203k Loan vs FHA w/ Out of Pocket Rehab??

[Kenyon Berry]

Question for the seasoned investors. Looking to purchase a Live-In Flip and make extensive repairs. Would it make most sense to go for a 203k FHA or just a traditional FHA and make rehabs to the property out of pocket over the course of my time living there? My thought would be to go traditional FHA route and pay rehab cost out of pocket so when I go to refi I can pull as much equity as possible but curious on what are some you guys thoughts ?

[Brenden Mitchum]

Hey @Kenyon Berry, welcome to the BP community!

The honest answer to your question is, "It depends." 

How hot is your market? If it's as hot as most major markets out there, you'll have next to zero chance of wining any deal with a 60 day 203k/homestyle close. There are exceptions such as homes that have been on the market for a while or a seller who does not want to close for 60+ days anyways. But, for the most part, you're going to get crushed on every offer by cash and even traditional financed offers.

It also depends on your liquidity. Do you have the cash to run the rehab out of pocket? If not, the rehab loan may be your only option (or a very slow out of pocket reno as you build your capital).

If you're in a hot market and have the cash to do your own reno, I say 100% go the out of pocket route. However, the problem you may run into is getting financing on the property in the first place. FHA is strict on what they'll finance in that it must be livable. Talk to your loan officer about exactly what this entails. Conventional is a little more lenient, but the home still cannot be a total gut job or anything close to it.

Hope this helps a bit! Please, feel free to reach out anytime if you have other questions or just want to chat!