All Forum Posts by: Matthew Porcaro

Quote from @Jorge Vazquez:

Has anyone ever had anything positive to say about the 203ks? Seriously! I wanna write an article about this.

 I've done them multiple times myself (including the Fannie Mae HomeStyle) and I attribute pretty much all of my success in building equity and cash flow quickly in an insanely competitive market to the power of 203k's and renovation loans in general. 

The reason they get such a bad rep are: 

1. Agents and lenders are the only ones that would tell their clients about them, and their truly is no real benefit to the lender or agent to do/promote a 203k. Understandably, its added work for them. However, its tremendously beneficial to the buyer to get access to all the funds to purchase and completely renovate a property for only 3.5% of the total. 

2. Since very few agents or lenders do them, they do them sporadically, never truly learning how they work. They also only see one small portion of the journey. Lender: Contract to close. Realtor: Deal Search to closing. 

They don't see what happens before and after that process... IE working with the inspectors, HUD consultants, contractors, etc.

3. Residential construction is the Wild Wild West of the construction industry. "Contractors" working out of the back of their truck, writing estimates on napkins, taking 50% up front deposits. There's low barrier of entry in most parts of the country. 

So people end up working with bad contractors that have little to no professional work experience, and this has become status quo. 

The 203k and HomeStyle are built and handled the way construction is supposed to be run: Licenses, insurances, references provided, A clear line itemized scope of work, clear timeline, paid out in draws, with holdbacks until the end. 

The "extra paperwork" everyone complains about on these loans is paperwork that should be on every single construction project. License, insurance, resume w/ references, clear scope of work.

If every residential construction project started out with vetted, licensed & insured contractors with a clear, detailed scope of work, and clear timeline with milestone dates, there would be way less horror stories. But people can't fight the urge to go for the cheapest price from the no-name contractor. 

I've been working in construction for 20 years, 15 of those in NYC working large scale design and build construction on projects ranging from $1M to $500M+. 

Every single project I have ever worked on is structured the way that renovation loans like the 203k and HomeStyle are built. 

I've successfully helped hundreds of people do 203k's and homestyle loans all across the US over the last 6 years. 

Like anything else, once you understand and respect the process, its like anything else. 

There's renovation specialist lenders all across the country that do these day in/day out with little to no issues. You just need to know what you're doing. 

Quote from @Kyle Trotman:

@Matthew Porcaro Matthew! How's it going dude. Thanks for the reply! I appreciate that information, that gives me a place to start as far as the price/sqft. I was looking for a streamlined way to run numbers on a few deals that would be more or less a good reference until I receive actual bids on the specific property for the scope of work. While I can provide a lot of the renovations myself it will be helpful until I have a property under contract to save some time penciling if the numbers will work at a specific price. 

What do you find is the best way to quickly analyze the rehabs of properties without necessarily getting bids? 

Again, thank you for the response. I'll be looking into some REIA's in the local market to chat more.

Thanks again.

 Unfortunately like I said, theres no shortcut for this. You have to learn by experience/by doing. You can use the numbers I gave you as a really rough guideline. 

There are some softwares that do it, but the amount of time its going to take you to try to measure eveything and get it exact, you could be making more waves by placing a lot more offers and getting into the actual property with a contractor or inspector to find out true pricing. 

In my experience, Ive also seen that ChatGPT is pretty good at analyzing renovation costs in markets if you give it pictures of the property, square footage, and location. But do NOT lean on this lol

Definitely a loaded question as said above. 

What I'll say is renovation cost is renovation cost. Doing it yourself or GC'ing it yourself isn't a subtraction of cost or a savings. No matter how you cut it, estimated renovation costs are going off of labor, materials, and some magnitude of profit. 

Take these numbers with a grain of salt, but I help people with renovation loans across the united states and these are the rough order of magnitude numbers I use. 

Full gut + additions/alterations/dormers = $150-200/sqft

Heavy Renovation $100-$150/sqft

Moderate Reno $60-100/sqft

Light $40-60/sqft

Minimal $20-40/sqft

The only way to know is to get contractor bids in your market and take an aggregate across the board. 

Also go to local REIA meetups or real estate meetups and ask investors and agents what they're projecting in their market.

That's the only way to know for sure, and even then its just an estimate or guess. 

Wish I could be there for this one :) 

Quote from @Mike Finstad:

This is my first post on BP, I'm excited to join this community! 

My wife and I have been looking into buying a multi-family four-plex that is currently listed for a little over $2 million. We would like to purchase the property and add a second story to the main building and rent out the other three units. 

I've done some research on FHA 203(k) loans for my specific location here in San Diego, in regards to the maximum loan amount for that loan -- I've seen $1,209,750 quoted as the max for a SFR, but the max on a four-family property can be up to $2,326,875. Does anyone know enough about FHA 203(k) loans to tell me if these numbers are correct??

 Hi Mike - so the 203k will fall within those loan limits. For instance, if you bought a property for $2,000,000, you'd have $326,875 left for renovations. 

Essentially, both the purchase price + the renovation costs & contingency have to fall within the umbrella of the loan limit, or whatever you're approved for, whichever is lower. 

As some other people mentioned, self-sufficiency test will be what you're up against on a quadplex. 

Now, I've had many clients that buy fixer upper quadplexes using the 203k or used the 203k to add bedrooms/bathrooms to each unit to boost the potential rental income, and in those instances they were able to get the proeprty to become self sufficient. 

Buying distressed multifamily is the only way to make house hacking and FHA work in my opinion since you are giving yourself the best chance getting in at a lower cost basis, building value on the purchase and upgrade, rather than looking for a unicorn of a move in ready quadplex that meets self sufficiency.

I've done several 203k's personally in Long Island and NYC for myself and for clients of mine. 

The #1 most important thing to focus on is making sure that you have a lender that is an expert at these. Most concerns about 203k's arise from people that have bad experiences with them because they worked with a Loan Officer and team that is not deeply experienced in these. 

Another huge mistake people make is only having one contractor bid the job, and having the contractor create the scope of work. 

The process looks like this. 
Find a property that needs work via MLS or Off-Market as you've mentioned, place offer based on comps in the area, and what you think the property will be valued after renovating to come up with your offer, once the offer is accepted, have the 203k Consultant go to the property before anything else. They will put together what is called a Specification of Repairs or SOR report. This is basically a scope of work based off of their inspection of the property of what needs to be done. It will also include what you'd like to be done.

Once you have that, only then do you bring in contractors to estimate the project. Contractors are much more receptive when you have the scope of work already lined out. Just have them write their numbers on that scope of work, and make it easy for them.

Once that's done, you pick the best contractor for the job and not just the cheapest one. Having multiple bids will help you compare what true pricing is. 

Once you have that, you have a solid number you can close with. 

Your worries about banks taking too long to pay contractors isn't reality when you work with a bank that knows what theyre doing. I just finished a renovation loan on my forever house, and the time from the draw request from the bank to the check being delivered was about 2 business days. 

Your biggest challenge in NYC is finding a good deal where the numbers work. Going off-market is a great strategy, and how I found my house on Long Island. We went into the neighborhood we wanted and took down the address of every house that we liked that looked a bit dated and needed work. Then we sent handwritten notes with pictures of me and my family stating that we're eager to move into the area and wanted to see if they had any interest in selling to us privately. 

I highlighted the fact that using a renovation loan like a 203k, you can purchase the property in as-is condition so they dont have to do any repairs or clean the house or be worried about having other people come in and get it inspected and try to beat them down on price. 

We found our forever home at about 150k under-value going off market. 

In NY - i think its your best bet, it just takes some time and persistence to see results. 

Long Island is slow to the ADU game, but the federal programs like FHA and Fannie Mae are pushing them.

What I'm helping a few clients with on LI right now with is getting houses that are already setup with accessory unit "ready" floorplans. 

Which is a lot of LI. Its your split level homes, basement apartments with egress, existing detached structures with liveable units 

On LI they call them "non-conforming units" but they're being underwritten now as income producing even by FHA and Fannie Mae/Freddie Mac. 

It's definitely a gray area, but the reality is that its "common & customary" to rent out non-conforming (not legally zoned) income producing units in Long Island houses. 

Brookhaven and Huntington have beginning to allow them. You will need to submit plans & permits and appear in front of the zoning boards to get them. 

Basically what I'm saying is, focus on properties that already have it. Not a new build one. 

You can always use a 203k or HomeStyle to fit out the property to become a conforming unit. I wouldn't depend on those grants that have wayyyy to much red tape as mentioned above. 

Quote from @Jaren Woeppel:

Hey Andrew, welcome to the community! FHA 203(k) loans are a great way to get into a property, add value, and set yourself up for strong equity when you eventually rent it out.

Biggest things to watch out for:

1. Contractors & Timeline – The loan requires HUD-approved contractors, and the rehab process can take longer than expected. Make sure you’re working with a lender who has experience with 203(k) loans and a contractor who understands the program’s requirements.

2. Loan Process Can Be Slow – Unlike a standard mortgage, the lender will be heavily involved in the renovation funds, which means more paperwork and potential delays.

3. Strict Repair Guidelines – The work has to improve the home’s safety and livability, so luxury upgrades usually don’t qualify.

4. Living Through Renovations – If you go with a Limited 203(k) (up to $35K in repairs), it’s usually manageable, but for a Standard 203(k), major work might require you to live elsewhere for a bit.

It’s a solid strategy, just make sure you’re working with the right lender and contractor so things go smoothly.

 Respectfully, majority of what you posted is inaccurate and misleading. 

To clarify;

1. There is no such thing as "HUD-Approved contractors" or any type of certification required for contractors to perform 203k's or HomeStyle renovation loans. Any licensed, insured, and experienced contractor will qualify. I do agree that you should work with a lender that is deeply experienced with these loans. It also helps that the contractor has experience but is definitely not necessary. I've helped 100's of people do 203k's and majority of them worked with contractors that previously did not do a 203k. If a contractor has ever done commercial work or insurance work (90% of contractors that are legit have) then they're used to the process.

2. When you say the lender is "heavily involved" with the renovation funds, its no different than hard money. The renovation budget gets put in escrow and gets released in draws as the work is completed. This is how all professional construction is managed and handled. The money needs to go somewhere. It's released as work is completed. The additional paperwork is a draw request, which is handled by the 203k consultant. 

3. The 203k does not have strict repair guidelines. It requires you to fix necessary items that permit occupancy, IE, functioning windows and doors, proper egress, working MEPs. You can get any level of finish or upgrades you want so long as it fits your budget. The only things you can't get are things like a pool, tennis court, and amenities that aren't integral to the house. 

4. The limited 203k is no longer limited to 35,000 - it's now up to 75,000 in repairs, and thats for projects where there is no change to structure, IE, no moving walls, alterations, additions etc. It can be used to replace finishes - kitchens bathrooms, flooring, paint, etc.

If you have to live elsewhere while the work is being completed the 203k allows you to wrap up to 12 months mortgage payments into the loan if your approval/LTV allows for it. This gives you the opportunity to not have to pay out of pocket for a primary residence you can't occupy.

For @Andrew Miller - as someone that's done multiple renovation loans myself and helped 100's do the same, here are my biggest tips:

1. Work with a lender that is DEEPLY experienced with 203k loans. Not just "familiar". Would you want a honda mechanic to change the oil on your Porsche? Can the honda mechanic replace the oil on a porsche? Probably. But I'd rather work with the mechanic that works on Porsche's PRIMARILY. Not once in a blue moon. 

2. Start building a contractor rolodex now. Get referrals from as many people as you can. I've worked in construction for 20 years and theres no such thing as a "go-to" perfect contractor. There will always be changes in their schedule, manpower, timelines etc. 

That way, when you get a property under contract, you can call on the list and have ample contractors show to bid. 

3. Once under contract on a fixer upper, the FIRST person to enter that property with you is the 203k consultant. Not the contractor. The 203k Consultant will inspect the property and create whats called a "Schedule of repairs" or SOR. That SOR will give you a line itemed breakdown of all the work that needs to be done to the property to get it up to code and liveable condition, as well as anything you'd like to do: upgrades, additions, alterations, etc. 

The SOR should also have rough estimate values of how much each item should cost. NOTE: if your consultant asks you for a contractor bid first, get a new consultant immediately. That's a huge red flag and against HUD/FHA rules for the 203k.

The consultant should be able to provide an unbiased work write-up and work estimate on their own. 

4. Once that SOR is finished, the consutlant can provide you what's called a 'BOR', or Bid on Repairs. 

This is the same thing as the SOR, just with the cost items removed. 

The key here is to give that BOR to the contractors so that they can bid the EXACT scope of work. 

In the construction industry we call it "bid leveling" and this is exactly how you compare numbers between contractors accurately and apples to apples. 

Make sure to get at LEAST 3 bids. Otherwise, you have no idea what the true pricing of the project is. 

Never depend on one contractor and never accept a contractor directly forced on you by a consultant or lender

5. Once you pick the contractor you like best price wise and personnel wise, then the contractor submits their license, insurance, and one-page fillable resume to the bank, alongside their estimate. 

The bank then approves that estimate and then you get an appraisal, then you're clear to close. 

If you have any additional questions about this, don't hesitate to reach out. This is what I specialize in for almost a decade. 

Quote from @Jacorion Williams:

Quote from @Matthew Porcaro:

Quote from @Jacorion Williams:

Hey Bp team!

I'm currently closing on my first property in 2 weeks using a FHA 203k loan to help with renovations.

This is going to bring my mortgage payments to around $2.3k per month. 

My goal with the property is to house hack and rent out two fully furnished rooms ($700/800 each room). 

Are there any tips or tricks I should know or keep in mind when approaching closing and for after? 

Thanks! 

 Congrats on the closing!

When it comes to the 203k, just make sure you have a contractor start date scheduled, and be sure to contact your consultant (if you have one and its not a 203k limited) to get the first draw scheduled. 

Usually the first draw happens after demolition/rough installs for electrical and plumbing. 

Stay on top of the schedule. If you haven't yet. Sit down with your contractor and write up a quick timeline. 

Frame it like this: "in order to make sure you get paid on time I want to have a schedule of when the draw inspections should happen with the bank"

Then, you have a schedule to keep an eye on and if they're slipping, you can ask them why and see how you can help them get back on track. 

Also, if you have any materials you need (tile, flooring, cabinets, bathroom fixtures, etc) start picking those ASAP. Make sure they stay under what was budgeted by the contractor for the job. 

Thanks for this! 

They have the time frame and payment dates set but I’ll be sure to make sure things are going as planned. I’ll also be sure to pick out everything I need to keep them under budget like you suggested! 

That's great to hear! Just to clarify, when I say timeline dates I don't mean just "project to be completed by (Date)"

That's required by FHA/Lender, but in my 20 years of construction experience not nearly what you need haha. 

When I say timeline, I mean milestone dates. 

For example:

Construction Start Date - March 1st
Demolition Completed - March 10th
Electrical Rough-in & Plumbing & Inspection - April 1st
Insulation Done - April 5th
Sheetrock - April 10th


Something like that. The more detailed the better. It will keep everyone honest and again, help you schedule draws with the bank for the consultant. 

Quote from @Jacorion Williams:

Hey Bp team!

I'm currently closing on my first property in 2 weeks using a FHA 203k loan to help with renovations.

This is going to bring my mortgage payments to around $2.3k per month. 

My goal with the property is to house hack and rent out two fully furnished rooms ($700/800 each room). 

Are there any tips or tricks I should know or keep in mind when approaching closing and for after? 

Thanks! 

 Congrats on the closing!

When it comes to the 203k, just make sure you have a contractor start date scheduled, and be sure to contact your consultant (if you have one and its not a 203k limited) to get the first draw scheduled. 

Usually the first draw happens after demolition/rough installs for electrical and plumbing. 

Stay on top of the schedule. If you haven't yet. Sit down with your contractor and write up a quick timeline. 

Frame it like this: "in order to make sure you get paid on time I want to have a schedule of when the draw inspections should happen with the bank"

Then, you have a schedule to keep an eye on and if they're slipping, you can ask them why and see how you can help them get back on track. 

Also, if you have any materials you need (tile, flooring, cabinets, bathroom fixtures, etc) start picking those ASAP. Make sure they stay under what was budgeted by the contractor for the job.