All Forum Posts by: Adam Edmondson

Does anybody have any advice on using the FHA 203(k) loan? I am currently renting, but looking to buy soon; and I have an Idea that is similar to a BRRRR strategy. I'm brand new to the investing world and would like any advice on whether this seems feasible or not.

My idea is to purchase a distressed property, using an FHA 203(k) loan. This loan will finance the value plus repair costs, or up to 110% of current value, whichever is lower (so it seems the 110% figure is the cap). I have read that you can refinance the FHA loan into a conventional after 6 months. So, with the right deal the ARV should be higher than what I have in the property, and I could either refinance or take out a HELOC for a profit. Then, reinvest that capital into a fix and flip. (I would like to do fix and flips first, then get into rentals, BRRRRs, etc. later on.)

Of course, all this will only work with the right deal to begin with, but I'm wondering if I'm missing something; and whether something like this would work at all.

Well, in the first example I spent $70k CASH for the deal and made $30k CASH in profit, so Cash on Cash ROI is 42.86%

If I financed the exact same deal, and it sold for $100k, I would only have $22k CASH invested, so Cash on Cash ROI would be 136.36%

I guess my question was whether the rule applies to Cash on Cash or just the Overall Deal. I think you answered my question.  Thanks.

As I understand the 70% rule, an example would be: If I buy a house for $60,000 cash and spend $10,000 in repairs, holding costs, closing etc., then it needs to sell for at least $100,000 to follow the 70% rule.

However, if I financed the $60,000 with an 80%LTV [I only put up $12,000 cash plus $10,000 in repairs holding costs, etc. ($22,000 Total)], does this same deal still follow the 70% rule if it only sells for $31,500? (since 22,000 < 70% of 31,500)