Share your experience with using a 203k loan

[John Burtle]

Have you used a 203k loan? Was that your way of getting info real estate? Please share your story in regards to using the 203k loan, or if you know someone who has went that route. Share how it worked out. 

[Sam LLoyd]

I did this 8 years ago, so I'm sure some things have changed, but here goes.....

Unfinished duplex for 195k.  I went to Home Depot an got an itemized list of all material needed to finish the duplex, as well as a quote from an electrician (this was the only licensed work needed).  This included getting Home Depot to work up a quote for the cabinets and countertops, as well as all new stainless appliances.  The grand total was 224k, which is what I got the loan for. I had a 6 mo window to complete the process and get it reappraised, and the opportunity to take one draw in the middle.

I knew I was going to get laid off due to my company losing a couple contracts, so a month later I lost my job and was able to work on the duplex full time.  One of the units was finished, so I had this rented right away which helped a lot.  There was also a treehouse on the property that my wife and I lived in while doing work (we had one bathroom working in very short order).  Once I was in, I wanted it finished so that I could get the rest of the money from the bank, but there was no pressure since any left over would just go to the principal if I couldn't get it finished. There are no codes where I am, so the electrician told me to do the work myself, and charged me a very reasonable amount to come look at my work.  I also learned how to lay tile, laminate, carpet, sheetrock, paint, install cabinets, tubs sinks, toilets... the works.  Right now, I could probably do all of that work in 2 months of easy work, but with the learning curve for all of that, I was pushing up against the 6 month window, and getting very worried that I would not have it done.  While we didn't have jobs, we lived off of credit cards, and used the loan draws to pay the mortgage.  This is probably exactly what the bank did not want, but hey.... I had a real job when they gave me the loan.

There are other changes that we made after things got going.  I found cheap appliances, and instead upgraded the cabinets.  I also found a better deal on countertops, but in the end my totals came up close to the 224k since I was new to estimating material costs, and went way over in some areas. 

It took a while for us to find new jobs and get the credit cards payed off, but the next year we built a cabin on the property, and our total income from the 3 units is about 1200/month now.  And the construction experience has been vital in the rest of my investing.

Note:  Get a contractor bid from Home Depot (and other stores).  They took up to 75% off of some high margin items like light fixtures, and even the $1 off per item adds up on things like sheetrock.