All Forum Posts by: Matthew Porcaro

@Brody Veilleux

I did all my house hacks with renovation loans. FHA 203k and Fannie Mae HomeStyle.

Doing the house hack + brrrr strategy using these loans is absolutely the best way to do this.

You can find fixer upper multiunit properties which will in turn cash flow better after you renovate.

Youll be more likely to buy at a discount and don’t need the property to be move in ready to purchase.

You’ll use the banks money to completely fix it up, also increasing the equity of the property which comes in very handy when you’re ready to refinance to get rid of mortgage insurance, potentially pull a heloc, or just be more bankable in general.

One of the concerns above is not being able to do the work yourself on a 203k.

I’ve been in this game a while, and I can tell you that the people that are new that think they can do work themselves often times get in over their heads and think they’re saving money. But they actually end up costing themselves a ton more time, stress, and about the same money.

You’re getting the bank to finance the reno. So find the right contractor for the job and get it done quickly and efficiently.

I grew up in the construction business and swung a hammer since I was 12. I still don’t do any of the work myself on my properties.

It's. Great strategy and you have a lot of options now with Fannie Mae now allowing low down payment owner occupant loans on up to 4 units. It used to only be FHA.

If you have any other questions please don’t hesitate to ask!

Hi Brody - first, why do you want to transfer it to an LLC? I'm not a lawyer, and you can speak to an attorney about this, but in my experience people are typically thinking that putting their property in an LLC "protects" them.

If you're the sole owner of the LLC, it just acts as an extension of you. That alone will not protect you from litigation.

So there really are no pros, in my opinion, to putting your property you're house hacking in an LLC.

The reason you get the low down payment and the low interest rates are because you're personally guaranteeing the loan based on your stable income. 

If your concern is liability, what I did was get an umbrella insurance policy on the properties I house hacked under my name. That covered any incidentals or lawsuits that could arise with my tenants on the property. 

Buying a property to house hack with an LLC basically defeats the purpose of doing it. The idea of house hacking is using owner-occupant low risk mortgages to become a real estate investor and a landlord, to jumpstart your journey.

But ultimately, that's a decision you need to make with your attorney. 

You could possible explore a second home fannie mae homestyle loan. The points up front might be a little high, but if you have some equity there you could refinance into it and wrap the costs in. 

The homestyle will give you the money to close out the other lien and the additional money you need to fix it up. 

If you have multiple people on the loan, it's going to make things trickier later.

In my opionion, the best way to do this is to buy the property yourself. You lead the way. Then you find friends to rent it out to. 

Outside of that, your other options would be to buy a house using investor financing with an LLC that you're equal members of, and share equity of the property.

That would require a lot more money, and partnering with more than 2 people would just sound more work than its worth. 

Just my opinion. 

This is correct, a lot of the FHA guidelines have changed in the last year making ADU financing a lot more acceptable and easier. You can do brand new builds on ADU's and you can use 50% of the future income from that ADU to increase your approval amount.

Fannie Mae HomeStyle does this as well. 

Caveat is these are owner occupant loans. 

Hey Luke - welcome to the community. 

My first property I bought was with a 203k, and I house hacked it as well. It's a great way to start. 

As far as looking for contractors, any licensed and insured contractor with experience and some trade lines can qualify. 

I grew up in the construction business, and one thing I always tell people when finding good contractors is the referral rule, using the 3 F's. Friends, Family, Facebook. 

Just start by asking your friends, family, and post on facebook asking for any reputable contractors that they had good success with. 

Then, ask them to introduce you to them. A referral goes a long way. The contractors are more likely to respond to you and help you out if one of their previous clients recommends them. 

Any General Contractor with a good reputation can do these products. The 203k operates very similarly to commercial work or insurance work.

As for the 203k consultants, you can find them either on the HUD website, or theres another directory called 203khudconsultants.com

Some tips about consultants:

-They're not all created equal. Some do a ton of business, others do it sparingly. You want to connect with ones that do a lot of renovation lending work. 

-Their HUD ID # is in ascending order, meaning, the lower the number, the longer they've been a HUD consultant. Sometimes it might be worth considering the ones with a little more experience.

- If a consultant requires a contractor bid to do their work write-up, run. It's the job of the consultant (per the guidelines) to create a scope of work and give an unbiased cost estimate based on the scope of work. This is just an estimate, and ultimately your contractors numbers will be the true renovation budget. But if the consultant requires the contractor bids first, it means they don't have experience with understanding work writeups and it'll put you behind the 8 ball. 

One more piece of advice I'd give is focus on getting the most qualified 203k lender you can find. An experience renovation loan lender will have relationships with the best consultants in your area. It will make your life a lot easier. If you have a lender already, really nail down how experienced they are at these loans. You want to work with someone that specializes in them, not someone that does them once in a while. 

Buy another house hack, or even just another house. But this time, focus on it being only a fixer upper. 

Purchase with a Fanne Mae HomeStyle - put only 5% down and get all the money to purchase and all the money to renovate and to create equity. 

Like you I did two house hacks to start, but they were both renovations with 203k loans. So I just parlayed the equity and added cash flow from the value add into my next flips and holds. 

Right now Im renovating my "forever home" that I also bought with a Fannie Mae homestyle. We picked the property up for $615,000, and wrapped about $200,000 into the mortgage (in NY) 

ARV is around 1.2MM right now.

Use the banks money to purchase AND renovate. And the low down payment makes the ROI huge if you focus on only buying fixer uppers or value adds.

I also urge you to look off market. We found our forever home in the neighborhood we wanted by driving the entire neighborhood, adding the properties using DealMachine, and then sent them all handwritten greeting card letters stating that we're a new family looking to move into the neighborhood and if they had any interest in selling to please call us. 

That allowed us to get the property at an even deeper discount in a really competitive area of NY. 

The way I made house hacking work in a HCOL area (New York) was buy a fixer upper multiunit. I was able to get in at a lower cost basis, and the property didn't cash flow while I was living there (this is a common misconception with house hacking) but I lived almost for free - Only had to kick in a few hundred bucks a month. 

Everyone gets really focused on triplex and quadplex properties, but there aren't many of them and as you've said, the numbers just won't work on something move in ready. 

Plus, its worth noting that no Retail Priced property will be at a number where you're going to get the benefits of investing (cash flow and equity)

What is working now is looking for single family with accessory units or mother-in-law suites, or duplexes. There are more of them. 

You won't get cash flow while you live there, but you'll have a much larger selection to offer on, giving you higher chances of finding something that's actually a deal from an ROI standpoint.

Then, also look for fixers so you can build equity into them, make nicer rentals that you can get top dollar for. 

You can do this with the FHA 203k or Fannie Mae Homestyle loan.

Everything depends on the deal. Plain and simple. 

As someone mentioned above, people tend to overcomplicate the process or the goals on what they're looking to achieve. 

House hacking solves two "problems"

1. Being able to subsidize your mortgage payment so you can effectively pay less for an appreciating asset than everyone else. 

I.E., you get a 600,000 mortgage, but only have to pay a third or a quarter of that mortgage payment due to the income from the other units. You are minimizing your input to maximize your output (output being an appreciating asset, paying down principal, tax benefits.

2. Like many people on BP, they want to make this a future investment property and want to see an ROI on that investment.

ROI can be seen a few ways, and you need to define that.

Is it immediate cash flow? Then you need to employ the tactics of a value add real estate investor. You need to focus on negotiating and sourcing good deals. That takes work, persistence, and some strategy. Just going on Zillow and offering at retail price is not going to get you immediate cash flow. You need to put effort into finding distress. 

If its' long term appreciation (which I'm personally not a fan of betting on) you can look at it as, if you put a small 3.5% down payment using FHA or Fannie Mae, and your property appreciates on average at 3% a year. In 10 years, you've effectively 10x'd your initial out of pocket, not including the pay down from the tenants.

Again, to keep it simple:

1. Define your goal. Is it to be an investor or just subsidize your income? 

2. If its to be an investor, you need to put more effort into finding good deals. ROI doesnt come from buying retail. It comes from buying distressed assets and fixing them or re-arranging the property to make it perform again.

Hey Chad - a lot of moving parts on this deal but hopefully I can help point you in the right direction. 

To answer your question about the 203k, yes this property would qualify in this scenario as long as the residential portion of the property is larger (51% or more) than the commercial space. 

The property can be in any condition. So even if it’s fully gutted, no water, electric etc, that’s all within the scope of a 203k. 

The FHA products, 203k included require you to make the house your primary residence. You are required to live there at least 12 months from the date of closing.

A couple other tips;

you can’t use the renovation loan to finance renovations to the commercial space. only exception is if you need to do repairs to the core structure or mechanicals that are integral to the building (ie, structural work, sewer lines, water mains)

Make sure you work with a lender that knows how to do these. Most lenders will try to steer you away simply because they don’t know how to do them. Some will take your business even though they don’t have experience doing them. But there are lenders out there that specialize in these. I’d look at Loan Depot, Cross Country, and Nationwide. 

Lastly, regarding the historical piece, that could get sticky and might add a lot more moving parts. 

Before taking this on I’d verify with the historical society and building department what process you need to go through to renovate and if there are any requirements on what you’re allowed to do or not do. 

Let me know if you have any other questions 💪