The Power of an FHA 203K Loan [REPOST] | Matt Porcaro

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Speaker 1 Yo, yo, Science a flipping family. We're back with another episode of the Science Flipping Podcast.

Speaker 1 I have a good friend of mine, someone who has made a massive dent in the universe in real estate investing and just real estate as a whole already at such a young age. Matt Ricaro is here.

Speaker 1 What's up, bro? What's going on, man? Thank you. I'm excited about this one.
This is going to be something that is so niche relative to

Speaker 1 what a lot of the guests we talk about real estate investing. You've not just discovered something, but you've discovered how to make it, I don't know, national, public.

Speaker 1 You've discovered how to share something that such few amount of people have any amount of knowledge of, including yours truly, which is the 203K loan. Yes.
Yep.

Speaker 1 Real estate's best kept secret, as I always call it. Well, damn it.
Let's blow this thing up and let's make sure you are the man. You have the 203K Way,

Speaker 1 which is essentially a program where people can get to you and ask you questions and understand how to utilize this loan, right?

Speaker 1 So the whole platform, I built everything on Instagram, but the203kway.com. You know, there's more information on there about how I do things, how I help people.

Speaker 1 I have a whole community that I built really to help people with this because I had no information when I got into this about this loan product and really how to use it, specifically as a real estate investor, specifically to like get into the game.

Speaker 1 But yeah, the203kway.com.

Speaker 1 Or even your Instagram. What's your Instagram? At the 203Kway.
There you go. YouTube, Matt Porcaro, but the 203K way as well.

Speaker 1 So i just i dedicated when i first started this i said i want to make sure that i have all the information out there about this that i never had so yeah so you're not only the president you're also a client yeah so you yourself have used the 203k that worse yeah um you know really the long and short of it was that I was trying to get into real estate investing for a very long time in New York, really high cost of living, really

Speaker 1 expensive market. And I read Rich Dad, Poor Dad, which I call taking the red pill, because, you know, I grew up in an environment working class.

Speaker 1 You know, my parents told me to go to college, get a degree and go work nine to five. They had their own business.

Speaker 1 So like that actually, like a like a consistent paycheck every month was that was what they wanted, right? The grass is always greener type of thing.

Speaker 1 So I did that and I did it and jumped into it and then realized immediately that this is not what I like or enjoy. And then also realized that that's also not how people get rich.

Speaker 1 So when I read Rich Dad Poor Dad, I read about real estate and I thought real estate sounds amazing, but in New York, I was like, I don't think I could buy my own house, let alone multiple houses.

Speaker 1 So, the 203K and finding out about this was a culmination of me kind of researching and finding my way to break into the game for such a long time.

Speaker 1 And I really almost found it out by accident, but it's ultimately what leveraged me into the game with very little out of pocket. Yep.

Speaker 1 But created, you know, six figures of equity and net worth on my first deal. Let's go.
Well, so let's get to the strong point of the 203K loan. What exactly is it? Like why, what exactly is it?

Speaker 1 And who really is the best use case for it? Yeah. So the FHA 203K loan is an FHA loan.

Speaker 1 So if anyone's familiar with the FHA loan, it's, you know, it's a governmently, a government-backed loan product that,

Speaker 1 you know, allows people that are just starting out to buy a house with very little out of pocket, right? 3.5%.

Speaker 1 The 203K version is a version that allows you to wrap renovation costs into the mortgage.

Speaker 1 So So it was, you know, meant to kind of get the zombie homes off the street and give people the ability to not only buy a house, but renovate it and fix it up and make it the way they want.

Speaker 1 One of the cool things about it is that it also allows you to buy up to a four-unit property. So you can buy a multifamily property and this is really big with the house hacking community, right?

Speaker 1 Yeah. So obviously housing costs are the number one cost for anybody, right? Like your rent or your mortgage payment is usually the biggest cost.

Speaker 1 So house hacking has become very popular where you rent out portions of your house to cover your mortgage, or if you're, you know, you really get a good deal, pay for more N plus cash flow while you're living in the property.

Speaker 1 Yeah, so the 203K really just pours gasoline on that on the house hacking method because not only are you able to buy a multifamily property, but you're also able to fix it up, build some equity into the deal, which is what I did,

Speaker 1 and take that equity to go repeat the process, take that money back out, and go buy more multifamily real estate. So, it is like

Speaker 1 house hacking on steroids. It's like the Burr method and house hacking.
In your own home. In your own home with only three and a half percent down.
So you know I love the Burr method, right? Yeah.

Speaker 1 Because as an investor, I'm buying a rental, true rental that I'm not going to live in, right? Alabama and throughout Florida and whatever. Sure.
So I love the model.

Speaker 1 And the reason why I love the model is because essentially, at the end of the day, first, you have the option to have no money left in it, right? You do it. You do good enough rehab.

Speaker 1 You refi all the money out that you already have in it.

Speaker 1 The like cherry on top in the good old days which is only about a year and a half ago is you could actually even get cash out refi you could actually get cash in your pocket yeah when the loans were a little bit nicer to us now that all may come back here you know in the next year or two but

Speaker 1 the burn mild for a real estate investor is like to me at least it is the perfect model because you don't leave in and if you do it right you don't leave any money left in now even if you have to leave a couple dollars you're roi on that model meaning i'm always looking for a 20 return yeah so that means if i leave 10 grand in

Speaker 1 i want to make sure i get that 10 grand back out as whole within five years right and that's a very similar model to what we're talking about here where you're basically going all in on your personal home renovating it updating it making it pimped out and you have very little money left in the deal because they finance it all yeah i mean this is insanity So when you talk about like return, right?

Speaker 1 So to put it into perspective, on my first,

Speaker 1 my first house, I bought a crack house duplex in New York. Okay.

Speaker 1 It was just

Speaker 1 a real story. Yeah, it's a real story.

Speaker 1 It was literally a crack house.

Speaker 1 You know, nobody wanted to touch it with a 10-foot pole, but I

Speaker 1 was kind of the only thing I could afford, even in the New York market. Like even I like I still had to scrape the bottom of the barrel

Speaker 1 and I was using the bank's money and it was very low risk for me. I only had to put 9,500 bucks down on this two family, right? And how much was the purchase price?

Speaker 1 So, the purchase was 270, and I put 80 into it to renovate it, so I was all in for 350, but only 9,500 out of pocket for that. 9,500, you had 10 grand, you had this call, 10 grand

Speaker 1 into this property,

Speaker 1 and you renovated it. It was a full crack house.

Speaker 1 I mean, this is like the end-all-be-all for real estate.

Speaker 1 If people are watching this at justincolby.tv or listening on Apple or Spotify, like everyone should be looking into this.

Speaker 1 Like if you are sitting here, I have friends that literally last night text me, like,

Speaker 1 I really want to buy a new home. Yeah.

Speaker 1 But the homes I want

Speaker 1 that are already pimped out look beautiful. They're the ones

Speaker 1 I can't get there with the loan rates right now. Exactly.
So what would you tell them? Go find a, not, find the neighborhood, not the nicest one. Bingo.
And go renovate it yourself.

Speaker 1 Yes, it takes time. This isn't, listen, we can paint the perfect picture, but it takes time, right? Like this isn't, but you're going to be into it for a fraction.

Speaker 1 I mean, legitimately a fraction of what you would be in if you bought the already done model.

Speaker 1 You're using other people's money, which is real estate investing 101, right? And in addition to, like you said, buy the ugliest house on the nicest block.

Speaker 1 And most of the thing, like when you're a real estate investor, you're just starting out, right? You're looking, you're watching the TV shows and HGTV, like you want to flip a house, whatever.

Speaker 1 And you look at a house and you're like, oh, all right, well, I have to purchase it. I have to put 20, 25% down.
And then I have to come out, then I have to finance the renovation portion of it.

Speaker 1 And they're looking at hundreds of thousands of dollars. And that was what I was struggling with.
I was like, how the hell does anybody do this? You know, I was 20-something years old. Yeah.

Speaker 1 Like, I had, you know, again, 10, 15 grand. That was it.
And that took me a long time to save up, right? Because that was like the most money I had ever had in my bank account.

Speaker 1 So, you know, when you look at ROI and using the bank's money, remember, this is a government-backed loan product. and this is a way to launch you into the game.

Speaker 1 Now, you know, we could talk more about like how to repeat it and kind of stuff like that. But ultimately, what it did for me was it just leveraged me in really quickly because off of that $9,500,

Speaker 1 again, we'll call it 10 grand, the 10 grand. In the first year, I built $150,000 in equity into the property.
And then I rented out both units after I moved out a year later.

Speaker 1 And it still to this day cash flows me like $2,000 a month, $2,500 a month.

Speaker 1 So when you look at like, when you, when you say like, you look at a, you know, for example, if you're looking for a deal, right, you're like, I want to make a 12% cash on cash return, right?

Speaker 1 That's a respectable return, right? On a property, right? My cash on cash return with that 203K property was like 600%. I was just infinite.
Or something.

Speaker 1 It's like, I don't want to say infinite, but it's like, God, at that point, you're like. It's like not even in the same.

Speaker 1 It's not even in the same universe. You know, it's funny.
I use the analogy, like,

Speaker 1 In our world of real estate, a lot of people talk about like a 3x return on investment, right?

Speaker 1 Like, if you're going to go market, you want to get a 3x return on your investment, things of that nature.

Speaker 1 This would be like

Speaker 1 you can't even compare the two. When you take our normal world and you say, hey, great, you want a 3x return? I'm getting a 600x return.
Yeah. Like you say, why aren't more people doing this?

Speaker 1 Now, the caveat is, is more traditionally for a home you're going to live in, right? This is the Burr model, but owner-occupied Burr model, right? House hacking.

Speaker 1 So there's a trade-off with everything. Of course.
Obviously, right?

Speaker 1 The reason they're giving you the very low down payment, the reason they're giving you the lowest possible interest rate that you can get at whatever it is at the moment that you get it is because owner occupancy to a bank is the most stable,

Speaker 1 you know,

Speaker 1 stable asset class, right?

Speaker 1 So, but you're able to do this to leverage yourself into the game. And it's not a first-time homebuyer loan.

Speaker 1 Like if you're really, like you were saying, like with your friends, if they're willing to go move into another property, it just is owner occupancy. It's not exactly first-time home buyer.

Speaker 1 Now, obviously, you know, it works well for that. It's, you know, it's also for the person that already has like a consistent income, right?

Speaker 1 Nine to five person, someone that's already working that maybe wants to escape it kind of like I did. This is your way into it with very little out of pocket and then reap the benefits very quickly.

Speaker 1 Because what I did was once I had that equity, not to mention the equity, but also the experience. of like doing it,

Speaker 1 you know, the track record.

Speaker 1 I was able to show my deal to private money lenders and to agents and be like, wow, this guy's a player. When they end the bankability, I mean, you saw a bankability, but yeah, that's big.

Speaker 1 I talk about that a lot. And I don't think people realize what that means.

Speaker 1 Like when you build, when you increase your network worth 200 grand, like, you know, people are struggling, like, oh, I can't find good financing for these.

Speaker 1 When you go to the bank and the bank runs your numbers and they see what you have on your asset, you know, on your asset schedule and they see that you have like hundreds of thousands of dollars in equity, they know that you're good for it.

Speaker 1 That if they really had to like come down on you, you got some assets. So they're more willing to be more flexible with you.
So

Speaker 1 one of the biggest things that I was so surprised about when I got that first deal was how much one deal changes your, changes your opportunity. Opportunity changes how people talk to you.

Speaker 1 Like I was, you know, I'm an electrical engineer by trade. Like you go to a party, you talk to people like, oh, what do you do for work? You know, I'm an accountant.
Oh, I'm an electrical engineer.

Speaker 1 And, you know, you go to a party and then you talk to people and you're like, oh, what do you do? Like, oh, I invest in real estate. You immediately become the most interesting person in the room.

Speaker 1 Now, someone watching this might not be want that, but it's just a crazy thing to think about that like the opportunity that comes your way. And it only took one.

Speaker 1 Like I remember thinking like, oh, I only did one. Like I'm nobody.
Sure. But that one, the distance between someone that's never done it to someone that has is massive.

Speaker 1 So when you do that, you've accomplished yourself, you've proven yourself that you can do it. And and then you just ride that wave and that momentum.
And that's what I'm saying. Think about that.

Speaker 1 One got you into a room that I'm sitting in, gets you into another room I'm sitting in, and then all the people that I'm with

Speaker 1 because you're one. Yeah.
People want to go, you know, I use the analogy, swallow an elephant, right? Like they want to go get the whole thing right now, all of it at once.

Speaker 1 Take one bite at a time, just like every

Speaker 1 human puts on pants one leg at a time. Bingo.
But a lot of the listeners, a lot of you watching this on YouTube, you want the whole thing right now. Stop the nonsense.

Speaker 1 Like Matt is talking about, he did the one. It got him into rooms he never would have been able to get into without the one, right?

Speaker 1 So let, because now I'm really curious. Yeah, of course.
Let's take me. I live in Miami.
We're in Miami. You just flew your happy ass from New York down to Miami to rock this podcast.

Speaker 1 I'm super excited. We're going to go grab some food here shortly if you have time.
Yeah, of course.

Speaker 1 I have.

Speaker 1 the flexibility to live anywhere I want.

Speaker 1 I love my life. You know my family.
You've met my wife and daughter, the whole thing. And I hope to meet your family here soon.

Speaker 1 But it will happen.

Speaker 1 I'm very aware.

Speaker 1 You just had your second child recently, and I'm about to have my second. Change the game a little bit.

Speaker 1 I do get that. If I wanted to move somewhere,

Speaker 1 let's just take Costa, Arizona. What if I wanted to move back to Scott? I have a permanent residence here.
I own it. I have a loan on it.
Yep.

Speaker 1 I have a million dollars of equity on it, right?

Speaker 1 Does that and the home I'm going to want is in the millions, right? Is there a price point that this loan won't work for?

Speaker 1 If I already have a home, am I not allowed to use this?

Speaker 1 And let's just use me as the example because now I'm like, maybe this is a move. Yeah.
So,

Speaker 1 and I'm not, there's not working the system. Like, I would move.

Speaker 1 I would make this next thing a permanent home, right? The guidelines are very black and white. I mean, you know, at the end of the day,

Speaker 1 to answer a bunch of the questions, right? You know, first off, it is based off of national and local loan limits for Fannie Mae, FHA, right?

Speaker 1 So those you can Google, you look up FHA loan limits or Fannie Mae loan limits in Scottsdale or in Arizona, wherever you're looking to move, and you'll see that they're there.

Speaker 1 Now, you'll be surprised. Often people are very surprised that, you know, it's a lot higher than you think.

Speaker 1 For example, you know, where I'm at in New York, a single-family home, the FHA loan limit, I think, is like 1.4 million or something right now. So respect.
So

Speaker 1 there is a baseline. Obviously

Speaker 1 you're looking at some sweet pads.

Speaker 1 But remember, that's the loan limit. Now, what's not to say that

Speaker 1 you being a great deal finder yourself, you find a deal that you know the ARV is going to be 2.4, but you picked it up for 1.4 or 100 or I mean a million and you're putting 400 grand into it.

Speaker 1 It's going to be worth two

Speaker 1 and change. It only goes, the loan limit they give you is based on the 2010.
It's not the value of the home, it's the loan limit. Correct.
That's the highest limit you can get.

Speaker 1 So it doesn't mean I have to buy a home that is only worth 1.4. Right.
And so, yeah. And so long as you qualify for it is, is the big thing too.

Speaker 1 You know, if you, and then again, if you're going into the new residence, they're going to ask you, and you plan to keep your Miami residence.

Speaker 1 They're just going to say, okay, what are you doing with that Miami residence? Are you renting it out? What are you like, if you're covering, or if you could afford both.

Speaker 1 That's doable too. It is a dock loan, right? So they are looking at your income and your debts and what that DTI ratio is.
They look at a 50%

Speaker 1 debt to income ratio. That's really what they judge you off of.
So So that's your maximum, right? So whatever your income is versus your debts, you want to be your gross income needs to be 50%.

Speaker 1 Do they,

Speaker 1 would I have to have my personal residence in Miami already rented out before I made the move? So there's a couple different loan products that exist and they have different requirements.

Speaker 1 FHA is the stricter one. Sure.
Fannie Mae has a product called the Homestyle. I'm actually doing it on my own home right now.
So I practice what I preach, man. We have to use a homestyle loan.

Speaker 1 We're renovating our own house. That's another example.
We picked it up for for $6.15,000. We're putting about

Speaker 1 $20,300 into it, but it's going to be worth like $1,300 when we're done. So we're billing almost a half a million.
So did we finance your purchase and rehab on that as well? Yeah, absolutely.

Speaker 1 So, again, getting the worst. So, my neighborhood, I literally was just messing around the other day.
So, I go and buy the 800,000, but let's just say I even have to add square footage.

Speaker 1 Does it allow for that? Everything. All you get.

Speaker 1 As long as, let's just use the example, it's 1.4, just like in New York, York, just to keep the example.

Speaker 1 As long as I'm all in for the loan at 1.4 or less,

Speaker 1 it doesn't matter. Additions, add 1,000 square feet, add a pool,

Speaker 1 whatever. We added 800 square feet to my house.
Say,

Speaker 1 I can add a pool if it didn't have a pool. So great question.
Great question. FHA, the 203K FHA, is a little more strict.
They're not really that strict.

Speaker 1 Really, it just has to be integral to the house itself.

Speaker 1 So it needs to be, you know, you could renovate, you could get nice finishes, you could get like you could have a pool and I could redo a pool, you could redo a pool and add the pool.

Speaker 1 Now, the home style loan, which is Fannie Mae's product, which is the conventional product, is a lot more flexible. You can build a pool, a pool house, a basketball court, whatever.

Speaker 1 It's kind of just gives you carte blanche.

Speaker 1 Now, they will, so obviously, there's the loan limit, but what they really look at for, you know, for your average buyer is they look at what the ARV of the property is going to be, and they give you, you know, up to 100% of that on the home style.

Speaker 1 On the FHA 203K, this is pretty wild. They'll finance 110% of the ARV.
So they'll actually let you over-leverage it by 10%.

Speaker 1 Obviously, not something I am a big fan of as a real estate investor. I feel like she's over-leverage.
I've had a story before with

Speaker 1 2006, 700. Yeah, you do.
But I think the reason that FHA probably does it is because, again, they know that you're renovating it for your own home. And they probably, again, it's the owner occupancy.

Speaker 1 So they're assuming you're going to be there for a little.

Speaker 1 yeah they assume you're going to be there for a little while so like if you're willing to over leverage it you know if you're there in 10 years the appreciation is going to make up for it and you'll be fine you know interesting this is this is an interesting thing and and i would tell you most investors should be looking like it so

Speaker 1 ironically as someone who's a full-time real estate investor i'm not a big advocate of buying your own home yeah a lot of people aren't yeah

Speaker 1 this kind of changes that for me because i think like an investor. So I moved to Miami from Scottsdale and we did buy a home because my wife wanted to own the home here.
Yeah. Fair.

Speaker 1 But I still look at it as an investment tool because what I just told you, I probably have roughly a million dollars.

Speaker 1 That equity is only useful to me if I go use it, but I have roughly a million dollars worth of equity in this home. Bankability too, right? It gives me bankability.

Speaker 1 So in the sense of, hey, we might move somewhere. I want to buy a rental.
I want to buy this flip. I can go get that money out of my home and use it as a tool as a real estate investor.

Speaker 1 But this, what we're talking about, actually kind of spins my concept in my head saying, well, maybe everyone should actually buy a home because they have an opportunity to be a real estate investor while doing it.

Speaker 1 And it doesn't have to be permanent. This loan, you know, you don't go to jail if you leave the home in two years like you did.

Speaker 1 You know, it allows you to become an actual real estate investor, even buy your own home.

Speaker 1 And then I would make an argument, everyone should, because if you're adding the value,

Speaker 1 just like a flipper or a burr, again, a burr. Yep, I want to add so much value, I have equity.

Speaker 1 And then when you have equity, you have the bankability, and then you can go rinse and repeat this model essentially forever, depending upon your lifestyle, right?

Speaker 1 I say that this is like the new American dream, right? We can't trip and fall into a house anymore like we could, like society could 60 years ago, right? Right.

Speaker 1 Or in 2005. Yeah, right.

Speaker 1 You have a, you have a pulse and a, and an antison, and you got a loan. Approved.

Speaker 1 That was me, by the way. I literally, yeah, I got a 6%, 100% finance deal, top of the market, brand new build.
They didn't care.

Speaker 1 I just like submitted my social security and they're like, yeah, you're fully approved, 6% interest. I was like, it's wild.

Speaker 1 And to that point, right, like you talk about like the assets versus liabilities, and there's that like common thing that Robert Kiyosaki said is like, you know, your own home is a liability.

Speaker 1 It's not an asset. It's other homes that become assets.

Speaker 1 Your rental properties are assets, but your own home is a liability because typically for most people, their own home is they go in and they spend a ton of money to, you know, maintain it and landscape it and repair it.

Speaker 1 And like over the course of 30 years, it's not a true investment. You're not making money on it.
Now, like appreciation will go up.

Speaker 1 But again, I think his point is when you add up all the expenses and you add up like the interest that you pay over it on 30 years.

Speaker 1 You ever look at it, you know what obviously a truth in lending statement is, right?

Speaker 1 So when you take out a 30-year mortgage on a $500,000 property, over the course of 30 years, you're actually paying over double of that 500 grand. So in what universe is that a good investment?

Speaker 1 You paid $1 million to make 500,000. Right.
Right. Now, of course, it'll appreciate a little bit, but okay, maybe you break even.

Speaker 1 With this method, with building, you know, again, it's, it's value-add investing, right? It's the Burr strategy.

Speaker 1 It's a way to force yourself into some equity and basically just like press the fast forward button on the process. And that gives you that leverage and that creates it into a true investment.

Speaker 1 Now, to make things even better, again, you can buy a multifamily or even now, just as of like really last year, they're letting you forecast the future rental income or letting you use the rental income of accessory units.

Speaker 1 Like down here in Miami, they have like casitas, like the little mother-in-law suites, right? Typically, they wouldn't use that rental income to qualify you.

Speaker 1 So you're able to take that rental income and really offset your mortgage or if not cover it all in these higher cost of living areas.

Speaker 1 And one cool thing to know is that for every $1,500 in rent that you'd be getting from either,

Speaker 1 you know, there's ADUs, accessory dwelling units, which are becoming huge right now because there's

Speaker 1 such a lack of housing in the U.S. right now.
ADUs are sweeping across the nation. So if you're saying to yourself, oh, I can't buy a multifamily.
I live in an area that's only in single-family homes.

Speaker 1 Well, you could just plop down a casino. I mean, you could even buy one of those like Amazon houses, those pre-built prefab houses and drop it in your backyard.
The 203K will finance that.

Speaker 1 You're just blowing me. I mean, that whole Amazon housing thing.

Speaker 1 Amazon's just going to own the world at some point. Yeah, they will.
This is getting insane. Yeah.
Yeah.

Speaker 1 So like you could buy it. You could buy a prefab house.
Obviously, you have to like.

Speaker 1 you know, finish it and do some like stuff inside, but like it's a pre-built structure that you drop in your backyard as long as your zoning allows it.

Speaker 1 You can get the rental income from that, qualify yourself for more. Again, now that's a true investment.

Speaker 1 You're making money off your own home. And that's an investment.
And that's where you're basically beating the system.

Speaker 1 When I say like the American dream's new, like this is the new American dream, right? When my family came over from, you know, like Italy and, you know, from,

Speaker 1 you know, from Ireland, right? And they moved to New York City. They all house hacked.
Yeah.

Speaker 1 It was called like, this is how we're going to afford to live in New York City. They had had multifamily properties.
They lived in these tenements. They all pitched in.

Speaker 1 One of them in the family was the lucky one that had the note. And they took all and they all combined their rent together.
That was how people that immigrants came over to the United States.

Speaker 1 That's how they were able to afford it. And that's how a lot of people do it.
You see it, you still see it to this day. Immigrant families come in and they share housing.

Speaker 1 House hacking is like the most American thing you could do.

Speaker 1 If you're a young kid, I mean, I don't know.

Speaker 1 And I know you coach a lot of people for this, but I would even say if you're a young kid, and what I mean young, you know, 20 to 30, if you're in your 20s, going to college, just out of college, this is the move.

Speaker 1 Go buy a home in house hack using this loan.

Speaker 1 This would be everything. Now, you might need, can you do like co-signatures, co-signers on it? You know, because of course 21, you may not have the DTI kind of ratio and all that other stuff.

Speaker 1 But then you get all your friends to pay you rent. You effectively are living for free.

Speaker 1 You're actually paying down your home mortgage, which we know the first five to seven years is heavily interest rate bill anyways.

Speaker 1 They're all paying that down. You now have your very first investment.

Speaker 1 It is a 21-year-old, 25-year-old, 30-year-old, that essentially you're going to have the bank ability from having all this equity that all your friends just paid you down.

Speaker 1 You have a party house that you're going to love anyways. You're going to be with your friends all the time anyways.

Speaker 1 You now actually have your very first investment that could make you a millionaire before you're 30, depending upon where you buy it. 100%.

Speaker 1 this is like the i i keep saying no-brainer to me yeah because i'm even sitting here just thinking like instead of giving my kid a fund or or a college fund or whatever you go buy her a house to do this with and actually help her understand the value of money help her understand business and if for sure get her into the real estate game it's it's free money that everyone could take advantage of right and it's it's you know i'm not the biggest fan of the government by any means sure but i think it's one one program that they really did get pretty right.

Speaker 1 And just with like anything else, like you said, it takes effort. Now, you know,

Speaker 1 what's the quote, like to the victor gets the spoils or whatever it is. Like, listen, you, you, like, you're not going to get something for nothing, right? Do you have to live in the home?

Speaker 1 Like, while it's being renovated? No, so you don't have to actually like physically occupy it. So, what happened in my case, right?

Speaker 1 You know, I bought the property. It was an eight-month renovation.
So,

Speaker 1 the requirement is you have to intend to be there as your primary residence for a year after the closing date. Okay.
So, what happened was that renovation took me eight months.

Speaker 1 Now, in my position, I was lucky enough. I was able to live with my family at the time.
So,

Speaker 1 I didn't have to pay for two, like a mortgage and rent at the same time. However, they have it built into the loan because they know.

Speaker 1 But, one of the cool things and one of the cool features is like they understand that you might be paying housing for another place while this is being renovated.

Speaker 1 So, they give you the option to wrap up to now they just changed it to up to nine months of the mortgage into

Speaker 1 your mortgage payments into the loan. So now you don't, you can buy the property, not pay out of pocket for it while it's being renovated.

Speaker 1 Then when you, then when you're done, you can go in and then start making the payments.

Speaker 1 I feel like this is going to make me want to move every two years. It's, listen, man.
And I'll just build a portfolio

Speaker 1 for the rest of my life. And I'll just need to sell my wife on this idea.
Yeah, but honey, we're going to have know 42 million dollar homes across the country

Speaker 1 and

Speaker 1 we're out and the coolest thing about it is again just very recent so here's the thing right obviously we know what's going on with the market right everything's changing everything's getting more and more expensive it's getting harder and harder for millennials to buy a house um let alone renovate it um we saw it was all in the news like there was a big downturn in the in the amount of mortgages being endorsed right it was like an all-time low or the lowest in 18 years whatever it was, right?

Speaker 1 And people were just not buying homes.

Speaker 1 They thought that jacking the interest rates they thought would, you know, help it, but it didn't. Actually, people were just like, well, we can't afford anything.

Speaker 1 And sellers are like, we can't go anywhere. Right.
So it did the opposite. Like, you know, values stayed up.
So FHA and Fannie Mae.

Speaker 1 Even though they're government-backed entities, they're still entities and they still need to make money.

Speaker 1 And what happened was that they had to go back to the drawing board and be like, well, how else are we going to continue to make

Speaker 1 these programs more feasible, more attractive? Because we got to do something because we're not bringing in any business. We have no mortgages being endorsed.
So

Speaker 1 they made a lot of changes recently.

Speaker 1 Number one being that Fannie Mae, typically FHA was the only product that you could buy a four-unit, up to a four-unit property with only 3.5% down or a low down payment

Speaker 1 if you own or occupy it. Right.

Speaker 1 With Fannie Mae, you could buy a quadplex, but you would have to put 25% down, even even if you lived there.

Speaker 1 Fannie Mae changed it where now you can buy up to a four-unit property for only 5% down.

Speaker 1 And one of the big issues people were finding with FHA, we were just talking about it with one of the guys over here about the self-sufficiency test, right?

Speaker 1 FHA has this thing where, like, if the property doesn't pay, it makes sense. I mean,

Speaker 1 it's common sense, but FHA had this test where if the other three units that if you're living in a quadplex, if the other three units couldn't cover at least 75% of the mortgage, they wouldn't give you the loan.

Speaker 1 And it knocked down a lot of people's opportunities to buy quadplexes. It also exists with triplexes.
Same kind of deal. Fannie Mae stepped into the mix.
They don't have that same requirement.

Speaker 1 So as long as your income can do it and you're able to factor in that future rental income, you can do this now. And then Fannie Mae, unlike FHA, Fannie Mae allows you to repeat the process.

Speaker 1 They allow you to have up to 11 of these in your name at any given time, where FHA only allowed one. What? So I can have 11 of these? Yes, including your property.

Speaker 1 What is the length of like having to move or like how quickly can I buy it? Living it? A year.

Speaker 1 So every year I could move my happy ass

Speaker 1 as long as you follow the guidelines on what you're doing.

Speaker 1 You have something that's going to cover the debt on the previous property

Speaker 1 and you qualify income-wise and you're moving in in earnest into the next property? Absolutely.

Speaker 1 Insanity to me. Yeah.
And 5% down every time.

Speaker 1 So I know people right now are probably feeling the same way I'm feeling.

Speaker 1 The best place for them to inquire more is just go hit you up on Instagram. Instagram is true.

Speaker 1 Now, is there any place that they can

Speaker 1 apply or is there something that they can? Because I know I'm sitting here and I get the privilege of essentially asking the questions I want to know.

Speaker 1 But I'm sure these watchers and the listeners are like, Matt, how do I know more? How do I learn more? So Instagram? Yep. 203K way? The 203K way on Instagram.

Speaker 1 I've been posting consistently every day for six years on there. And again,

Speaker 1 when I built this, all I wanted to do was, you know, I got done with that first deal.

Speaker 1 And I just remember sitting in that property, being done with the renovation, smelling the paint on the walls, smelling the new floors, like looking around and just being like, how the hell?

Speaker 1 do not more people know about this? Right. Why did this take me so long to even know it existed?

Speaker 1 And mind you, like my, it wasn't a walk in the park for me because I didn't have someone like me that knew about it to walk me through it.

Speaker 1 I kind of had to just figure it out on my own, which I'm glad I did because it taught me so much about it.

Speaker 1 So when I created my whole platform, the 203k way, I just wanted to let everybody know about it.

Speaker 1 So my Instagram, you know, my YouTube, I have all the information you could ever want or know step by step.

Speaker 1 You know, obviously people are like, okay, listen, I get it, Matt. I understand it.
I want to do it, but I just want to do it and get it right the first time. Make sure I slam dunk it.

Speaker 1 So I do work with people, right, one-on-one and I coach people through it and you know guarantee that we walk you through the process to get you six figures of acupuncture get you cash flowing day one right using this strategy so you could go to the 203kway.com slash apply um to apply to work with me it's not for everybody you just have to make sure that you're the right fit for us to work together but um that's an option as well what so when i mean i just want to not be totally selfish with the questions i'll keep doing it i'm just like i always say like the questions that you have are probably the questions that everyone else has on this not many people know about it.

Speaker 1 And that's kind of the benefit I have going on podcasts and stuff like this is like, you know, people are like, oh, what do you want to talk about? I'm like, you're interested in it. Just ask.

Speaker 1 Because there's so much to know and there's so much I could tell. But the questions that are obvious to you are probably what everyone else is thinking.

Speaker 1 Well, I think the obvious thing for any person looking to be a true real estate investor would be, I would encourage everyone to, you can do it on a single family home, but I'd probably go to a duplex, triplex, or quaplex.

Speaker 1 100%. I would really encourage that.
I'm kind of asking questions like, hey, if I were ever to move, would this probably be a better strategy for me? And now,

Speaker 1 everything that we're seeing with loans, right, interest rates going up, whatever, which is not even that bad. It's not.
People are making it way more than it needs to be.

Speaker 1 My 203K, the first one I did, I got like 6.5%.

Speaker 1 What are rates look like now for a 203? It's the same as FHA. So FHA.
Yeah, it's an FHA loan. Now, there's a lot of lenders out there that don't do this, or they'll claim to do it, or they'll say

Speaker 1 that they're going to do it with you. It's because you can help navigate them where to go.

Speaker 1 So here's what I'll tell everyone listening to this, everyone watching this on YouTube, make sure to reach out to Matt.

Speaker 1 Like I, if I were to use this, I would be calling him saying, hey, where do I go? What do I do? What lenders do I do? What app do I need to fill out?

Speaker 1 Like the questions I'm having is like, how far down the path do I need to go before I start the process, right? Do I need to just go get the approval first? Yep.

Speaker 1 Or do I need to go find the house first and then go make sure I get approved? Do I want to have an offer in on a house?

Speaker 1 Where do people start? The first thing to do is work with a lender that knows how to do these. Now, luckily, over the years, I've been able to build relationships with lenders that do this.

Speaker 1 They do it nationally. I call them my preferred lender partners.
I'm not a loan officer. I'm not a real estate agent.
I'm just a big fan and proponent of this process.

Speaker 1 You're a spokesperson. I am.
I really am.

Speaker 1 I'm like the unofficial 203K influencer. I was just going to say, you guys better get this guy a sponsorship or something because this guy's pushing way down.

Speaker 1 I don't need to be on any government payrolls.

Speaker 1 But, you know,

Speaker 1 I've been able to build that. And for every lender out there that will tell you, oh, it's too much of a pain.
It's just, you know,

Speaker 1 I always make the analogy. If you have a Porsche, right? And you have to get the oil changed or something, your tires rotated, you don't bring it to a Honda dealership.
Right. Right.

Speaker 1 Now, the Honda mechanic could probably do it, but like, why would you, he's going to fumble over it. He's going to make mistakes.

Speaker 1 He's going to, you know, have really just give you a problem with your asset. Right.
So

Speaker 1 the203kway.com slash lender, you go there, fill out a quick form, say what market you're in, what you're, you know, a little couple other questions will put you in contact with a lender that's in your market that specializes in these loans and does them day in, day out.

Speaker 1 You know, one of the cool things too is like you could wrap in like damn near all your closing costs. Like all my students, all the people I work with, like when I say 3.5% down, I get 3.5% down.

Speaker 1 So anyone that's quick with math, right? When I said $9,500 on a... $350,000 loan, that was my first deal.

Speaker 1 Anyone that does math and is like, you know, not one of me, but people that are quick with math, they'll be like, well, that's, that's actually like 2.5% or 2.7%. How'd you, what's that?

Speaker 1 I got a full 6% seller's concession back at closing. So you could get 6% back at closing with FHA of the purchase price.
My 6% seller's concession overpaid my closing costs.

Speaker 1 So I got a check back at closing. I was actually supposed to lay out like another couple of grand.
Instead, that money came back to me.

Speaker 1 So my net out was $9,500 because you're able, again, when you find a good deal, you do all this this stuff. You can wrap in all your clothing.
So the principles are still the same, though.

Speaker 1 Find a good deal. Find the worst home in the best neighborhood.

Speaker 1 It comes down to the same principles I would teach as a real estate investor. 100%.
Find the right deal. Now, the caveat, you're going to live in this one, but...

Speaker 1 Find the best deal for you at the best price. And then the same thing.
Figure out where the end value is going to be. Make sure you are well under that.

Speaker 1 I would make the argument you want to be at 50% of the end value. So if you buy a million-dollar home, you better hope that it's $2 million.
By the end of it, that's the right type of deal.

Speaker 1 They're going to finance up to 1.4 million in the New York area, who knows around the country.

Speaker 1 You still have to use investing principles. 100%.
That's the key. That's why I love this so much is if you're listening or watching this, you already have enough understanding of investing principles.

Speaker 1 You're interested in investing. Right.

Speaker 1 You're just going to help them take that. Everyone reach out to Matt, two or three K away, but like, because they need to learn more.
They need to have someone like you to coach them through this

Speaker 1 process. Like I've done this 16 years.
I'm still going to call you and say, hey, dude, I think I'm going to do this thing.

Speaker 1 Help me make sure I'm buying the right type of home. I'm getting the credits I need, that I'm getting them maximum.

Speaker 1 The tenants and the foundations of real estate investing are the same, but it's the nuance of the loan itself and how it operates is where I come in and specialize in because I know how to pull every lever in the process, right?

Speaker 1 I've helped hundreds of people do this and like I know where to push the button, where to pull to get the most, keep as much money in your pocket as possible,

Speaker 1 where to leverage and pull the most out.

Speaker 1 The other cool thing, like we're talking about finding a good deal, and that's obviously the most important part of any of any real estate investing endeavor, right?

Speaker 1 The coolest thing about this is because you're putting so little out of pocket, because you're paying such a lower interest rate than a typical investor using like a DSCR loan or something like that, or an end buyer, the deals pencil out easier.

Speaker 1 Like, you know, I call it the Goldilocks zone. You're basically playing

Speaker 1 in this part of the market where like you can buy, you can afford more than like a flipper or a wholesaler but you're not playing with the retail buyers because retail buyers are looking for move-in ready stuff that's going to pass inspection right you can go on the mls and everything that's in as is condition and stuff they say like cash only like you can purchase all of that yeah the the the really the only thing with the condition is it needs to be some existing structure of it of some kind it doesn't have to be there's no such thing as a too too you know too messed up of a property there's also no such thing as like too nice of a property.

Speaker 1 You could move into a, you could get a house that's move-in ready, totally financeable, but if you want to renovate the kitchens and bathrooms, and as long as it, you know, the loan to value works out, you could do that too.

Speaker 1 It has all the principles. And like I was just thinking, like, the only caveat is if you wanted the aesthetic, that that doesn't count within the loan.

Speaker 1 Meaning, you know, when I bought my home here in Miami, so we took out all the lawn, we put in turf, we put in pavers. That's aesthetic.

Speaker 1 They're not going to wrap that in the loan because they will. On a homestyle, they will, for sure.
100%. Yep.
Yeah.

Speaker 1 That's interesting because I'm just thinking about like homes that I would like. Maybe I want to remodel the inside.
That's the obvious. But what about the backyards and like

Speaker 1 making them look better because they're just

Speaker 1 wall or they didn't do anything to it? Yeah. I mean, you could do all that.
And then Fannie Mae also, mind you, has two other products that you don't have to occupy the property.

Speaker 1 Fannie Mae homestyle loan, you can get a 10% down second home loan. So as long as you live there some portion of the year, it follows like the second home standards, right?

Speaker 1 you have to live i don't know what the exact number is yeah you could buy it and renovate it with only 10 down and then they have an investment product where you can go and buy another property um only put 15 down but they give you the purchase price plus the renovation airline

Speaker 1 now you know that's usually like a hard money lender in my space you're talking about It is a flipper, as a burr guy. I buy it, I remodel it, my lender makes me put 10% down.

Speaker 1 They will refi me out of the remodel. Now, in my space, I actually have to pay the first draw.

Speaker 1 They reimburse me. Is it the same?

Speaker 1 Is it the same thing in these type of loans where you're paying the contractor the first 20 or 30 or 40 or 50 grand, then the lender reimbursed? Or is it?

Speaker 1 No, you don't have to pay out of pocket for your contract. Interest area.
The check goes directly to the contractor.

Speaker 1 This, I mean, listen, we only have so much damn time, but I could pepper you for hours. Yeah.

Speaker 1 So, because again, if you're watching this, if you're listening to this, I would make the argument, if you're in your 20s at all,

Speaker 1 even 30s or more, it doesn't really matter.

Speaker 1 But this is your way into my world, to the real estate investing world, without necessarily making it a business per se, but you're getting your foot in the door.

Speaker 1 The amount you would learn by just doing this and buying your own home, I mean, you've really changed how I view buying a home because it becomes an investments tool because you get the bankability, you get the equity, you're not coming out a lot of cash.

Speaker 1 The reason why I like the Burr is if you do it right, your money's all out. You don't need to have any money into that thing, right? Yeah.

Speaker 1 I mean, listen, three and a half percent of your own money in your own personal home that you've created 30% more value, 40% more value. Like, that's a no-brainer on your return on investment.

Speaker 1 What's the, what's like the average appreciation rate right now in the U.S.? Do you know what it is? I think it's like somewhere around 5% or 6%.

Speaker 1 5% a year. Okay.

Speaker 1 So think about this. If you renovate your house, you're the new top of market.

Speaker 1 No matter where you are in the country, you renovate it. You are the new comp.
You are in the new standard. Okay.
So you're already at the top of the market.

Speaker 1 So that alone, when you get your appraisal, you're going to get a bump because you're new finishes. You're brand new.
So right off the cuff, let's just say on the low end, you're making 10% of equity.

Speaker 1 If you even like, don't even plan to be a real estate investor. You're just setting the comp, right?

Speaker 1 Now you also appreciate it 5% a year. Let's call it 5%, 5%, 6%, right?

Speaker 1 You doubled your down payment. By the time you're done with your renovation, Like, I have a guy that's doing a big renovation right now.
It took him a long time, year and a half.

Speaker 1 It's a million-plus-dollar property, big renovation. His equity has gone up like $100,000 in the time it's taken him to renovate the property.
He's not even in it yet. And he's already made

Speaker 1 a respectable year's salary in equity just by owning it off of, I mean, this was a million-dollar property. He only put 35 grand down, 3.5%.

Speaker 1 So he.

Speaker 1 is so wild. Yeah, yeah.
Triplex in New York.

Speaker 1 And it's again, so like you're, you can't, I just say, like, this is not an FTC thing to say, but like, literally, like, every person I've worked with, like, never loses.

Speaker 1 You're putting so little down. If you follow my strategy, you, and you work with the right people, obviously, that like know what they're doing.
Yeah. It's, you can't lose on it.

Speaker 1 It's three and a half percent. It depreciates way faster.
You have an asset. It's a real estate.
There's the benefit of having a place to get away from it.

Speaker 1 You have to quit flip forward and you go make work in the game of real estate investing.

Speaker 1 Guys, make sure you go follow Matt Percaro. He is my good friend.

Speaker 1 I'm going to be peppering him with questions at lunch. But 203K Way on Instagram,

Speaker 1 YouTube.

Speaker 1 Follow him, but apply, like get engaged with them. Like, don't do this alone.
That's the one thing I would say because I'm not, if I decide to do this, I'm not going to do it alone. Yeah.

Speaker 1 I'm going to be peppering you with questions. Yeah.
It's all about building that foundation from the get-go. As long as you do that, it's it's really hard to fail on this.

Speaker 1 This is phenomenal. Yeah, man.
This is phenomenal. Thanks for coming by.
Thanks for having me. All right, y'all.
I'll see you guys on the next episode of the Science of Flipping. Peace out.