Why not always go with 203K Standard or Streamline Loan?

[LaQuan Bates]

So im very new to Real Estate Investing and am particularly interested in Multi-Unit properties. I purchased the book "The House Hacking Strategy" which was highly recommended for beginners like myself. In the Finance chapter it broke down various types of loans that a first time Home Owner can acquire for Multi-Family units and explained the difference between standard FHA Loans, 203k Standard FHA Loans and 203K Streamline Loans. So my question is why don't all first time House Hackers/Home Owners just obtain a 203K FHA loan for renovations and force appreciation into the unit while also making passive income off the additional units? Again im new to RE investing so I dont see any downsides to this. Any Insight would be appreciated! Thanks Everyone!

[Latasha Griffin]

@LaQuan Bates hi there. The 203k is a great product for house hacking. Assuming you know all the upside, here's some of the downside.

MIP: Upfront mortgage insurance will be added to your closing costs at 1.75% of the loan amount. Also, you will have to pay insurance premiums with your monthly payments. This does NOT automatically go away once the loan-to-value (LTV) dips under 80% by either principal reduction or appreciation, or combo of the two. You have to refinance into a conventional loan to remove it or your stuck with it for the life of the loan.

Speed: "Money loves speed" and this is especially true for multifamily (at least in my market: Atlanta). Its very difficult to find a seller willing to wait the 45-60 required to close a 203k loan, even with your team (home inspector, lender, GC, designer, Hud consultant, A&E if structural changes, attorney, title company, etc) lined up ready to go. Multifamily moves quickly here so cash or hard money is often the most effective way to move. However, take some wholesaling techniques to find motivated sellers or distressed properties you can add major value to that otherwise might be overlooked.

Expertise: it's important your whole team understands their role in this process to avoid gaps. Realtor needs to know what language to put in the contracts for inspection period and other contingencies, and HUD disclosure, etc. Your lender should be a direct lender that Services their own loan through the entire reno process to avoid delays in the GCs payments. Your GC MUST understand that draws require inspection before being submitted and, and must be financially solvent enough to carry his labor and materials costs for a few weeks before getting a draw. He/she also needs to have the professional acumen to complete the necessary paperwork and a detailed, itemized project bid. Also, your HUD consultant (if reno budget over $30k or any structural changes req'd) must be able to conduct inspections in a timely manner to avoid further delays. He/she must also work well with the GC and lender. There is also additional costs incurred if a HUD consultant is utilized.

I'm in the process of using a 203k myself on a 4plex. Happy to chat more about it if you'd like.