All Forum Posts by: Matthew Porcaro

Originally posted by @Ronnetha Darrett:

@Andrew Postell For a 203K loan, will the lender provide a list of “approved contractors” in your area?

No, the lender does not give you one. They may have a list, but it’s not required. 

“Approved” contractors aren’t really any different than regular contractors. They may have just done one before. Any contractor can qualify. It really is just paperwork the contractor you want to use needs to fill out. 

As for finding a lender that does them, you MUST find someone experienced in doing them. Any mortgage broker will be happy to take your business, but this isn’t something you want to risk them learning on the fly about. 

Call around and ask your network if anyone knows anyone who has done multiple 203k loans. They are complex, and require experienced brokers if you don’t want to waste your time or take months to close. 

If you have anything specific you’d like to ask regarding 203k’s feel free to PM me. My first flip was a duplex I used a 203k on.  

@Leroy Wallace Jr was this property a foreclosure/bank owned?

Have you mentioned this to your lawyer?

@Nicole Camarao remember also, you need to be occupying the residence to use the FHA loan!

@TRUSTEN BROWN correct, you can put only 3.5% down with a 203k.

The rule for FHA loans is you're only allowed to have one active at any given time. Also, you must occupy the residence.

Jeff - congrats!

I too got into investing with an FHA driven house hack of a duplex I now moved out of and rent fully.

It’s a strategy that I think is the lowest barrier of entry, so long as you are patient and persistent. 

@Arash Vafa Hi Arash - it is possible to use an FHA loan, especially a 203k, to house hack and jumpstart your REI career. This is what I did, and as long as you follow the guidelines and have a strategy mapped out, it’s the best way out there in my personal opinion. In my case, I bought a duplex, that needed a ton of work. I got approved for a 203k to cover the home + rehab, and only needed 3% down for closing. After a long rehab, and living in it for a month with a tenant, I was able to refinance out into a conventional loan, and now I rent out both units for 2k a month in cash flow. In addition to that, my rehab built 120k of equity into the house (also why I was able to refinance). Patience is key with this. Best advise I can give. If you’d like to talk more feel free to reach out. Good luck!

@BJ Swing Oops; I misinterpreted. To that effect, it’s very hard to do a cash out refinance and expect a lot of cash out when you haven’t owned the property very long. For example, I built 130k of equity into my BRRRR flip after using a 203k, and was only going to be able to get about 15k out, and to me it just wasn’t worth it.

@BJ Swing Hi BJ - Are you planning to house hack? Or just get a single family rental under your belt? If you want to rent it, you need to be living in it in some aspect. What I did was I searched for legal small multi family properties. I did a BRRRR with a 203k. I picked the house up for 270, put 100 into it, and refinanced our a year later and now rent both units out for 2k per month cash flow. What’s great about a 203k is you can wrap the rehab coat into the mortgage. It’s a higher monthly payment, but if you can float it during construction, it makes your cash on cash return very high.

@Taylor Burns hi Taylor. On my house hack I found a foreclosure that was a legal two family. I was able to use a 203k to build 100k into equity into the house, then was able to rent out one unit, and then after one year refinanced out and now rent both units for 2k a month net cash flow. The key is to be patient and find 2-4 unit properties, on the foreclosure or REO market. A 203k will be the best cash on cash return for you with this strategy. Feel free to reach out with any other questions.

Originally posted by @John Ross Valderama:

Originally posted by @Chris Mason:

Originally posted by @John Ross Valderama:

Originally posted by @Chris Mason:

Originally posted by @John Ross Valderama:

Originally posted by @Chris Mason:

Originally posted by @John Ross Valderama:

Hello,

I decided to stop listening to podcasts and get off my rear to start getting my feet wet. I am thinking about doing the FHA 203K loan for a fixer upper. Since it's an FHA loan would I know that I need to live in the house, so if that is the case would it be possible to rent out the remaining rooms?

 Yes and yes.

The bigger challenge is getting an FHA 203k offer accepted to begin with. Without that, nothing else matters.

Listing agents' eyes gloss over when they see a 203k offer and they start talking about the "HGTV Effect." When the term "203k" is mentioned in any real estate office, stories start to pop out about the buyer who estimated that $150k of reno would cost $40k, which killed the deal and screwed that listing agent's client. These listing agents, of course, are advising their clients on which offer to take, and which to throw in the trash without even countering. 

The real question is: what are you doing to overcome that? 

 From what you're saying if I can get my numbers down within a reasonable ballpark I would avoid both problems. I would just need to contact a contractor for a side by side walkthrough and get estimates on what needs to be fixed. After words it would be calling local business to see the costs of parts and labor.

Or did I just over simplify that?

 I don't think you oversimplified, but I also don't think you're aiming for the right target. 

Focus on getting the offer accepted. Zoom in like a laser-beam on that. If that doesn't happen, nothing else matters. 

I talk about FHA 203k at work probably about 100 times a year - twice a week.

I see a ratified (seller signed) purchase contract w/ FHA 203k in mind about 5 times a year.

The investor's reno budget estimates weren't garbage, and we actually close one, about once or twice a year.

What are you doing to make you one of those 5 in a hundred? We will get to making you one of those 2 out of 5, but first you need to be one of those 5 in a hundred before that is even relevant.

If you were in my shoes with a FHA 203k loan what steps would you take to improve the chances of having the offer go through?

 Your profile says that you're interested in wholesaling. Minus the whole "I can't afford this property and I can't close and I'm not in a position to close and I'm probably lying to you," try the wholesaling marketing stuff that you like. Again, minus the actual wholesaling aspect. The marketing stuff is on point, it's simply the "ability to actually deliver" that screws up wholesalers. Incidentally, this marketing stuff is how most real estate agents drum up listings (they also can't actually close on & buy the home, most of the time, which in their cases is fine since that is not what they are selling).

A seller signed fully ratified purchase contract crossed my desk this week. The appraisal will come in at least a quarter million dollars above the contract price. This buyer wasn't focused on the financing, he was focused on getting the offer accepted for the best price possible. 

I should probably change that. Wholesaling is what got me interested in REI, but doing my research I found that isn't the best method for me, I would like to try it in the future.

I will be focusing on rental properties using the BRRRR strategy. I want to use the FHA 203K loan to finance my first rental property, live in it for a bit while fixing it up and renting out the remaining rooms while I build equity in the property and in 6 months I want to refinance pay back the FHA loan and use what I got to invest in a second rental(I will still be living in the first rental, which is the one we're talking about).

With your advice I would first need to focus on getting the deal accepted. From what you're saying a FHA 203K loan is extremely hard to get accepted by a seller.

 I would't say it's "extremely hard". I'd focus on Fannie Mae Homepath properties if possible. When the federal govt is involved, it seems like they're more privy to accepting offers, as to show that they practice in participating in their own stimulus plans (203k being a first time buyer incentive program)

My 203k offer got accepted no problem. I offered a little below asking, with my preapproval letter, and the paperwork got started immediately. 

The challenge for me was everything after that offer was accepted. The paperwork is tedious, long-winded, repetitive, and downright frustrating. You need to look exceptional on paper (ample savings account, w2 employee, etc). 

As the other poster said, construction costs are often wrongly calculated. While that's pretty much the nature of all flips, in this case you're at the mercy of what the bank approves you for. Anything above and beyond that is sometimes added with a holdback, but it will increase your monthly payment, and slow down the project. 

Start sifting around and putting some offers out there. All of this is irrelevant until you have a pre-approval letter in hand and start offering on foreclosures.