All Forum Posts by: Matthew Porcaro

Would you consider moving into the property for a short time to qualify for owner occupant renovation loans like the 203k or homestyle? Owner occupant reno loans allow you to wrap the renovation costs into the mortgage, so the only out of pocket costs to you are the down payment & closing costs. 

Some people forget this, but I always tell househackers, you NOT having a rent/mortgage payment every month, is NET cash flow to your finances. 

For example, if you were previously renting an apartment at $1500 a month, and you do a househack, where the tenants just about cover the mortgage and taxes, and you maybe have to kick in only an extra $100/mo...

You're still NETTING $1400 per month on your expenses. 

Not to mention the huge payday you'll get in equity if and when you sell or refi in the future --- all which you never really contributed to!

@Payten Mox

A lot to unpack here, but #1, every market is “hot” haha. Especially recently with no foreclosures due to eviction moratoriums, you have virtually no low end properties out there to create a balanced healthy market.

#2 not sure what you mean when you say 203k’s require multiple bids from contractors. They technically do not, but regardless on any flip project when you’re starting out you should be getting at least 3-4 bids to be able to compare numbers. It would be wise to do the same thing if you used hard money.

#3 hard money is always an option, but typically for borrowers with no experience in flipping, the ones that even lend to people with no experience, will be hitting you pretty hard with rates. They’ll require

20-30%+ down payment, and interest rates upwards of 12%. You really need to find great deals for these loans not to beat you up on holding costs and acquisition costs.

#4 you can't combine hard money and 203k. 203k is an FHA loan which requires the borrower to have at least the 3.5% down payment from their own savings, or a gift from a family member. But remember, all you need is 3.5% down...which is very doable for anyone with a modest savings. You will need to forecast closing costs as well, but you can always negotiate the seller to cover a portion of closing costs if you need help with that.

#5 you can definitely do a 203k on a SFR. Find a really distressed home that fits your budget, check the ARV of minted out homes nearby, and if you can keep your acquisition + renovation cost a significant percentage (20%+) below the ARV, you've got some equity there you can tap into in the future. That said, it looks like with your income you might hit some roadblocks with Debt-to-income ratio. So you would need to focus more on multifamily properties. There's obviously way less of these than SFRs, but it's definitely worth the wait if you can find one.

Hope this helps. A lot to unpack but you seem like an eager young dude, and if I can help clarify some things for you, hopefully it'll lead you further down the path. 

Matt

@Misti DelMar

Yep! it’s basically just a quick case study about my journey with the 203k, how I leveraged it on my first deal, mistakes I made and how you can avoid them, and steps to take on your own journey to get started.

If you have any other questions I’m always here to help.

@Scot K.

It’s not your job to care what the sellers want. You place offers on deals that work for you. Theoretically you’re looking for properties that are beat up. They’re selling to either renovation loan buyers or cash buyers.

Cash buyers typically need big healthy margins for a flip to work. They are looking to pay no more than 60 cents on the dollar. You, having great interest rates and low out of pocket risk, don’t need as high of a margin. Therefore, your offers can sometimes be higher than cash, and maybe the seller is looking for top dollar, and isn’t in a pinch for time.

Only very recently because of the lack of foreclosure inventory are you starting to see amateur cash buyers overpaying for distressed deals on the MLS. But that won't last forever. Either way, keep placing offers and stay strict on your numbers.

@Anthony W.

I don’t know where you’re getting all this here say. But I’ve have a community of tons of people that have successfully done these loans despite all of the roadblocks you’re claiming.

Remember whatever “they” say is usually baseless advice based on what “they” have heard others say.

They are doable.

Is it easy? No. Is anything in real estate investing easy? No. But if you have a plan and take action on your strategy, things fall into place.

Stop listening to people that aren’t educated on the subject.

Sorry to be blunt, but laziness of loan officers and real estate agents that just talk down on things they know nothing about keeps borrowers like yourself from leveraging a very powerful program.

@Anthony W.

Why is the draw schedule a downside for a contractor. It’s guaranteed money in escrow, and they are paid out for the work they complete per the 203k consultant who is the neutral 3rd party between the bank, the borrower, and the contractor.

Any contractor that has an issue with this is a red flag anyway. You want to use a reputable contracting company that doesn’t live and die by cash flow. If they can’t wait a few days for payment, it means they’re spending your money faster than it’s coming in.

As long as you have a good renovation lender and 203k consultant, look for and hire the best contractor you can afford based on recommendations from your professional network, online resources and review sites, and be sure to vet about 3-5 of them before selecting one.

@Brandon Lechner absolutely!

@Brandon Lechner

You can use a Homestyle or Choice Renovation loan. They're similar to the FHA, but will require a larger down payment on 4 units. I believe it requires 25% down plus reserves.

Still an excellent way to go for it.

@Misti DelMar

Absolutely you can refi! I refinanced as soon as I was finished with my renovation of my duplex when I used a 203k on it. Rule of thumb is 6 months after purchase is the soonest you can refi. Sometimes more, depending on the bank you’re looking to refi with.

The refinance is especially important if you build enough equity to get rid of the PMI (20%). That will give you a nice little boost on cash flow.