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All Forum Posts by: Matthew Porcaro

Matthew Porcaro has started 8 posts and replied 433 times.

Post: Fannie loans question

Matthew Porcaro
Posted
  • Rental Property Investor
  • Long Island, NY
  • Posts 442
  • Votes 326
I just closed on a duplex using a 203k loan. It's a nightmare. You need to find people that are experienced with it and verify it with references. The flipping concept doesn't really happen because you're supposed to live in it for a certain amount of time.

Post: ++Cashflow /w No Appreciation VS Appreciation Markets

Matthew Porcaro
Posted
  • Rental Property Investor
  • Long Island, NY
  • Posts 442
  • Votes 326
Don't buy in hopes of appreciation. That's why 2008 was so bad. Make sure you have cash flow, even if only just a small amount. A little cash flow and principal purism every year is much better than risking if the market tanks and you're upside on multiple homes.

Post: Closed on my first Duplex using a 203k loan! Here's my experience

Matthew Porcaro
Posted
  • Rental Property Investor
  • Long Island, NY
  • Posts 442
  • Votes 326

Hey everyone! 

So yesterday was a relieving culmination of 3 months of a lot of headaches, stresses, and monotony getting this 203k loan approved; but I finally did it! 

I hit my goal of finding and buying an investment property (and a Duplex at that) before getting married next year! I always knew that I wanted to use a 203k loan to get into a property, rehab it, and rent out part of it to 'house-hack' and begin my real estate portfolio. Despite hearing how much of a nightmare the 203k is to get approved, I did it anyway. It was even worse than I thought, but I'm glad I took this route seeing as the value I am getting for my money is tremendous. With the deal I made, I only ended up needing to pay $10k out of pocket, and I will be getting a cash flowing duplex property, and an instant $60K in equity according to the appraisal and comparable in the area once rehab is done (assuming all goes well!). 

It's almost serendipitous how I stumbled upon the property. Back in April, I spoke with a family friend who is a mortgage broker about the loan. He told me with my W-2 salary I can definitely get 203k financing, just need to start looking for properties, so I did. I knew I wanted to look into foreclosures/REO's, and the first website I went to was Fannie Mae's Homepath website. My criteria was to find a SF home, with ability to add an accessory apartment that could be rented out. My county (Nassau) is one of the most expensive counties in the country, so I figured I'd have to buy in the county over from me which would have a bit lower taxes. Just for the hell of it, I searched up Nassau County Fannie Mae foreclosures first, and that's when I found a brand new listing, right near my current home, that happened to be a LEGAL two family in a middle class residential neighborhood. Duplex's in my area are extremely rare, so I quickly ran the numbers on it (which worked out!) and put an offer in right away. Fannie Mae foreclosures have a "first look" period, which is essentially a short time period after the property is first listed for first time home buyers to take advantage of the FHA loan programs and get into a foreclosed house before investors have a chance to offer on it. This worked out to my advantage. The seller/bank accepted my offer and the fun began!

The loan application process was long and arduous. The bank claimed they were familiar with 203k loans, but we quickly realized that is not the case. I highly recommend anyone taking advantage of this or any other FHA loan to get references on these banks/brokers that are getting you into this loan, because the paper trail needed is incredibly tedious, and if they don't have their ducks in a row the underwriting process can become a nightmare. Remember, when you're using one of these loans to get into a foreclosure, the bank you're buying the home from doesn't really care about you or your problems. They're impatient, and want to get paid ASAP, or else they will just look for the next buyer. They're not emotionally vested sellers. Be prepared to give a large earnest money deposit up front so they know you're serious enough to be prepared to wait out the long underwriting process. We had to ask for an extension 4 times, even up until the closing day. You need to keep them updated with where the loan is at, otherwise they will walk.

The most tedious part of the 203k loan application, hands down, is the construction documentation. The general contractor and all of the trades involved on the job must be completely vetted out, and efficient with paperwork. Specific scopes of work, licenses, agreements, forms, meetings with HUD consultants, all must be addressed quickly during the process. This was the hardest part for us. If you can find a GC that has done these before, it is way worth it. I grew up in the construction businesses, but we have not done a 203k loan before. Family recommended subs and contractors, although great contractors, were struggling to keep up with the paperwork and verification needed to get approved. But, I made sure to hound everyone down and we got what we needed in time. Note - there are two kinds of 203k loans. There's a 203k streamlined and a 203k. Streamlined the rules are VERY different, and it goes much quicker. Streamlined loans, however, are only on homes that need less than ~$35K in renovation costs. For most people, this is probably the case, but for this home we needed a whole lot more money, so if you think your house doesn't need more than that, you can worry a bit less. 

I'd love to say that this is a done deal, but the fun has only just begun. I have the keys and have begun to organize the trades and let the GC know we are set to start demo next week. It's a very old house (100 years), but the bones are great, and we are doing a full renovation ($75K in rehab). There's a lot of work ahead, but this was a huge accomplishment that I'm glad I experienced. I can't wait for the next deal!

I intend to create a post here on BiggerPockets once the process is almost completely done, to give people intending to go down this route an idea on what they're getting themselves into.

In the meantime, I'd be more than happy to answer any questions you may have about the process. Thanks!

Post: Buying 'as-is' property with 203k, No gaurantee of CO or Liens?

Matthew Porcaro
Posted
  • Rental Property Investor
  • Long Island, NY
  • Posts 442
  • Votes 326

I found out today that there is a higher authority I deal with, which is the village of the town, who were very personable and helpful on the phone. They said the building has no violations and they will reissue the CO as soon as the construction is done. They're actually very familiar with the property because it was an eviction that went sour, and they've been hoping someone will go and fix up the property. 

Post: 203k licensed contractors

Matthew Porcaro
Posted
  • Rental Property Investor
  • Long Island, NY
  • Posts 442
  • Votes 326

So, obviously first, ask your lender. But from what I understand, the contractor just needs to be licensed, insured, experienced, and have workers compensation, etc. Basically they just have to be legit on paper. It's also nice if they're bonded, because the lender will issue 2 payments, one at the beginning and one halfway into the progress. There is a consultant/inspector hired by the bank to monitor the project along the way to ensure everything is up to snuff. 

Now, there is a website online that has contractors pay to take a course and become a "hud certified contractor" and be listed on a directory you can find on their website. It may be nice that they took a course and should be familiar with HUD rehabs/203k loans, but I don't think it is necessary.

Post: Buying 'as-is' property with 203k, No gaurantee of CO or Liens?

Matthew Porcaro
Posted
  • Rental Property Investor
  • Long Island, NY
  • Posts 442
  • Votes 326

This is my first 203k loan and only project @Ramar Price

Post: Buying 'as-is' property with 203k, No gaurantee of CO or Liens?

Matthew Porcaro
Posted
  • Rental Property Investor
  • Long Island, NY
  • Posts 442
  • Votes 326

I'm looking to get a duplex using a 203k loan. The house is a Fannie Mae HomePath foreclosure, they are selling it as it. 

So far the bank has accepted my offer, and they want me to continue signing the paperwork. My lawyer advised me to verify that there is a CO for the property as well as check if there are any building violations on the property that I would be liable for. 

I went to the town, and they said to get that information, I need to fill out a Freedom of Information Act form, and wait up to 20 days for the records. I definitely don't have 20 days to wait.

How should I approach this situation? Do I just take the risk and hope for the best? How could I price out the worst case scenario in terms of getting permits etc? My town doesn't seem to have any information on permit costs, etc. 

Post: Experience with 203k loans

Matthew Porcaro
Posted
  • Rental Property Investor
  • Long Island, NY
  • Posts 442
  • Votes 326

I'm in the middle of one now. Really the two main things you need to make sure of are 1.) You have a lender who is well versed in 203k loans. 2.) you have a reputable, punctual, and licensed contractor who is on top of their game, and preferably, experienced with the 203k process as well.

There's a lot of red tape, but it's the cheapest way to get into a property currently while instantly (hopefully) building some equity. 

Post: First Time Home Buyers Loan

Matthew Porcaro
Posted
  • Rental Property Investor
  • Long Island, NY
  • Posts 442
  • Votes 326

It's basically any of the other FHA loans. The Homepath loans, like HomeReady and ReadyBuyer are owner occupant loans that allow low down payments.

Post: Which loan to get for newbie who want to flip

Matthew Porcaro
Posted
  • Rental Property Investor
  • Long Island, NY
  • Posts 442
  • Votes 326

You can also go as far as to finding properties that are up to 4 units. With the 203k loan, you can take out a loan for up to a 4 unit property. This way you can build up more equity. This is what everyone refers to as 'house hacking'. 

I'm in the process of doing it myself on a duplex.