Hello from Philadelphia Suburbs

[Jason D.]

Long time lurker to the BP forums. I've decided to introduce myself now to network with my fellow REI. I'm currently finishing up grad school and will graduate in 2017. My cash is going to paying the tuition as I'm not willing to take it student loans. I would love to start investing in 2018 once I have built up my reserves. Being that I own a primary residence I would have to put down 20% as my wife isn't interested in doing a heloc. However, I'm interested in partnering with a new investor in order to get an fha 3.5% down and 203k. I just wanted to know if all the seasoned investors would think of this as a viable strategy. Thank you for your input.

[Percy N.]

Welcome Jason D.

FHA 203(k) is for owner occupants only.

[Jason D.]

@Percy N.

I must've been unclear. I meant that I would provide the down payment and a partner who qualifies for FHA would then be the owner occupant. I would contribute my diy skills and contract the rest of the stuff out.

[James Masotti]

@Jason D. I believe 203k has pretty strict standards on who can do the work (i.e. licensed and insured contractors), so lending your DIY skills may not be an option. Others with more experience in 203k loans though can weigh in on that. 

It sounds like your strategy is to do buy and hold...would your wife be willing to rent out your current home and buy another one to move into? This live in flip or long term renovation is a popular strategy for people starting out. If you're open to doing it...there is great opportunity to accumulate a number of properties that have nice equity positions..by taking advantage of owner occupancy rules. Do this a few times over a few years and you'll be well on your way to building a nice portfolio. 

[Percy N.]

Originally posted by @Jason D.:

@Percy N.

I must've been unclear. I meant that I would provide the down payment and a partner who qualifies for FHA would then be the owner occupant. I would contribute my diy skills and contract the rest of the stuff out.

Don't mean to be a naysayer, but you can't loan the down payment to someone applying for a FHA loan, it has to be their own money. Don't ask me why the govt has these crazy rules.

 Just want you to be aware in case you are counting on that as a strategy.

As others have said, try to leverage your current home or rent it out and move into a 1-4 unit and live in 1 unit and rent out the others.

[Jason D.]

wow I didn't realize the down payment assistance was not an option. I will talk to my wife about leveraging y current home. However I would be fine with a 80% or 75% ltv from the bank and just obtain the multifarious that way. Thank you for the input @Percy N. and @James Masotti

[Shawn Washington]

Hi @Jason D.,

Unfortunately you can't partner with someone on a 203K loan. FHA doesn't allow loaning the down payment. You could possibly gift it but that's a really gray line. Also you have to have a licensed contractor that can pass a background check do the work. Unfortunately the government is cracking down on loan requirements so renting your current home to purchase a smaller multi-unit most likely won't qualify (a few of my investors have run into this problem). Reach out to a lender to confirm.

[Jason D.]

@Shawn Washington

Thanks for the advice. Unfortunately my wife isn't willing to budge on moving so getting a multi at this time won't be an option. Currently my plan is to graduate, get a raise, save down payment, and finally purchase a property aiming for a reasonable cap rate and cash on cash return. From there, I am currently unsure about how to increase volume. I would love some input in doing this thank you. 

[Igor Avratiner]

There are banks that also offer conventional renovation loans. The way the program works and terms offered are very similar to the FHA 203k. In some cases these conventional programs also allow for rental property with 20% down. I spoke with one bank that did rentals but they had a restriction of allowing 2 loans per borrower when the property is a rental.

[Percy N.]

Jason D. Sounds like the best thing to do at this time is save up for a sufficient down payment and get on the same page with your wife to avoid trouble down the line.