Need starting out advice (South Florida Multifam FHA 203k)

[Austin Martinez]

Hi all,

I've been doing research, reading, and listening to the bigger pockets podcast for a couple months now, but I have some questions about starting out on my real estate investment journey that might be more specific to my situation.

My name is Austin, I live in South Florida and work full time in corporate finance.

I have never owned a house, I have great credit and no debt.

I think my first move should be a multifamily househack and take advantage of the FHA 203k loan.

I want to keep my same job for a couple more years but significantly lower my monthly expenses by moving out of my rental apartment and getting into a more cash flow neutral living situation.

So my plan is the following:

1. Get pre-qualified for a home loan.

2. Go to a local REIA and find a good wholesaler.

3. Buy a livable but distressed small multifamily property to live in for at least 1 year while I save up more cash to invest elsewhere. Eventually would move out and rent out my unit.

4. Profit. (lol)

I have a couple basic questions:

1. What do you think of my plan?

2. What is the best way to go about shopping for a loan? How many offers should I get and what type of lenders should I go to for an FHA 203k?

3. Is it realistic to think I will be able to find a good off-market deal that could be truly cashflow neutral (accounting for hidden expenses like vacancy, property management, depreciation, etc.) while using an FHA 203k? I know there are stipulations and the lender will want to inspect and appraise the property, so I won't be able to move forward without contingencies. So I'm a little worried I won't find the best deal or I won't be able to move fast enough....

Any advice you could give would be greatly appreciated! TIA

[Jeffrey Albaum]

Hi Austin,

First off, love the overall plan! It's awesome you're looking to lower expenses and live below your means!

A couple responses to your points:

• Overall your plan sounds great. The biggest issue is one that you already considered in that it will be very difficult to find an off market property that will qualify for an FHA loan. I'm sure you can make it work, but it will just be more of a headache.

• You can use Bigger Pockets to find lenders that specialize in FHA 203k. From my research, I've found that most lenders will do FHA loans no problem, however the 203k part becomes the challenge, as again there are more hoops to jump through. That being said - I'm sure someone who has done this process before can speak much more intelligently about that than I can!

• I know everybody is saying how hard it is to find deals today, which leads most people to wanting to get an off market deal. Here's where I'll disagree with that notion: for your first deal, I would actually recommend finding something ON market. With an on market deal, you'll have a buyers agent representing you. They have a fiduciary responsibility to help you and the best part is that as the buyer, you don't pay the agent their commission - that's covered by the seller. It will also be easier to find livable properties on market, making you rehab easier.

Hope this helps and best of luck in your journey!

[Scott Wolf]

@Austin Martinez, check out @Matthew Porcaro, he's a wealth of knowledge in the 203K space(he has tons of free content that can show you how to find a 203k lender in your area).  It's a great plan with the exception of buying through a wholesaler.  I say that because I think a deal through a wholesaler may be difficult to pull off with this type of financing.

Good luck!

[Matthew Porcaro]

@Austin Martinez

Thanks for the shoutout, Scott!

Hey Austin! I love your idea because it’s exactly how i got started with investing.

I’ve helped hundreds of people replicate the process. the 203k loan is insanely powerful when leveraged correctly.

The fact is, many people don’t have the patience or the resources to pursue it effectively.

I work pretty hard to help clear the air for people looking to take advantage.

To answer your other questions.

2. The best way to find a 203k loan is by working with lenders of brokerages that specialize in these types of renovation loans.

There’s plenty of these guys and gals out there. You just need to look for their circles.

One easy one is google the 203k endorsement summary. Go to the HUD page and scroll down to the bottom to the most recent month and year.

It’ll spit out a report that tells you which companies have done 203k’s in your market.

Call them up and ask them who heads up their reno loan dept.

That way you have lenders that understand the process and can make it easier for you.

3. You can absolutely use a 203k for offmarket deals. I’m in the process of doing another one myself found using off-market leads.

As long as you find a seller that isn’t looking to close on an exact date, you can still purchase as-is, beat up properties.

Hope this all helps my man!

Matt

[Drew Sygit]

No one's talked numbers, but FHA 203k used to have two options:

1) $35k max of rehab work could be added to the purchase price

2) Up to 110% of the max FHA loan limit, including rehab could be financed in the purchase mortgage.

Most lenders only do the $35k version to limit exposure.

Perhaps @Matthew Porcaro could confirm the above.