The Power of an FHA 203K Loan | Matt Porcaro
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Justin: Yo yo. Science of Flipping Family. We’re back with another episode of The Science Flipping podcast. 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 Porcaro is here. What’s up, bro?
Matt: What’s going on? Man, thanks.
Justin: I’m excited about this one. This is going to be something that is so niche relative to 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. 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.
Matt: Yes, real estate’s best kept secret, as I always call it.
Justin: Well, damn it, let’s blow this thing up, and let’s make sure you are the man. You have the 203 k way, which is essentially a program where people can get to you and ask you questions and understand how to utilize this loan, right?
Matt: So the whole platform, I built, everything on Instagram but “the203kway”, you know there’s more information on there about how I do things, how I help people. 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 they like get into the game. But yeah, www.the203kway.com or even your Instagram. (What’s your Instagram?) @the203kway (There you go). YouTube “Matt Porcaro” but the 203K way as well. 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.
Justin: Yeah. So, you’re not only the president, you’re also a client, yeah. So, you yourself have used the 203K a lot worse?
Matt: Yeah. 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 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. You know, my parents told me to go to college, get a degree, and go work nine to five. They had their own business, so like that actually, like a consistent paycheck every month was that was what they wanted, right? The grass is always greener type of thing. 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. Yeah. 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. (Yeah). 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. And I really almost found it out by accident, but it’s ultimately will leverage me into the game with very little out of pocket (Yep) but created, you know, six figures of equity and net worth on my first deal.
Justin: 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 and who really is the best use case for it?
Matt: Yeah. So the FHA 203K loan is an FHA loan. So if anyone’s familiar with the FHA loan it’s a governmently, a government backed loan product that you know, allows people that are just starting out to buy a house with very little out of pocket, right? Three and a half percent. The 203K version is a version that allows you to wrap renovation costs into the mortgage. So it was, you know, meant to kind of get the zombie homes off the street and you know, give people the ability to not only buy a house but renovate it and fix it up and make it the way they want. 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 multi family property and this is really big with the house hacking community, right? (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. 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 and plus cash flow while you’re living in the property. (Yeah). So the 203K really just pours gasoline on that on the house hacking method, because not only are you able to buy a multi family property but you’re also able to fix it up, build, you know some equity into the deal which is what I did and take that equity to go, repeat the process, take that money back out and go buy more multi family real estate.
Justin: So, it is like house hacking on steroids. I mean
Matt: It’s like the BRRRR method and house hacking.
Justin: In your own home
Matt: In your own home with only three and a half percent down.
Justin: So, you know, I love the BRRRR method, right? Because as an investor, I’m buying a rental, true rental that I’m not gonna live in, right? Alabama and throughout Florida and whatever. So, I love the model. 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, you refi, all the money out that you already have in it. 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 the BRRRR model for a real estate investor is like to me at least it is the perfect model. Because you don’t leave in if you do it right, you don’t leave any money left in now, even if you have to leave a couple dollars your ROI on that model, meaning, I’m always looking for a 20% return. (Yeah). So that means, if I lead 10 grand in, 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.
Matt: So when you talk about like return, right? So, to put it into perspective, on my first buy I boought my first house, I bought a crack house duplex in New York, okay. Yeah, this is real story. It was literally a crack house. You know, nobody wanted to touch it with a 10 foot pole, but I was kind of the only thing I could afford, even in the New York market, like, even like, I still had to scrape the bottom of the barrel, and I was using the bank’s money and it was very low risk for me. I only had to put 9500 bucks down on this two family, right? (And how much was the purchase price?) So, the purchase was 270 and I put 80 into it to renovate it. So, I was all in for 350 but only 9500 out of pocket for that
Justin: 95 you had 10 grand. Let’s call it 10 grand, (Yep), into this property and you renovated it. It was a full crack house. I mean, this is like, the end all be all for real estate. If people are watching this at Justin colby.tv or listening on Apple or Spotify, like everyone should be looking into this. Like, if you are sitting here, I have friends that literally last night text me like, I really want to buy a new home but the homes I want that are already pimped out. Look beautiful, though the one I can’t get there with the loan rates right now (Exactly). So, what would you tell them? Go find it, not find the neighborhood, not the nicest one, bingo and go renovate it yourself. 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 gonna be into it for a fraction. I mean, legitimately a fraction of what you would be in if you bought the already done model.
Matt: 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 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 and you’re like, you want to flip a house, whatever. 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 in there, looking at hundreds of thousand 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, like, I had, you know, again 10-15 grand. That was it. And that took me a long time to save up, right? Like this. That was, like the most money I had ever had in my bank account. So, you know, when you look at ROI and using the banks and remember this is a government backed loan product and this is a way to launch you into the game. 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 9500 bucks, 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 and it’s still to this day cash flows me like $2,000 a month, $2,500 a month. So, when you look at like, 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? That’s a respectable return, right? On a property, right? My cash on cash return with that 203K property was like 600%.
Justin: I was just for something like, I don’t want to say infinite, but it’s like at that point, you’re like.
Matt: It’s like, not even in the same in the same universe.
Justin: You know, it’s funny. I use the analogy. Like, in our world of real estate, a lot of people talk about, like, a 3x return on investment, right? Like, if you’re gonna go market. You want to get a 3x return on your investment, things of that nature. This would be like, you can’t even compare the two when, when you take our normal world and you say, hey, great. You want a 3x return, I’m getting a 600 extra turn. Yeah, like you say, Why aren’t more people doing this now, the caveat is more traditionally for a home you’re going to live in, right? This is the BRRRR model but owner occupied BRRRR model, right? House hacking.
Matt: So, there’s a trade off with everything, (Obviously), right. The reason they’re giving you the very low-down payment, the way 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 you know, stable asset class, right? So, but you’re able to do this to leverage yourself into the game and it’s not a first-time homebuyer loan. Like, if you’re really you 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 homebuyer. 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? 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. Because what I did was once I had that equity (Yeah), not to mention the equity but also the experience of like, doing it. You know, the track record, I was able to show my deal to private money lenders and to agents and be like, Wow, this guy’s a player. (In the bankability, I mean the bankability). Yeah, that’s big. I talk about that a lot. I don’t think people realize what that means, 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. 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. Fact 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 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, changes how people talk to you, like I was, you know, I’m 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, I’m an electrical engineer. And you know, you go to a party and then you 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. 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, 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. So when you do that, you’ve accomplished yourself, you’ve proven yourself that you can do it. And then you just ride that wave and that momentum
Justin: Think about that one got you into a room that I’m sitting in, right? Gets you into another room I’m sitting in and then all the people that I’m with, 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. Take one bite at a time, just like every every 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 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?
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Justin: So let because I 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. I’m super excited. We’re gonna go grab some food here shortly, if you have time. (Yeah, of course). I have the flexibility to live anywhere I want. I love my life. You know my family. You’ve met my wife and dog the whole thing and I hope to meet your family here soon, but it will. I’m very aware as you just had your second child recently and I’m about to have my second change of the game. I gave time. I do get that if I wanted to move somewhere, let’s just take discuss Arizona. What if I wanted to move back to Scottsdale so I have a permanent residence here. I own it. I have a loan on it. (Yep). I have a whole I have a million dollars of equity on it, right? 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? If I already have a home. Am I not allowed to use this? And let’s just use me as the example, because now I’m like, maybe this is a move. (Yeah, so) And I’m not working the system like I want to move. I wish I would make this next thing a permanent home.
Matt: The guidelines are very black and white. I mean, you know, at the end of the day, 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? So those you can google you look up FHA loan limits or Fannie Mae loan limits in Scottsdale or in Arizona, wherever you are looking to move and you’ll see that they’re there. Now you’ll be surprised. Often, people are very surprised that, you know, it’s a lot higher than you think. For example, you know, in in 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 there is a, there is a baseline. Obviously you’re looking at some sweet pads (Yeah). But remember that’s the loan limit. Now, what’s not to say that 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 one or 100 or I mean, a million and you’re putting 400 grand into it, it’s going to be worth two and change it only it goes the loan limit they give you is base on…
Justin: It’s not the value of the home. It’s the home. It’s the loan limit, correct? That’s the highest level you can get. So it doesn’t mean I have to buy a home that is only worth 1.4.
Matt: Right and so long as you qualify for it, is the big thing too. You know, if you and then again, if you’re going into the new residents, they’re gonna ask you and you plan to keep your Miami residents, they’re just gonna say, okay, what are you doing with the Miami residents? Are you renting it out? What are you like if you’re if you’re covering or if you could afford both, that’s doable, too. It is a doc loan, right? So, they are looking at your income, (Sure) and your debts and what that DTI ratio is? They look at a 50% debt to income ratio. That’s really what they judge you off of. 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%.
Justin: Do they would I have to have my personal residence in Miami already rented out before I made the move?
Matt: There’s a couple different loan products that exist, and they have different requirements. FHA is the stricter one Sure. Fannie Mae has a product called the home style. I’m actually doing it on my own home right now. So I practice what I preach, man, we use a home style loan. We’re renovating our own house. That’s another example. We picked it up for 615 we’re putting about two, three hundred into it, but it’s going to be worth like one, three when we’re done. So we’re building almost a half million in equity.
Justin: So that they financial purchase and rehab on (Yeah), as well. (Yeah, absolutely). 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. Does it allow for that?
Matt: Everything? All you get, really no limit.
Justin: Addition cost, as long as, let’s just use the example. It’s 1.4 just like in New York. Just to keep the example, yep. As long as I’m all in for the loan at 1.4 or less. It doesn’t matter addistionss. Add a thousand square feet, add a pool, whatever.
Matt: We added 800 square feet to my house.
Justin: Say it, I can now I can add a pool if it didn’t have a pool?
Matt: So, great question.
Great question. FHA, the 203K, FHA is a little more strict. They’re not really that strict. Really, just has to be integral to the house itself. So, it needs to be, you know, you could renovate. You could get nice finishes. You could get, like, you (So I could have a pool, redo a pool). You could redo a pool. 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 it’s kind of just gives you carte blanche. 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, on the FHA, 203, k, this is pretty wild. They’ll finance a. 110% of the ARV. So they’ll actually let you over leverage it by 10% obviously not something I am a big fan of as a real estate investor. Like (I feel like we’ve seen that story before with 2006, 2007) Yeah, yeah, you do. But I think, 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 occupancies. (They’re assuming you’re going to be there for a little). 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.
Justin: Interesting. This is, this is an interesting thing. And I would tell you, most investors should be looking like so 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). 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 home here. Yeah, fair, but I still look at it as an investment tool because what I just told you, I probably have roughly a million dollars. That equity is only useful to me if I go use it, but I have a roughly a million dollars with equity in this home (bankability too, right?). It gives me bankability. 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. 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. 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. (Yeah) You know, it allows you to become an actual real estate investor, even buying your own home and then I would make an argument, everyone should, because if you’re adding the value, just like a flipper or a BRRRR. Again, a BRRRR. I want to add so much value. I have equity. 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?
Matt: 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? (Or 2005) Yeah, you have a you have a pulse and a sign you got a loan.
Justin: Approved. Um, 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. I just, like, submitted my Social Security, and they’re like, Yeah, you’re fully approved. 6% interest. I was like, This is wild.
Matt: 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 is a liability it’s not an asset and it’s other homes that become assets, your rental properties or 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 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. 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, If you ever look at it, you know what? Obviously the Truth in Lending statement is, right? 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. (Right) You paid a million dollars to make 500,000 (Right) Right? Now, of course it’ll appreciate a little bit but okay, maybe you break even with this method with building, you know? Again, it’s value add investing, right? It’s the BRRRR strategy. 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 a true investment. Now to make things even better, again, you can buy a multi-family 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 like down here in Miami they have like, Casitas, like their little mother in law suites, right? Typically, they wouldn’t use that rental income to qualify you 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. And one cool thing to know is that for every $1,500 in rent that you’d be getting from either that, you know, there’s ADUs accessory dwelling units that are becoming huge right now because there’s such a lack of housing in the US right now, ADUs are sweeping across the nation. So if you’re saying to yourself, oh, I can’t buy a multi-family, I live in an area that’s only in single family homes. Well, you could just plop down a Casi. I mean, you could even buy one of those like, Amazon houses, those pre built, prefab houses and drop it in your backyard. The 203, k will finance that.
Justin: You’re just blowing. I mean, that whole Amazon housing thing, (It’s crazy) on just gonna own the world at some point (Yeah) They were, this is getting insane.
Matt: Yeah. So, like, you could buy it. You could buy a prefab house. Obviously you have to, like, 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, you can get the rental income from that qualify yourself for more again. Now that’s a true investment. You’re how you’re making money off your own home and that’s an investment and that’s where you’re basically beating the system. When I say, like, the American Dreams new like, this is the new American dream, right? When my family came over from, you know, like Italy, and, you know, from, you know, from Ireland, right? And they moved to New York City, they all house hacked. (Yeah). It was called like, this is how we’re gonna afford to live in New York City. They had multi family properties. They lived in these tenements. They all pitched in. 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. 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. House hacking is like the most American thing you could do.
Matt: If you’re a young kid? I mean, I don’t know. 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, (Yeah). If you’re in your 20s, going to college, just out of college, this is the move. Go buy a home, in house, hack using this loan. This would be everything now you might need can can you do like cosignatures, cosigners on it, you know? Because (Yeah), of course, 21 you may not have the DTI kind of ratio and all that other stuff, but (Yeah) then you get all your friends to pay you rent. You effectively are living for free. You’re actually paying down your home mortgage, which we know the first five to seven years is heavily interest rate bill. Anyways, they’re all paying that down. You now have your very first investment. It is a 21 year old, 25 year old, 30 year old, that essentially, you’re gonna have the bankability from having all this equity that all your friends just paid you down. (Right). You have a party house that you’re gonna love anyways. You’re gonna be with your friends all the time anyways. 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%). This is like the I keep saying, no brainer to me, because I’m even sitting here just thinking like, instead of giving my kid a fund 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 for sure get her into the real estate game.
Matt: It’s free money that everyone could take advantage of, right? And it’s, you know, I’m not the biggest fan of the government by any means (Sure) but I think it’s one program that they really did get pretty right. And just with, like, anything else, like you said, it takes effort. Now, you know what’s the quote like To the victor, gets the spoils, or whatever it is. Like, listen, you like, you’re not gonna get something for nothing, right?
Justin: Do you live in the home while it’s being renovated?
Matt: No. So, you don’t have to actually, like, physically occupy it. So, what happened in my case, right? You know, I bought the property. It was an eight month renovation. So 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, the renovation took me eight months. Now, in my position, I was lucky enough, I was able to live with my family at the time, so I didn’t have, I didn’t have to pay for to, like a mortgage and rent at the same time. However, they have it built into the loan, because they. (know living with your family). Yeah, 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, so they give you the option to wrap up to now, they just changed up to nine months of the mortgage into night of your mortgage payments into the loan. So now you don’t you could buy the property, not pay out of pocket for it while it’s being renovated, then when you but then when you’re done, you can go in and then start making the payments.
Justin: So like, this is gonna make me want to move every two years. It’s listen, and I’ll just build a portfolio, (Yeah), for the rest of my life and I’ll just need to say to my wife on this idea, yeah, but Honey, we’re gonna have, you know, $42 million homes across the country and we’re out.
Matt: 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, let alone renovate it. 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? And people were just not buying homes. (Yeah) 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, and sellers like, we can’t go anywhere, right? So it did the opposite, like, you know, values stayed up. So FHA and Fannie Mae, even though they’re government backed entities, they’re still entities, and they still need to make money. And what happened was they were had to go back to the drawing board and be like, how else are we going to continue to make these, these, 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 they made a lot of changes recently, 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 three and a half percent down, or a low down payment, if you own or occupy it right? With Fannie Mae, you could buy a quad Plex, but you would have to put 25% down, even if you lived there. Fannie Mae changed it where now you can buy out to a four unit property for only 5% down. 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? FHA has this thing where, like, if the property doesn’t pay, it makes sense. I mean, it’s, it’s, you know, it’s common sense. But FHA had this test where if the other three units that, if you’re living in a quad Plex, if the other three units couldn’t cover at least 75% of the mortgage, they wouldn’t give you the loan. 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. 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. They allow you to have up to 11 of these in your name at any given time where FHA only allowed one.
Justin: What? I can have 11 of these?
Matt: Yes, including your primary.
Justin: Whatever length. What is the length of like, having to move? Or, like, how quickly can I buy or live in it? (A year) So every year I could move my happy ass.
Matt: As long as you follow the guidelines on what you’re doing, you have a you have a something that’s going to cover the debt on the previous property. And you qualify on income wise, and you’re moving in in earnest, into the next property. Absolutely (Insanity to me), yeah, and 5% down every time like you don’t have to put down…
Justin: So, I know people right now are probably feeling the same way I’m feeling. The best place for them to inquire more is just go hit you up on Instagram.(Yeah). Now, is there any place that they can, like, apply, or 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. (Yeah) But I’m sure these watchers and the listeners are like, Matt, what the how do I know more? How do I learn more? So, Instagram, (Yep) @the203kway.
Matt: @the203kway on Instagram, I’ve been posting consistently every day for six years on there. And again, my when I built this, all I wanted to do was, you know, I got done with that first deal, 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 do not more people know about this? (Right). Why did this take me so long to even know it existed. 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. I kind of had to just figure it out on my own, which I’m glad I did, (Right), because it taught me so much about it. So when I created my whole platform, the www.the203kway.com, I just wanted to let everybody know about it. So my Instagram, you know, my YouTube, I have all the information you could ever want or know, step by step. You know, obviously people are like, Okay, listen, I’d 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. 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 equity, get you cash flowing day one, right, using this strategy so you could go to www.the203kway.com /apply, to apply to work with me. It’s not for everybody. Just have to make sure that you’re the right fit for us to work together. But that’s an option as well.
Justin: What so, when I mean I just want to not be totally selfish with the questions I want to ask.
Matt: Keep doing, 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. (Yeah). 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, yeah, 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.
Justin: 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 do a duplex, triplex or quaplex. (100%). I would really encourage that. I’m kind of asking questions like, hey, if I were ever to move it, this probably be a better strategy for me. And now it has the 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.
Matt: My 203K, the first one I did, I got like, six and a half percent.
Justin: What are rates look like now for a 203K?
Matt: It’s the same as FHA. So, yeah, it’s, 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, don’t do it.
Justin: Because why they want to work with you is because you can help navigate them where to go (Right). So, here’s what I’ll tell, everyone listening to this, everyone watching this on on YouTube, make sure to reach out to Matt. 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? 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). 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? (Yeah) Where do people start?
Matt: 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. 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. You know.
Justin: You’re a spokesperson.
Matt: I am, I really am. I’m like the unofficial 203K influencer.
Justin: I just going to say to you guys. Better get this guy a sponsorship or something because this guy’s pushing way over.
Matt: I don’t need to be on any government payrolls. But, you know, I, 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, or that, it’s just, you know, I always make the analogy. If you have a Porsche, right, and you have to get the oil change or something, your tires rotated, you don’t bring it to a Honda dealership, (Right right). Now, the Honda mechanic could probably do it. But, like, why would you he’s gonna fumble over it. He’s gonna make mistakes. He’s gonna, you know, have really just give you a problem with your asset, right? So, www.the203kway.com /lender, you go there. Fill out a quick form. Say what market you’re in, what your you know, little, couple other questions will put you in contact with a lender that’s in your market now specializes in these loans and does them day in, day out. 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 three and a half percent down, I get three and a half percent down. So, anyone that’s quick with math, right? When I said 9500 bucks on a $350,000 loan, that was my first deal. Yeah, anyone that does math and is like, you know, not one of me, but people that are done 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? I got a full 6% seller’s concession back at closing. So, you could get 6% back at closing month with FHA of the purchase price, my 6% seller’s concession over paid my closing costs, so I got a check back at closing. I was actually supposed to lay out like another couple grand. Instead, that money came back to me. So my net out was 9500 because you’re able again when you find a good deal, you do all this stuff you could wrap in all your closing cost.
Justin: So the principles are still the same, though. Find a good deal, find the worst home in the best neighborhood. Like it comes down to the same principles I would teach as a real estate investor, (A100%) find the right deal. Now the caveat, you’re gonna live in this one, but find the best deal for you at the best price, and then the same thing, figure out where the end value is gonna be. Make sure you are well under that I would make the argument you want to be a 50% of the end value. (Yeah). 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. They’re gonna finance up to 1.4 million in the New York area. Who knows around the country? (Yep), Right. Like you still have to use investing principles (A 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. You’re interested in investing, right? You’re gonna help them take that everyone reach out to Matt 203K way, but like, because they need to learn more, they need to have someone like you to coach them through this process, like I’ve done this 16 years. I’m still gonna call you and say, Hey, dude, I think I’m gonna do this thing. 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…
Matt: 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? 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, where to where to leverage and pull the most out. 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 investor endeavor, right? Um, 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. Yeah, like, you know, I call it the Goldilocks zone. You’re basically playing in this part of the market where, like, 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 and 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 really, the only thing with the condition is it needs to be some existing structure of some kind. It doesn’t have to be. There’s no such thing as too, you know, too messed up of a property. There’s also no such thing as, like, too nice of a property. Yeah, you could move into a you could get a house that’s moving 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.
Justin: It has all the principles. And, like, I was just thinking, like, the only caveat is, if you wanted the esthetic that that doesn’t count within the load 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, yeah, that’s esthetic. They’re not going to wrap that in the loan.
Matt: They will on a home style. T hey will, for sure(100%) Yep, Yeah.
Justin: That’s interesting, because I’m just thinking about like homes that I would like, maybe I want to remodel inside, that’s the obvious. But what about the backyards and, like, making them look better because they’re just wow, or they didn’t do anything to it?
Matt: 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. 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 follows, like the second home standards, right? 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 only put 15% down, but they give you the purchase price plus the renovation.
Justin: Now, you know that’s usually like a hard money lender. In my space, you’re talking about is a flipper as a BRRRR guy, I buy, I remodel it. My lender makes me put 10% down. (Yeah) They will refi me out of the remodel. Now, in my space, I actually have to pay the first draw. They reimburse me. (Yeah, pay up front, stuff like that. Is it the same thing in these types 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?
Matt: No, you don’t have to pay out of pocket for your contract. The check goes directly to the contractor.
Justin: Listen, we only have so much damn time, but I can pepper for you for hours. (Yeah) So, because, again, if you’re watching this, if you’re listening this, I would make the argument, if you’re in your 20s at all, if even 30s or more, it doesn’t really matter (Yeah). 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 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 investment tool, because you get the bankability, you get the equity. You’re not coming out a lot cash. The reason why I like the BRRRR is, if you do it right, your money’s all out. You don’t need to have any money into that thing, right? (Yeah). 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.
Matt: What’s the? What’s like the average appreciation rate right now in the US? Do you know what it is? I think it’s like somewhere around 5% or 6% (5%) a year, okay, an average. So think about this, if you renovate your house, you’re the new top of market. 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. So that alone, when you get your appraisal, you’re gonna get a bump, because your 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. If you even, like, don’t even plan to be a real estate investor. You’re just setting the comp right? Now you also appreciate it 5% a year. Let’s call it 5%, 6% right? 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. 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 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 three and a half percent. So he (that is so wild), yeah, yeah, triplex in New York. 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. You’re putting so little down. If you follow my strategy, you you work with the right people, obviously that, like, know what they’re doing. (Yeah). It’s you can’t lose on it’s three and a half percent. It appreciates.
Justin: What do you mean? You have an asset. It’s a real estate.
Matt: There’s the benefit of having a place to.. Yeah before
Justin: And you go make work in the game of real estate testing. That’s. Guys, guys, make sure you go follow Matt Porcaro. He is my good friend. I’m gonna be peppering him with lunch, but @the203kway on Instagram, (yep), YouTube, yep, 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 gonna do it alone. Yeah, I’m gonna be peppering you with questions
Matt: Yeah, it’s all about building that foundation from the get go as long as you do that, it’s really hard to fail on this.
Justin: This is phenomenal. (Yeah, man), this is phenomenal. Thanks for coming by.
Matt: Thanks for having me.
Justin: All right, y’all I’ll see you guys on the next episode of The Science Flipping. Peace out.
