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.
