All Forum Posts by: Matthew Porcaro

@Brandon Yokoya

No, the HUD consultant is essentially the inspector on the project, that:

1) helps you identify the work that needs to be done to get the house code/FHA compliant, as well as helps you come up with a scope of work for what you would like to do to the property and how it compares to your available budget based on your approval/comps/etc.

2) inspects the contractors progress throughout the project and report back to the bank what’s been completed, by line item, to release draw payments to the contractor during the project.

Now, a realtor wasn’t included in my list because compared to the other key players, the realtors involvement in the 203k process is minimal.

The reality is the large majority of realtors don’t understand the 203k loan, or are uninformed and jaded by heresay about the loan that prevents them from working in your best interest.

Especially in today’s market, you’ll see a lot of realtors that claim the 203k isn’t a realistic loan to use in competitive markets.

Even during covid, even in this competitive market, I still see tons of people getting these done. Don’t let it scare you.

But if you’re looking to find a distressed deal, and put in the leg work, this loan can be a powerful tool that can help you leverage some sweat equity into a deal with a very low out of pocket down payment.

Your relationship with your realtor as far as 203k’s is concerned is - you tell them you’re looking for properties that need ample work to build equity.

You find properties, tell them your offers, they place your offer.

The second they start consulting about your 203k or what they think you should do is when you should be careful on taking their advice.

To chime in to the above, your team is the most important part of a successful 203k. I bought a distressed duplex with a 203k, and looking to do another one this year on my forever home. 

3 key players in the process are your lender, your HUD consultant, and your contractor.

Don't let anyone tell you that these loans are too hard, or contractors/lenders/sellers won't take them. They're the wrong players you don't want to work with. 

In every market there are professionals that specialize, or have deep experience in renovation loans like the 203k. You just need to focus on the lender, and build from there!

@Kenyon Williams

I use a combination of equity from my rentals in the form of HELOC's with hard money and private money.

If there’s a good amount of equity, you can refinance into many different options.

You can also refinance with a 203k, if you’d like to do renovations to the house to increase the value. You’d have to have some significant repairs though I would say to end up getting more equity than what you put in with hard costs of the refinance + the renovation costs.

@Chelsea Ross

Just because your broker doesn’t offer 203k loans or homestyle loans doesn’t mean you shouldn’t use them! Find another broker!

There are brokers out there that specialize in these types of renovation loans, and they will undoubtedly be the best loans for your strategy of househacking/BRRRR method.

When I did my 203k, I did a househack, and then used the equity gained as the down payment on my next flip 6 months later (similar to the BRRRR method)

Definitely don’t let that lender stop you from hitting your goals.

This is how I got started! The 203k gave me a huge equity boost on my first live-in flip, that took about 8 months from closing to finishing the project. I now use a HELOC to tap into that equity I gained on the deal, to help finance my flipping business. Picked up the property for $270k, put $80k into it, and it reappraised for $480k when it was done. ~$130k equity.

The key is you really need to aim for deeply distressed deals. Your numbers need to be similar to that of a fix and flipper's numbers. That way you can ensure there's enough "meat on the bone" to tap into via a HELOC or cash-out refinance.

I'd say, if you're going the single family route, the HomeStyle loan will be a bit better suited for you. It has a bit less paperwork and logistics than the 203k does, and is actually considered a "conventional" loan vs. the 203k's FHA denotation.

This market is light on foreclosures right now, but any "as-is" properties on the MLS are going to be your wheelhouse. You need to make a lot of offers, but I know first hand people are doing these deals even in this low-inventory market!

Aim to have you all-in cost (purchase + renovation) to be 75% or under ARV. That way you should have no problem doing a cash out refi or heloc!

Good luck!

Matt

You want to locate lenders in your market that specialize in renovation loans like the 203k or HomeStyle loan. The 203k Loan is an FHA loan, and the HomeStyle loan is a Fannie Mae product.

Either one can suit you, or there are a few others. You could also take out a home equity line of credit for the work, or do a cash out refinance. 

Because you own the home outright, you have many options, which is great! 

@Manda Gouvion

4 years, which was way too long.

The thing I learned about real estate investing is you’ll never feel 100% ready.

There’s no amount of research that will make you feel like you’re totally confident in your decisions.

Study, but real estate investing isn’t a class room with a written exam.

It requires taking action, learning as you go, and learning from your mistakes and doing it better next time.

So just take the leap of faith!

Hey Austin - 

You can do a BRRRR with a renovation loan like the HomeStyle loan, and not be an owner occupant. That loan requires 15% down like you mentioned in your post. The rates will still be competitive, and you'll be able to get into something for a relatively low amount of out of pocket, and be able to force some equity in the process if you run your numbers right.

Your other option is hard money/private money, or a combination of both. 

Turn-key is nice, but usually there isn't too much left on the bone for you as an investor. I'm biased, but I think you sound like you have a whole journey ahead of you, and turn-key to me is more attractive for older investors with large 401k's or annuity funds that are looking to move their money into cash producing assets, without any of the work. 

Just a thought, either way, your head is in the right place! You can't go wrong in any direction, just start and learn as you go! 

@Faith Kae

I think paying $10k of liquid cash to buy down such a small amount of PMI wouldn't be worth it. Especially considering on a loan amount that low, your closing costs alone (that get wrapped into the principal) will probably increase your loan close to the same amount as you paid in.

Perhaps pay down your principal faster by adding an extra mortgage payment or two each year. That combined with some appreciation will hopefully accelerate your path to doing a refinance to conventional more naturally.

Just my thoughts.

My PMI in my 203k was about $280 and I had the equity after the rehab, so I did it right away. Not sure if I would have if I didnt meet the 20% equity requirement.

@Christopher Grant

If you can live-in it for a little while you can do a live-in flip using a 203k loan.

If don’t intend to, you can use the Fannie Mae Homestyle on single family homes that are non-owner occupied.

You can get your renovation costs wrapped into your mortgage, and only need 15% down compared to some HML's that require new clients to put at least 30% down.

Obviously the Homestyle isn’t cash, but your terms will be better.