All Forum Posts by: Daniel Qin

@Daniel Qin

The bank does NOT have a contract with the contractor on an FHA 203k.

The customer/borrower will have a contract with the contractor, in addition to the HOCA (Homeowner Contractor Agreement). 

Recommend using a contractor with experience with 203k's such as a contractor with the designation as a Certified 203k Contractor. 

You're only as strong as your weakest link ... select your partners wisely. 

Do you know what they would require for a down payment amount?  I would love to go this route but am being stalled with capital.  I'm working with a total of $40k capital and have to keep some in reserves after the purchase.

Daniel, 

FHA programs are truly amazing. Though not technically meant for real estate investors, it's often used as such due to it's looser requirements pertaining to the number of units that you can purchase through it. Fortunately there's many strategies you may consider.

1. Value add properties on a construction loan. You'll pay 20% of the lower purchase price of a distressed property, and using a construction loan get 100% of the renovation costs financed. Overall the cost to entry on this type of investment is lower, and you can refinance your money out once the property is done. 
2. Hard Money loan for closing costs. 75-80% LTV traditional financing, and 20-25% down payment financed also at 10-15% interest rate. Prioritize repayment of your hard money loan, consider doing so off of increased rents, etc. You'll still need a value add investment to succeed with this.

If you're willing to leave the city and invest in Upstate NY such as I do, the barrier to entry is VERY low, and easily that reluctancy on a 20% down payment on a $1-3M property becomes negligible, as properties upstate of similar size go for $200-500k. 

@Daniel Qin So we came up with this by estimating likely scenarios and OMFG scenarios on prices, rates, and rents. What we want to see is does the deal meet our metrics from day one at current situations and how does look if these things happen. What we really want to see is that even in the worst case we are still in above water on a equity position and we are at least breaking even on our cashflow. If we are underwater on equity and our cash flow is negative after running these scenarios, we pass on the deal. 

Just how we look at it for our market, but makes me sleep good at night. 

Hope this helps! 

I somewhat agree with the whole "buy real estate and wait" mantra, but I do think right now is a good time to sharpen your underwriting skills and really go in depth on a potential project. For example we have been running our numbers based on market rents staying flat, going down by 5%, going down by 10%,or going down by 15%. Then we are also running numbers at interest rates of 6%, 7%, 8%. Finally we are seeing what the deal looks like if we have  0% appreciation, 5% depreciation, or 10% depreciation. Now this makes it really hard for a deal to pencil out, but when one does we know we are excellent shape for whatever may come. 

Hope this helps!