All Forum Posts by: Garrett Tierney

@Cecilia Cave Nice work! Let me start by stating that the FHA 203k is strictly for buyers that intend to occupy the property for at least one year consecutively. That is why this is typically not included on the short lists of common investor-friendly loans, this is a loan for someone looking to house hack by owner occupying the property. Put simply, 203k is an FHA loan program that allows you to include costs other than just the purchase price into your total loan amount (not in the form of a second mortgage, it is just added straight on to your total mortgage amount). An example in my case, my total loan amount originated at $245,000 = $170,000 purchase price + $85,000 repairs and reno. Typically these costs are used solely for repairs and/or renovations that are needed on the property, however, I've included a short list containing more from a great article. (https://www.fool.com/millionac...)

I recommend you check out this article, as it would be difficult to explain the depth of the requirements and process to utilize a 203k here in the forums. Setting up a keyword search for 203k here on BP would be another way to start to dive into others experiences with the program, as EVERY situation will be different, there are alot of moving pieces. Please PM me with any questions you may have following your research and I would be happy to help. I actually have met a few lenders that I enjoyed interacting with here on BP discussing 203k on the forums, and if you would like I can put you in touch. 

@Brett McManus 203k is a scary concept I think for first time investors to take on, but I agree, I urge any newbie with a good W2, and an eagerness to learn the ins and outs of a renovation to look at one. Extremely powerful way to force equity with very little out of pocket.

@Aaron Mikottis I had planned to refinish the wood floors just to protect them for the long term, but it didn't end up fitting in the budget and they were in OK condition. I'll likely need to do it next time I have a vacancy, depending on their condition, or I may overlay with some LVP to match the kitchen and bathroom.

@Marlen Weber who knew is right! It's a pretty powerful podcast, alongside all of the other content available here.

@Aaron Mikottis I always told myself "When this is all over, you really should put together a before and after photo album." Needless to say, I haven't carved out the time to admire my before and afters quite yet haha. Here are some of the kitchen and living room in my 3 BD/1 BA unit. This unit was the least distressed of all 4, but came out very clean.

@Aaron Mikottis Looks like a slight pay bump again next year for your section 8, 3 beds! Here are the 2021 HUD market rents for section 8 in 60435 for anyone that is curious. Not too shabby. If we had emojis on here, I would drop in here a (wide-eyed-emoji).

@David Kohler understood regarding the lack of inventory, I think that is the case pretty much everywhere in the SW suburbs right now at least with multi-fam. Now, I only have about a year and a half of market experience here, but I do think I had a couple of things work in my favor that led to me finding this deal, that you can use. 

1. I was very specific about what I was searching for. I did not have an agent helping me look, but if you have access to one, or if you can find a way to add some value for an agent in return for some leads on what you are looking for, I do recommend this. However, if you are searching yourself, take the advice that you likely hear on BP all the time. Get organized, dial in on your income, debt, savings, and assets and figure out how much house you can afford. With this number, figure out what type of property you want (duplex, tri-plex, quad-plex). I would say don't limit your searches to just duplexes. Trust me, I did not plan on purchasing a 4-unit as my first investment, but I've found its not much more difficult to manage than a duplex and produces greater returns and maximum value. Now, select your market. If its just Joliet, hop onto your preferred platform (RedFin, Zillow, Realtor, other) and create a saved search with your exact criteria (i.e. Joliet, $0 - $250k, multi-family, etc.). You may not be getting these leads as soon as they hit the MLS, but you will see them the instant they come on your platform.

2. Select your strategy. First time, it's hard for me to ignore the wealth-building potential of the FHA loan to purchase a multi-family building for 3.5%, and if you are up for it, potentially building your equity by buying a dump and using the 203k program to use bank funds and fix it up. If you have a large chunk of change, and want a little less red tape, nothing wrong with getting a conventional loan and putting 20% down. If neither of these seem feasible for any reason, check out reading on BP about creative financing (this is where the bulk of my current research is focused on to find my next deal).

3. I know the real estate market at least here in IL slows down quite a bit during the winter months, and this is one thing I think worked in my favor. Less deals coming through, but also much less competition. This can be significantly to your advantage, especially as a buyer starting out and likely facing initial hesitation when it comes to going and seeing properties and submitting offers on properties. They are not being snatched up by investors in the winter as quickly as they are in the summer and spring months. An additional advantage that first-time, owner-occupant buyers can utilize is the "First Look" program offered by Fannie Mae HomePath (https://www.homepath.com/). This gives owner occupant buyers a 15 day window to view and offer on HomePath eligible properties on this website before other non-owner-occupant investors get a chance. Set up a saved search on the HomePath website with your criteria and you'll get a daily update with any properties that meet your search criteria. While I can't guarantee that you will find one, because there is not a large volume, this is how I found my property. I didn't do enough shopping for a lender and was not able to take advantage of the awesome financing programs that HomePath-eligible properties offer through Fannie Mae, but definitely look into this HomePath program and see if it is something that interests you.

If you haven't already, get specific about what you are looking for, set up your searches, and make sure you are analyzing all of those leads that come through and see if they would work for you!

Good luck, keep posting on BP with your questions!

@Brian Geiger let me know how you'd like that yield metric calculated and I can give you my numbers! My understanding of yield in relation to rental property would be: Gross monthly income / Purchase Price plus repairs? Let me know and I can provide you my numbers.

@Caleb Brown haha it stunk, yes. But now on the other side of this thing, having gone through this experience, I feel like I am in a unique position to be someone that a person going through a tough time on their first deal can reach out to and ask those questions that they need advice on. In other words, I hope I can be the type of resource for someone else that I wish I had throughout this process! Also, it taught me alot about what to look for in a partner to work with. I know the old adage, but it is for sure true that real estate is a PEOPLE business!

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Joliet.

Purchase price: $245,000
Cash invested: $11,485

As a first time homebuyer, first time investor, my first deal was a bank-owned foreclosure on a 4-unit property in Joliet, IL. The property was uninhabitable and fully vacant at the time of purchase. Current monthly cash flow of $1700 has now accumulated to exceed my initial cash outlay of $11,485 and I officially no longer have any money left in the deal. This was a life changing investment for me, and I'm eager for the next opportunity to invest in real estate. Reach out if you have questions!

What made you interested in investing in this type of deal?

6 months of listening to the BiggerPockets podcast, and an emphasis on FHA low down financing for first time buyers made alot of sense to me and before I had a chance to get my ducks in a row and have this type of financing set up, this deal came across my email on a HomePath first look notification. Extensive reading on BP forums and blog posts reinforced the powerful nature of the 203k program. I saw this as my first step towards financial freedom by creating passive income through cash flow.

How did you find this deal and how did you negotiate it?

HomePath by FannieMae daily email for my area. Contacted an agent through Realtor.com and went to see the property the next day. I was able to secure my pre-approval and put an offer in two days later. I was the first and only offer, and after about a week and the bank calling for highest and best, we submitted our offer for $170k, and it was accepted.

How did you finance this deal?

FHA 203k loan program with LeaderOne Financial. Purchase price was $170,000 and renovation budget was $85,000, for a total loan balance of $245,000. My cash to close, including 3.5% down payment and closing costs was just shy of $12,000.

How did you add value to the deal?

Replaced 24 old, rotted wood windows with new low E vinyl windows, replaced 9 old broken wood exterior doors with new steel security doors w/ master key deadbolt system, added one bedroom w/ lighted closet, and lighted closet to existing bedroom, 2300 SF of new carpet installed, 700 SF of engineered hardwood installed, 3 new water heaters, 2 new exterior electric services, 2 new interior breaker panels, new paint on all walls and trim, 4 new shower surrounds, 4 new countertops, 4 kitchen sinks.

What was the outcome?

After much back and forth, re-appraisal was valued at $310,000. Needed a value of $340,000 to complete a 70% LTV conventional refinance. I was not bale to achieve my desired valuation, as the surrounding market just does not support it here in Joliet. Since the equity piece is not quite where it needs to be, I opted for an FHA streamline refinance to lower my rate from 4.875% to 3.125%, which despite still paying PMI will increase cash flow to just shy of $2,000/month. Great cash flow outcome.

Lessons learned? Challenges?

Scope of work was not specific enough regarding finishes, specific products, and timelines. My contractor had not done a 203k loan before, and was not familiar with the inspectors in Joliet. This lead to extensive change orders and changes in scope, due to unforeseen code issues with electric and plumbing. HUGE learning experience. Contractor was using unlicensed subs without informing me and it put me in some tough spots with the City inspectors, as I was unaware. The renovation took 10 months!

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Unfortunately, I had quite a bad experience with my agent, the seller's agent, my contractor, and my lender. My one ally throughout the project seemingly was my 203k consultant, Dean Cushing. He was genuine and always willing to answer my questions and go above and beyond to handle all the change orders and complicated draws to the contractor. Dean was a professional throughout and helped instill confidence in me during the toughest times. His company is Home Inspection Pros, Inc., contact him!