even a permit.  In the case I mentioned above, after the GC was fired, the town, per the friend, listed her as the GC for the remaining work (which didn't require a licensed contractor), work she hired out. Still, it is best to check with your town's permit or building office, review the applicable permits you've received, and even consult any lender rules/limitations you may gotten.  Best of Luck.

    1Reply
  • James H.
    OP
    Philadelphia, PA · Member since 2018 · 18 posts · 6 votes
    7y

    That is an interesting point. I'll ask the 203k consultant what he thinks about making me the GC. The main issue I see would be in fronting for the expenses since its been a super tight budget thus far. But this is literally all my GC needed to do, was hire people for the work and do the work. I have another contractor in mind. I will see if he can come on and agree to what I need done and can work with me doing some of the work myself. Creating my own budget proposal is an interesting idea you bring up, I will see if that works. 

    The lenders made it out like it was a huge process to fire the GC. But, it needs to happen I think. I have been patient and made completely reasonable requests. One question I would have though is since there is a 10% hold back, how would that be handled if the GC was fired? The timing isn't bad either, first draw complete, he shouldn't be out additional money....its a fair time to part ways and start anew. 

    0Reply
  • Charlie MacPherson
    China, ME · Member since 2014 · 3k+ posts · 4k+ votes
    7y

    @James H. I can tell you a bit about the well.  I'm not an expert, but here goes:

    As to the location of the well, the town should have those records.  Check with either the building dept or the board of health.  If you are in fact on town sewer, the location shouldn't be an issue.  However, if you have private septic, your town (and common sense) will require a minimum separation.  Here where I live in MA, it's 100 feet.

    You should get a test kit at Home Depot or Lowes.  They have dip-strips that test for multiple chemicals and contaminants.  The kit should also include a test tube and reagents to test for e. coli and particulates. 

    The stores also have sample collection kits that you can send out for a free analysis - but they get sent to a company who wants to sell water treatment systems, so a grain of salt is in order of you go that route.  I'd do the dip-strips first.  

    The blue tank is your pressure vessel.  The well pumps into that tank at something like 28 PSI, which is your domestic water pressure.

    There will be a gray or black box at the base.  That's the pressure sensing relay and can be adjusted to increase or decrease the water pressure.  If you hear water audibly splashing inside when the pump is running, the vessel needs replacement as the internal bladder is shot.  

    Even with surface water like a stream or pond, chances are good that the well is a few hundred feet deep or more.  Again, the town should have that all on record too.

    One other item.  The copper piping at the bottom of the blue pressure vessel brings very cold water in from the well.  During the hot, humid summer days, that pipe sweats like crazy.  Take a look at the flooring underneath to be sure it hasn't rotted it out.  (Ask me how I know this...)

    As to the legal stuff, I'd pay an attorney for an hour of his time to see what options you have.  That's a cheap investment for good advice.

    1Reply
  • James H.
    OP
    Philadelphia, PA · Member since 2018 · 18 posts · 6 votes
    7y

    Thanks for the advice Charlie. The blue vessel is in the basement near the water tank and it had a small moat around it to contain the sweat, I imagine. 

    Very helpful advice and information everyone, thanks for the support. 

    0Reply
  • Franklyn Williams
    Real Estate Broker · Nassau County, NY · Member since 2019 · 22 posts · 11 votes
    7y
    Originally posted by @James H.:

    That is an interesting point. I'll ask the 203k consultant what he thinks about making me the GC. The main issue I see would be in fronting for the expenses since its been a super tight budget thus far. But this is literally all my GC needed to do, was hire people for the work and do the work. I have another contractor in mind. I will see if he can come on and agree to what I need done and can work with me doing some of the work myself. Creating my own budget proposal is an interesting idea you bring up, I will see if that works. 

    The lenders made it out like it was a huge process to fire the GC. But, it needs to happen I think. I have been patient and made completely reasonable requests. One question I would have though is since there is a 10% hold back, how would that be handled if the GC was fired? The timing isn't bad either, first draw complete, he shouldn't be out additional money....its a fair time to part ways and start anew. 

    Lenders usually have requirements for doing the work yourself, but it is possible and can sometimes be done. If that fails, you still may be able to do some of the work (provided it meets the lender's specs) and then re -purpose the funds saved towards another repair in the house (something I've done albeit with a regular loan).  For the hold back, it's usually meant as a protection for you/the lender to ensure the work is done to your/the lender's requirements and that the contractor would return to remedy any defects.  If the contractor is fired, he may still be entitled to the hold back if the work for which there was a hold back was done satisfactorily, but if there's problems with the contractor's work, and you've suffered actual losses as a result, it's possible you and/or the lender maybe able to use the hold back to offset any losses, but a PA attorney would need to advise you when you cross that bridge as to whether that's appropriate or worthwhile. 

    0Reply
  • Diana Muresan
    Lender · Chicago, IL · Member since 2018 · 352 posts · 147 votes
    7y

    @James H. I am 203k Fha and Fannie Mae HomeStyle certified. First of all, GC receives 50% of material costs at closing and 3-4 draws after, secondly, you don’t need to make mortgage payments during renovation up to 6 months if property is inhabitable and thirdly you have about 9 months to finish the renovation. Yes, GCs at always the weekest link in a reno loan, reason why I never get involved to recommend one.  How did you find yours in the first place?

    2Reply
  • James H.
    OP
    Philadelphia, PA · Member since 2018 · 18 posts · 6 votes
    7y

    Hi Diana. The lender.....I hesitate to say recommended but, they mentioned this GC was an option and he was the cheapest and I didn't see many warning signs at the time. We have done 1 draw so far recently for services rendered. Are you saying that the GC has already received a larger sum of money for his material costs? That's deeply concerning if so, I will have to look at the email chains going back and forth a bit more to confirm this but now that you mention it, this sounds familiar. 

    We are at 7 months now. What happens after that 9 month limit you mention? Property is definitely not habitable, so I have been dutifully paying the mortgage. Unless you meant uninhabitable?

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  • Dana WhickerPro Member
    Investor · Fernandina Beach, FL · Member since 2014 · 557 posts · 374 votes
    7y

    With a 203k does the GC agree to a SOW and/or project plan?

    At 7 months if he only has taken 1 of his 3-4 draws that doesn't sound promising.

    0Reply
  • James H.
    OP
    Philadelphia, PA · Member since 2018 · 18 posts · 6 votes
    7y

    I check with the lender. There was no 50% disbursement. Just the one draw. I’ve got some contractors coming in the next few days to hopefully take over.

    0Reply
  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    7y

    What did your lender say? 

    Most contractors ask for 50% upfront before they even touch the property but it's usually negotiated. With the 203k maybe it's different. If he only received 1 draw (I'd guess not enough to cover materials) he has no motivation $$$ to continue the work.

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  • James H.
    OP
    Philadelphia, PA · Member since 2018 · 18 posts · 6 votes
    7y

    The lender confirmed only one draw came out so far. No materials disbursement. Imo, he’s had a tremendous incentive to do this job. There’s money to be made by everyone participating. But I think the scope was too large for him or he didn’t have money for putting the funds up front. He also made a few mistakes in communicating with me, like asking if I got the draw check. If he was an experienced 203k contractor he would have known that he gets it. So maybe this is why he didn’t request materials expenses, he didn’t know to.

    I’m a project manager at my day job, which is the only reason why this project hasn’t died. Had I been just someone who was hands off and wanted this to get done.....I don’t know how what would have happened. 

    1Reply
  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    7y

    @James H. It sounds like a combination of what you described. I lead towards the money aspect and not having enough as a contractor up front. Yeah the bank sends them the check directly. My boss went through a similar situation (fire damage) but instead of a bank it was the insurance company. Hopefully the the new contractors are a lot better! 

    You sound diligent and proactive. That's really important in this business. 

    0Reply
  • James H.
    OP
    Philadelphia, PA · Member since 2018 · 18 posts · 6 votes
    7y

    I wanted to provide some updates. The old contractor has been fired, which went like this. "Lender, I'm committed to firing this contractor, I have another guy in mind." They sent the new guy papers to sign. For the old GC, I told him he was finished and also sent him a letter the lender sent to me formally stating such. As for the 10% hold back and some of the old contractor's expenses, we shall see. I will push to absolutely not give him the 10% holdback based on some of his work being sub-par and might press for more down the line. But all in all, not as complex as I thought to fire. NOTE: if he refused, it could have gone a different direction since he technically has 10 days to challenge, etc. I think he gracefully took his leave, which I appreciate.

    I know some others have had better experiences with 203K loans. For me, too early to tell how this will work out financially but I don't like the way you lose control of the project because you can't pay yourself from the money to make repairs, you can't really do anything to move the job along unless the contractor is doing that, you're paying on a loan that is including funds you may never spend since it is buy price+projected renovation cost. Not a major deal if the contractor is doing their job and doing it quickly but for me, this has been nearly devastating. The rate is high, the payment is very high for the mortgage (as if I bought a fully renovated 2000 SqFt house on 1+ acres in a posh neighborhood), and I have had to spend basically any cash I manage to accrue to grease the wheels (fees to engineers that no one wants to pay up front, dumpster costs, township fees, inspection feeds, etc. and just other small things that fall between the cracks. Had this been a simpler project with a better capitalized and competent contractor, who was coming in to do basic contractor work, a 203k might have worked fine.

    I am in a race now to get this job finished and get it refinanced. I am hoping to be living there by this fall, can get my girlfriend in there to help with rent, and then take a breather. 

    2Reply
  • Rob Massopust
    Real Estate Broker · Santa Ana CA [South Coast Metro] · Member since 2016 · 459 posts · 202 votes
    7y

    203k's are best when there are clear cut processes of what needs to be done. Are you having to debt service this during the delays.

    Can you amend or simplify the scope of work, ie keep the septic system

    Finish the work and refi and then fix the remaining problems. 

    This might not be a keeper home but a fix and get out of home and try to come out ahead.

    The delays and complicated nature of this might not make it viable - I dont know all the detail  I am just spitballing here.

    Do you have the resources to get some of the scope of work done outside of the contractor, or reduce the required repairs.

    0Reply
  • James H.
    OP
    Philadelphia, PA · Member since 2018 · 18 posts · 6 votes
    7y

    The township is making me connect to the sewer because the septic failed, it’s also a law in pa apparently. I’m trying to descope as much as possible or do those items myself. The bathrooms are actually not terrible so rather than refinish them (they’re ugly) I want to maybe just bandaid them until after the loan is finished. I can remodel whenever i want. 

    Problem is that to move in the house needs to be in sellable condition, which is pretty near to perfect. 

    0Reply
  • Victor S.
    WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @James H.:

    The township is making me connect to the sewer because the septic failed, it’s also a law in pa apparently. I’m trying to descope as much as possible or do those items myself. The bathrooms are actually not terrible so rather than refinish them (they’re ugly) I want to maybe just bandaid them until after the loan is finished. I can remodel whenever i want. 

    Problem is that to move in the house needs to be in sellable condition, which is pretty near to perfect. 

     bathrooms/kitchen add the most to the value , so I'd try very hard to get those complete as much as you can.

    1Reply
  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    7y

    100% agreed with @Victor S. on the kitchen and bathrooms. I'd spend more money on those than anywhere else. It sounds like the rehab is back online and moving along. That's a good thing. How much was the sewer connection? 

    0Reply
  • James H.
    OP
    Philadelphia, PA · Member since 2018 · 18 posts · 6 votes
    7y

    Not sure what the sewer will cost yet but people have thrown out 40-60k. The new contractor has the ability to do the work himself vs using a dedicated excavator so should be some savings. We also can take a different route than before which should be an additional savings. 

    The house is a mansard style (think McDonald’s roof) and as such, the two bathrooms upstairs have one wall that is sloped. I don’t like it one bit but I don’t know what I could do about it either. Best bet would be some dormer windows that could flatten those walls out. This increases costs though and probably is getting scoped out. The kitchen however, will be very nice and I took a wall out to make it bigger. Because of the limited size in the area, it’s going to be a galley style. But the foundation needs to be done before this can begin. All I can do is work on the second floor and continue demoing and fixing water damage in the meantime. 

    0Reply
  • James H.
    OP
    Philadelphia, PA · Member since 2018 · 18 posts · 6 votes
    5y

    I wanted to circle back and post on where this is ultimately landing several years later for the benefit of members. There is definitely a treasure trove of lessons to learn. 

    I haven't run the full numbers yet, but I think I might end up making some money on the project. I will live in the property and rent out my fiance's house, so that's a win. I think the weak link in this project was that this was not a beginner job to take on and I did not surround myself with any non-biased advocates, or put another way, anyone knowledgeable who didn't stand to gain financially from the deal. Lender, realtor, 203k inspector, contractor, etc. 

    There was a dollop of being green, a dash of people standing to make money on the deal motivated to ensure it happened, and a heaping scoop of the house being in much worse condition than I could have possibly imagined. What would have been helpful would be an inspection that said here are the things that are condition issues and here is what they will cost to fix. What I had was such a report which only covered like 40% of the known issues and was about 10% financially accurate (painting the entire house was apparently going to cost $300 for instance). And none of this included fun bonus items like foundation cracks behind finished basement walls.

    In the end, the house is gorgeous, I paid a ton of interest, and its only now nearly complete. The strategy that worked, really my only one, was to learn how to do almost all of the work. I built a team consisting of an engineer, contractor (for anything I couldn't do myself), and other subs. I essentially became the project manager. Since I couldn't get paid directly, this required clever personal debt leveraging (401k loans, personal loans, family loans, etc.). I was able to extract some of the money from the 203k to pay for major work done by the contractor. 

    The simple fact, however, is that hiring a new contractor to do all of the work for the whole property after I fired the old one was completely out of the question financially and exceeded the budget by about 300-400%. And it took me months of looking for new ones, vetting them, getting bids, etc. to realize this.

    My key pieces of advice for anyone considering a 203k would be to:

    1. Take along an independent, prepaid inspector not party to the deal or other trusted person to actually price out the renovation and to do the work correctly, professionally, and without cutting corners or being sub par. With this kind of loan, you need to be able to do the work cheaply enough with the allotted funds from the lender based on the ARV. If the repair cost ends up being multiples of the buy price OR the ARV, you're in trouble (my case), so walk away from that deal.

    2. Have an extremely strong relationship with the contractor. If they walk off the job, file for BK, can't finish because they're incompetent (my case), or otherwise won't do the job you aren't left with much recourse and will have to find someone else to do the job who may come in and say it will actually cost Y, not X (my case).

    3. Being handy with repairs will save you money. No, you are not supposed to do work on a 203k as the homeowner but in practice the lender may turn a blind eye if you aren't requesting payment for it and its a smaller job.

    4. You are turning over ownership of the whole project to other people. The financing, the contract work, the inspector, and you don't have much control and if things don't go smoothly, there isn't much guidance or help on how to proceed (see my earlier posts). 

    5. Labor is expensive, materials are cheap, engineers charge like lawyers.

    I can follow up with anyone if you find yourself considering 203k's or need help with anything. I'm sure most people have successful projects but sometimes a massive failure is a great way to learn massive amounts.

      1Reply
    • Victor S.
      WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
      5y

      are you still paying the original interest % from two years back or are you refinancing into something with better terms? looks like you've gained some invaluable experience on this one. 

      0Reply
    • James H.
      OP
      Philadelphia, PA · Member since 2018 · 18 posts · 6 votes
      5y

      As of this moment, yes. 5.75%. Ouch. Refinancing is in underwriting right now though. The cost of the carry was by far the most expensive part of this job. One benefit I guess is that it put me well above the standard deduction, so a bit of tax relief there.

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