All Forum Posts by: Matthew Porcaro

@Donovan Maskell

I househacked by purchasing a legal 2 family. That way there was no issue, but I don’t think there’s any real law against subletting rooms in your own house. It’s your home. Unless you begin to overcrowd the house.

But I guess every jurisdiction is different...

@Robin Morales

I essentially did a BRRRR on my first property, by doing a live in flip with an FHA 203k rehab loan.

I bought the property for $270k, and the rehab cost was $80k, which was wrapped into the mortgage. So my all in cost was around $350k.

When the work was finished the house reappraised for $480k, which gave me $150k of equity to play with.

I personally took out a HELOC, but you could also cash out refinance to pull the equity out that was as well.

Hope this helps!

Matt

@Anthony Barrueco

Hey Anthony - this is exactly how I got started in real estate!

My first property was a distressed two family, that needed a full gut rehab on Long Island in NY.

I just focused on making sure that I was going to be putting in less than it was worth when it was done, and that the other unit would rent out enough to cover most or all of my mortgage.

I purchased the property for 270k, and put 80k into it on the rehab.

My all in cost was $350k, and I knew it would be worth somewhere in the mid 400’s when it was done.

Turns out it was reappraised for $480k (now it’s appraised at $510k) so I built $150k in equity.

My tenant covered most of my mortgage for a little over a year and after that I moved out and rented out both units. That property now gives me a very healthy cash flow each month.

The process can be tedious if you don’t hire the right professionals. You want to get a lender that does these loans all the time, and they will help you streamline the process.

That was a mistake I made, that I urge everyone to avoid!

You’re definitely on the right path. Feel free to reach out with any questions.

Matt

@Rick Albert

I used a no name lender, and they were terrible with basically everything else, but they were quick to cut the checks haha.

@Ahmed Elias I'm glad you liked the podcast! Always a pleasure to jump on with them and talk renovation loans!

In my experience, renovations rarely pencil out to over $60/sqft... and if they do, it probably isn't worth the renovation. Once you start getting near $200k, at that point you might as well just build a new house haha. 

My $80k was still a heavy rehab. The construction background helped, but at the end of the day the cost is the cost. The biggest misconception in real estate investing and flipping is that you can somehow save on construction costs, or do something cheaper. That's usually where newbies fail. That's why you always just want to plan for the ABSOLUTE WORST, and adjust your offer from there. You'll rarely be able to "save face" on the rehab. 

For HUD consultants, you just want to call around and get a feel for them on the phone. Use your gut. If they seem helpful and seem like they're nice to work with, get their fee structure and invite them to the property when you have something in contract.

As for my property, ALL work on the property is done via the 203k loan. That's actually the main role of the 203k HUD consultant. They are there to estimate what it would take to repair the property to be up to code and FHA compliance. Everything after the initial safety and code checks is extra, and up to your budget and desire.

Hope this helps!

Matt 

Who was your lender if you don't mind me asking? That sounds horrible. My lender had the checks cut within 3 days, sometimes over night after the 203k consultant sent in the report. 

It could have either been your 203k consultant dropping the ball taking forever to get the report out, or the bank just sounds like they don't do enough of these loans and are inexperienced. 

This is not the norm! Sorry you had to deal with that man. 

Congrats on the deal! I really hope it works out for you!

Hey Ahmed - to answer your questions:

When I did my 203k deal, I made sure I got BOTH equity and cash flow on my deal, which you can do too. 

I'm not sure how bad the property is, but $100 (not $1000) per sqft is wayyyy overboard on an existing property. My property I got was a duplex, needed absolutely everything, structural work, etc, and the rehab was $80,000. I'd look at more like $60/sqft if you want to be conservative which puts you at WAY under $250k... More like $150k. 

Going extra conservative is a great idea here, but you should get a 203k hud consultant on your team ASAP, and have them head to the property to do a feasibility study to see how much (roughly) they think it will cost you to get up to snuff to move into the property. 

The ARV is fine, and kind of tough to anticipate sometimes on higher unit multi's like triplexes, but I think it's good you go conservative there.

As it stands right now, you're putting more into the property than what it'll be worth. Which is just never good practice, especially if you're rehabbing. You're going to want at LEAST 15-20% equity when it's complete so you can refinance out into conventional to get rid of the PMI.

However, if you make the rehab cost adjustments I recommended, you might have a better looking deal. 

Hope this helps. Reach out with any other questions. Good luck!

Matt

Not at all, you just need enough equity to do so. That's why I always recommend finding something undervalued, and finding out what it'll be worth fixed up, and make sure you have at least 20% equity when it's done (making it easy to refi). 

Use the same rules a house flipper would, to get the best return on your investment, and allow you to refi immediately. 

Most houses that require a 203k need work anyway, you just want to make sure you're not putting in more than it's worth in the end. 

Does that make sense? 

For 2-4 units, I tell people to just cast the widest net possible. As said above, they trade exceptionally fast, especially these days. So, you don't want to limit yourself to a small market. 

Small multifamily's are cash cows, and are worth sacrificing moving a little further away or paying a tad bit more than you would on a single family for a deal. Just a thought!

Best of luck!