Financing after a FHA morgage???

Question

Hi everybody! i am a new to this site and into the the real estate game as well... This past year i had bought my first multi family house that was pretty much turn key so there is no equity in the house... I ended up house hacking with a FHA mortgage... Now i realize that real estate, tenants, and having a mortgage isnt as scary as i thought that i want to get more properties at a faster rate than what i had planned... So i figured that the brrrrr strategy would be the best way with a 203k loan with only 3.5% down and house hack again... but i know a 203k loan is a branch of a FHA mortgage and that your only allowed to have one at a time... So I would appreciate anybody input on what i should do with the mortgage or if there is a different strategy that i am over looking...

Scott Hollister · Answer

Hello @Ray Paszkowski Jr. and @Brent Coombs,

SFH: Single Family Home

$21k HELOC: I was able to pull $21,000 out of mine, see below.

203k:

• It is my understanding that you won't be able to qualify for this product because you have an FHA loan out. The only way would be to refinance out/or sell your loan. (This is NOT a good financial choice seeing how you just got your loan, you would end up bringing money to the table because of so little equity. The agents commission on the buy/sell side would eat it up. 
• Here is a product I almost used this year. @Kit Crowne help me find a loan that works for my needs. Here are 3 different options. Click this link to check out The FannieMae HomeStyle. 5% down and rehab costs covered. (IF you are looking for a loan that has low down payment and rehab costs covered)Downfall to this loan option: You can't do the work yourself or GC(General Contractor) the project. What I mean is that you will be paying "list price" for the work that is being done. (Remember you want to force appreciation as much as possible)
• Here are 3 different options. Click this link to check out The FannieMae HomeStyle. 5% down and rehab costs covered. (IF you are looking for a loan that has low down payment and rehab costs covered)
• Downfall to this loan option: You can't do the work yourself or GC(General Contractor) the project. What I mean is that you will be paying "list price" for the work that is being done. (Remember you want to force appreciation as much as possible)

• Here are 3 different options. Click this link to check out The FannieMae HomeStyle. 5% down and rehab costs covered. (IF you are looking for a loan that has low down payment and rehab costs covered)
• Downfall to this loan option: You can't do the work yourself or GC(General Contractor) the project. What I mean is that you will be paying "list price" for the work that is being done. (Remember you want to force appreciation as much as possible)

Brent, far as I know RCN will not do that. Most lenders want "skin in the game". I know of some HML that will take another property as the down payment collateral. (Weigh out your risk tolerance for this)

Allow me to clarify, I am still working on my forum replies to be on Brent's level one day;)

• RCN is a Hard Money Lender. Short term, interest only loans for non owner occupied investments. I showed Ray one way to get his next property because he said he wanted to do a BRRRR strategy. (Remember Ray, this was the path I took, you might find a better/cheaper way) So here are actual numbers based off of a HML:ARV (After repair value) Lets say a lender allows up to 85% of the purchase price. So Ray, you buy a house for 100k, the lender gives you 85k. (Your "skin in the game" is $15,000)You cover all closing costs and fees. Lets say an even $6,000. (Your cost is $6,000)They cover up to 100% of renovation costs, but you will need to stay under 75% of the ARV. (Your cost is $0)Lets say the house you bought will sell for 185k after its rehabbed. Remember Ray, since your a savy real estate investor, you make a great purchase on the buy side (very important). You factor in holding costs: Taxes, insurance, electricity, gas, sewer, water, snow/lawn, etc. Depending on the amount of days you hold it. Lets say another $5,000. (Your cost $5,000) You can mitigate these costs during a BRRRR if you get your tenants to pay them. If you go Hard Money, there will be a monthly interest only payment. Lets say 12% (Which seems like the industry average) .12x85k= $10,200/12= $850 each month. (Your cost: $850 each month) Your will also be charged interest on the rehab money as well ONCE you draw from it. That means you will have to and should, stay under $138,750.00. You stay under this limit and knock this one out of the park. You're into it for $135,000, sell for 180,000 because its winter time and you price it under appraisal. (People love deals)You have just forced $45,000 in equity. And THAT is what I am recommending. Whether you use hard money, bank money, mom's money, and everything thing in between. Ray, the ultimate goal is to make a wise investment!
• So here are actual numbers based off of a HML:
• ARV (After repair value) Lets say a lender allows up to 85% of the purchase price. So Ray, you buy a house for 100k, the lender gives you 85k. (Your "skin in the game" is $15,000)
• You cover all closing costs and fees. Lets say an even $6,000. (Your cost is $6,000)
• They cover up to 100% of renovation costs, but you will need to stay under 75% of the ARV. (Your cost is $0)
• Lets say the house you bought will sell for 185k after its rehabbed. Remember Ray, since your a savy real estate investor, you make a great purchase on the buy side (very important). 
• You factor in holding costs: Taxes, insurance, electricity, gas, sewer, water, snow/lawn, etc. Depending on the amount of days you hold it. Lets say another $5,000. (Your cost $5,000) You can mitigate these costs during a BRRRR if you get your tenants to pay them. 
• If you go Hard Money, there will be a monthly interest only payment. Lets say 12% (Which seems like the industry average) .12x85k= $10,200/12= $850 each month. (Your cost: $850 each month) Your will also be charged interest on the rehab money as well ONCE you draw from it. 
• That means you will have to and should, stay under $138,750.00. 
• You stay under this limit and knock this one out of the park. You're into it for $135,000, sell for 180,000 because its winter time and you price it under appraisal. (People love deals)
• You have just forced $45,000 in equity. And THAT is what I am recommending. Whether you use hard money, bank money, mom's money, and everything thing in between. Ray, the ultimate goal is to make a wise investment!
• There are many lenders out there that have different products. For instance, RealtyShares has an option that goes up to 70% of ARV. (That means the after repair value of the home will be a 100k, they will loan up to 70k for purchase and rehab) Its your job to stay within those limits.

• So here are actual numbers based off of a HML:
• ARV (After repair value) Lets say a lender allows up to 85% of the purchase price. So Ray, you buy a house for 100k, the lender gives you 85k. (Your "skin in the game" is $15,000)
• You cover all closing costs and fees. Lets say an even $6,000. (Your cost is $6,000)
• They cover up to 100% of renovation costs, but you will need to stay under 75% of the ARV. (Your cost is $0)
• Lets say the house you bought will sell for 185k after its rehabbed. Remember Ray, since your a savy real estate investor, you make a great purchase on the buy side (very important). 
• You factor in holding costs: Taxes, insurance, electricity, gas, sewer, water, snow/lawn, etc. Depending on the amount of days you hold it. Lets say another $5,000. (Your cost $5,000) You can mitigate these costs during a BRRRR if you get your tenants to pay them. 
• If you go Hard Money, there will be a monthly interest only payment. Lets say 12% (Which seems like the industry average) .12x85k= $10,200/12= $850 each month. (Your cost: $850 each month) Your will also be charged interest on the rehab money as well ONCE you draw from it. 
• That means you will have to and should, stay under $138,750.00. 
• You stay under this limit and knock this one out of the park. You're into it for $135,000, sell for 180,000 because its winter time and you price it under appraisal. (People love deals)
• You have just forced $45,000 in equity. And THAT is what I am recommending. Whether you use hard money, bank money, mom's money, and everything thing in between. Ray, the ultimate goal is to make a wise investment!

My suggestions:

• Im suggesting that Ray keeps this property because he says it is a cash flowing property. Because Ray has learned to be wise from BP and he has factored in all costs like cap ex, maintenance, vacancy, etc.  
• Ray wants another (He's got Real Estate Fever:) And you have mentioned BRRRR so I showed you the path I took. The goal here is to make wise investments with your money. 
• I showed Ray that if he pays down his mortgage more, one way to get money for a down payment is to use a Home Equity Line of Credit (HELOC). Which is like a giant credit card for your house. Right now, you don't have enough equity to do so. When I took mine out (Above 80%) I had been paying extra towards the principal for 4 years. (It was $209,000 balance and $260,000 appraisal. I was able to pull $21,000 out and partner with a hard money lender. Much like the actual numbers above. 
• Number 3 is not a recommendation, it is an example to learn from. Check out this awesome debate going on right now about putting your cash towards the principle and make your own decision.

Thank you for being patient and please bare with me as I become a better investor/forum guest learning from all the experienced investors on BP!

Scott Hollister · Answer

Hello @Ray Paszkowski Jr. and Welcome to BP! Its great to see others from CT on the forums!

Also @Brent Coombs is knowledgable and we are lucky to have him on the forums!

I started on the exact same path as you. Congrats on entering real estate with one of the best ways possible! I have one question before I lay out my mastermind plan, because like you I felt stuck this year. An FHA house hack with very little equity (Above 80%) Purchased in 2012.

• Does your house hack cash flow with you living in it? OR Is it cheaper by living there then renting? (Also, is it worth your time maintaining the building?)

Remember this is just my path, it may not work for you. I hope my plan gets your creative side flowing, because all we need is just one good idea to start:)

• So here was my thinking! I HATE PMI. So my plan was to pay an extra $159 a month towards principle and another 2k around tax season to get the PMI off in year 5 (which is the minimum requirement, 5 years AND 78% LTV) A simple online payoff calculator will do this for you. (Mine is $244 a month!)This won't work for you because your PMI is most likely for the life of your loan. So if you want it off quicker, force some appreciation and refi a few years down the road. Just MAKE sure that this is a wise move, it may not be wise to start your loan over. Run your numbers diligently, check with your goals to see if this will bring you closer to them. 
• This won't work for you because your PMI is most likely for the life of your loan. So if you want it off quicker, force some appreciation and refi a few years down the road. Just MAKE sure that this is a wise move, it may not be wise to start your loan over. Run your numbers diligently, check with your goals to see if this will bring you closer to them. 
• So I've been on this path until this year when something magical happened. I started listening to the BP podcasts and went to a BP Meet Up! My mentor mentioned you can get a HELOC up to 100% of your house value! Right there it clicked, there was my down payment for my BRRRR house! I partnered with RCN Capital, a BP featured HML. Side Note: Seeing how you're in CT, we have our next meet up on this Tuesday with RCN! Come make connections and line up some financing. Unless you have a BOM (Bank of Mom:) The rest of us use HM. HaHere is the link to the event!
• Side Note: Seeing how you're in CT, we have our next meet up on this Tuesday with RCN! Come make connections and line up some financing. Unless you have a BOM (Bank of Mom:) The rest of us use HM. Ha
• Here is the link to the event!
• So I used the $21k HELOC and RCN gave me around 100k so I could buy a SFH. I bought it for around 100k, put 16k into it and it appraised for 187k. BRRRR its cold in here! I will pull that equity out in 6 months with conventional financing, who will ALSO be at the meeting if you want to connect with him. (There will also be an amazing commercial lender there as well, always think ahead)
• And now I'm onto my first real flip!

• This won't work for you because your PMI is most likely for the life of your loan. So if you want it off quicker, force some appreciation and refi a few years down the road. Just MAKE sure that this is a wise move, it may not be wise to start your loan over. Run your numbers diligently, check with your goals to see if this will bring you closer to them.

• Side Note: Seeing how you're in CT, we have our next meet up on this Tuesday with RCN! Come make connections and line up some financing. Unless you have a BOM (Bank of Mom:) The rest of us use HM. Ha
• Here is the link to the event!

Just remember, you can do anything you put your mind to! And I would strongly advise going to a BP meeting, we have such an amazing group of investors and we always bring in quality speakers.

So after seeing this, whats the plan Ray?!

Brent Coombs · Answer

@Ray Paszkowski Jr., others may have some ideas, but my instincts would suggest that if you can't see a way of getting to 20% equity in your current one, you might be well served to just bite the bullet, SELL it, and start again with your newly acquired education and non-scary experience.

You NOW know that the secret of Brrrr is buying bargains and/or forcing additional 203k equity.

Each time, you MUST already see your pathway to 20%+ equity, even if only starting with 3.5%!

Welcome to BP. All the best...

Kit Crowne · Answer

Ray - My 2-cents as a lender: Scott really nailed it with his advice above (Brent, too!). Absent financing from BOM, you either need to flip the home you have and harvest as much profit as you can to do your next (even more profitable) deal or accumulate savings and buy with either Conventional Rehab financing or Hard Money (which isn't all bad... just needs to be priced into the buy).

Hope to see you at one of the meet ups.

Happy investing!

Kit

Brent Coombs · Answer

@Scott Hollister, seems like you're suggesting that RCN Capital would loan @Ray Paszkowski Jr. 100% of what his current house is worth, so he could move and re-apply for a new FHA Loan for his next house hacking adventure? But then, you referred to them as a Hard Money Lender (ie. super high Interest Rate)?

Or, are you suggesting that Ray keep his current Loan going, and still live there, while only borrowing his original deposit back, but at a Hard Money Interest Rate, to invest elsewhere?

I hope you're not suggesting that he attempt to borrow 100% of his homes' value from the same Hard Money Lender, just so he can apply for a new FHA Loan elsewhere?

I'm just trying to see how your circumstances and decisions could be helpful to Ray.

But I'm not really seeing it. Cheers...

Ray Paszkowski Jr. · Answer

Thank you guys its a pleasure to be here!!! I'm extremely happy to hear about other people investing in CT and for the link you posted for the meet up... I'm sure i will be available so i'll be there!!!

I really appreciate your response and all your knowledge to the subject @Brent Coombs and @Scott Hollister!!!

So As of right now in my two family the tenant pays about 75% of the mortgage and i have to come up with the rest... But i am not living there... I bought this house strictly as a investment but went with the FHA just because of the cheep down payment... So the house wont cash flow until the second unit is rented then it will have a nice positive cash flow as the house is fully remodeled with higher end finishes... So after the year is up i am able to move out and my mortgage then cant get pulled if im not living there which is why i didnt rent it yet... And as far as the maintenance goes there very little so i do it myself...

So as far as the PMI goes I hate it just like everybody else but i already figured it in when ran the numbers with the house before i bought the house of course lol and there still is a nice positive cash flow... So i'm really not to concern with putting more money on my mortgage because i would rather put that money to work for me and use it towards another multi family property...

So as of right now my plan is still to do a little more research and understand what all of my option are... I know what a Heloc is but not a $21k heloc, RNC or SFH??? Sorry this newby is still trying to get used to all the new lingo!!! ha ha The main reason why i really like the 203k loan was that the construction cost in my understanding get all wrapped into the mortgage which is nice... As well as the 3.5% down is always a plus... Any other suggestions???

Ray Paszkowski Jr. · Answer

Thanks for your advice Brent!!! I thought about that as well... But since the house is so nicley done and when I move out there will a nice cash flow I would rather refinance the house if I had to or see if there is any other way to get creative???

Financing after a FHA morgage???

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