All Forum Posts by: Matthew Porcaro

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. 

Quote from @Justin Sherman:

Hello - we are looking at a property in the $600Ks, up down house hack. In a great and popular location with rising rents and upside on price with renovations but also that will cost in the short term to improve the property. It would be our second up down house hack, however, with interest rates in the high 6's, it would probably not cash flow after moving out. With 5% down, mortgage all in would be $4700, 10% down $4500/month, 15% down $4300, 20% down $4000/month. The upstairs rental expectation is $2500, downstairs $1600 = ~$4100. Long story short, probably a negative cash flowing property. Seems like with an up/down situation or even a side by side duplex in Denver is difficult to find positive cash flow. Our 1st property we are living in now would positive cash flow if we moved out, but thats because we had a lower rate. Should we stay away or is there reason to consider?

 I'm seeing a lot of people lately trying to force themselves into house hacks without an immediate cash flow/equity play and "banking" on appreciation or rates dropping. 

It's been burning a few people lately, and that's why I definitely dont recommend it. 

Especially if once you move out, you won't have any contigency or free cash flow for repairs or vacancy. 

On all of my house hacks I looked only for fixer uppers. Using the 203k or now the HomeStyle loan you can buy a fixer upper and get all the money to renovate. 

On that renovation, focus on value add opportunities to force equity or cash flow. 

Look for adding square footage to property maybe converting an attached garage to living space, or adding a bathroom or bedroom to the units to fetch higher rents. 

By doing this, not only are you increasing the value hopefully building you some equity (giving you some boost in your net worth) but also increase rental potential too. 

If you're going to renovate you want to make sure that the cash flow and equity is worth it. 

Also, if you're having trouble finding inventory in your market, look for single family homes with accessory units or even mother daughter setups. WIth the new FHA & Fannie Mae legislation, many lenders are forecasting the rental income from additional units, even if they're not a zoned duplex. As long as its common and customary for the area to rent out those units safely, then you can open up a whole new inventory to look at. Again, the key here looking for properties that need work so you have a better crack at cash flow.

@Ian Perez

Hey Ian - I have a few I can recommend, feel free to send me a message. You can also reach out to Rob Cicero from Premier Home Inspections, he’s a great 203k consultant currently doing my renovation loan on my house on Long Island. He serves Westchester.

Join us at Sand City Brewery for an evening dedicated to empowering aspiring homebuyers, house hackers, and future real estate investors! At this casual meetup, you’ll have the chance to:

• Network with like-minded people who share your interest in real estate, house hacking, and investing.

• Learn about house hacking and renovation loans like the 203k, ideal for buying and fixing up your first property for little out of pocket

• Get tips on navigating today’s housing market with strategies that make homeownership and investing more accessible RIGHT NOW here on Long Island

Whether you're just starting or looking for your next property, come by for great conversation, insights, and a drink with a community of motivated action takers!

Quote from @Victor Nganga:

You’ve got a good point. What numbers would make a house hack work well? I'm still trying to figure out the right numbers to make it profitable. Thank for your feed back.

 The ways to make a house hack work well are either: 

1. You save yourself part or all of your living expense by house hacking. A win could be, if you're currently (or potentially could be renting) at $2,000 a month, and you find a house hack where you only need to contribute $1,000 a month, you're saving yourself $12,000 per year which could be saved or better invested into other assets. 

2. You buy a good deal. You want to be a house hacker because you want to invest in real estate. Being an active investor in real estate means first and foremost seeking out and creating profitable opportunities. 

In the case of your deal, its negotiating down with the seller to get the property at a discount. 

Or, renovating the units using a 203k or other renovation loan to increase the value of the property and subsequently the rents of the other units. 

Properties arent listed on the MLS to make you rich or wealthy. You need to seek out the opportunities by having a sound deal finding strategy or exit strategy (or both) by having a true plan to find deals that work this way.

Quote from @Jaron Walling:

Quote from @Matthew Porcaro:

@Jaron Walling

Specific contractors? What are you talking about?

Most lenders only work with a list of qualified contractors. It handcuffs the investor when it comes to finding/vetting/negotiating with contractors. They get paid in draws as projects are completed. You don't have much control of the money. 

The contractors we hire won't deal with that nonsense. We hire people for specific projects. They ask for 50% upfront, material costs (or combination), and they prefer cash. 

 If your lender is only working with a "list of qualified contractors" thats against the 203k guidelines and a huge red flag. 

Any licensed and insured contractor qualifies to do a 203k loan. 

I'm not sure what you're used to, but getting paid in draws is common in professional construction. Progress payments, AIA billing, etc. 

Also, you absolutely have control of the money. The check is written to both you and the contractor. You have to endorse it, and the HUD consultant verifies the work has been completed. It's actually the safest possible situation for an inexperienced homeowner.

Any licensed and insured and legitimate contractor is used to getting paid this way. 

The bank is giving you all the money to purchase and all the money to renovate in exchange for just 3.5%. It's an incredibly powerful form of leverage. So yes, they expect the contractor to be licensed, insured, and qualified. 

Any contractor that has done insurance work or commercial work this is commonplace.

@Jaron Walling

Specific contractors? What are you talking about?

@Brody Veilleux

Yes you can absolutely still get tax benefits! You do not need the property to be in an LLC or business entity to be able to take deductions, write offs, etc. It's a very common misconception.

@Brody Veilleux

I did all my house hacks with renovation loans. FHA 203k and Fannie Mae HomeStyle.

Doing the house hack + brrrr strategy using these loans is absolutely the best way to do this.

You can find fixer upper multiunit properties which will in turn cash flow better after you renovate.

Youll be more likely to buy at a discount and don’t need the property to be move in ready to purchase.

You’ll use the banks money to completely fix it up, also increasing the equity of the property which comes in very handy when you’re ready to refinance to get rid of mortgage insurance, potentially pull a heloc, or just be more bankable in general.

One of the concerns above is not being able to do the work yourself on a 203k.

I’ve been in this game a while, and I can tell you that the people that are new that think they can do work themselves often times get in over their heads and think they’re saving money. But they actually end up costing themselves a ton more time, stress, and about the same money.

You’re getting the bank to finance the reno. So find the right contractor for the job and get it done quickly and efficiently.

I grew up in the construction business and swung a hammer since I was 12. I still don’t do any of the work myself on my properties.

It's. Great strategy and you have a lot of options now with Fannie Mae now allowing low down payment owner occupant loans on up to 4 units. It used to only be FHA.

If you have any other questions please don’t hesitate to ask!