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

Episode Date: November 22, 2024

Welcome back to the Science of Flipping Podcast, where we dive into the strategies and secrets behind successful real estate investing. In this episode, we're joined by Matt Porcaro, a young real estate investor who's made a massive impact in the industry through his innovative use of the FHA 203K loan. Dubbed real estate's best-kept secret, Matt shares how this loan program can transform the way we approach investing and homeownership. Matt Porcaro's innovative use of the FHA 203K loan offers a new path to real estate investing that challenges traditional methods. By sharing his experience and knowledge, Matt hopes to inspire new and seasoned investors to explore this underutilized tool for building wealth through real estate.     Connect with Matt! Instagram - @the203kway Website - www.the203kway.com       The #1 training and coaching system to launch, grow, and scale your investing business! 𝐋𝐞𝐚𝐫𝐧 𝐌𝐨𝐫𝐞: http://www.thescienceofflipping.com Turn cold real estate leads into engaged motivated sellers on auto-pilot using the power of A.I! 𝐋𝐞𝐚𝐫𝐧 𝐌𝐨𝐫𝐞: https://www.rocketly.ai/ Have a question? Ask me anything at https://www.askjustin.ai/ 𝐀𝐛𝐨𝐮𝐭 𝐉𝐮𝐬𝐭𝐢𝐧: After investing in real estate for over 17 years and almost 3000 deals done, Justin has created a business that generates 7 figures in active income through wholesaling and fix and flipping as well as accumulating millions of dollars of rental properties including 5 apartment buildings, 50+ single family homes, and 1 storage facility Justins longevity in real estate is due to his ability to look around the corners, adapt to changing markets, perfecting Raising private capital, and focusing on lead generation which allows him to not just wholesale and fix & flip, but also accumulate wealth through long term holds. His success in real estate led him to start The Entrepreneur DNA podcast and The Science Of Flipping podcast and education company, where he has coached and mentored thousands of aspiring and active investors over the last decade. He is a nationally recognized speaker and is on a mission to educate as many people as possible on becoming a successful dynamic real estate investor. 𝑾𝒉𝒂𝒕 𝒕𝒉𝒆 𝑷𝒓𝒐𝒔 𝑯𝒂𝒗𝒆 𝑻𝒐 𝑺𝒂𝒚 𝑨𝒃𝒐𝒖𝒕 𝑱𝒖𝒔𝒕𝒊𝒏:  “Justin is one of the best trainers in this space. He really gives everything to his tribe.” – Brent Daniels (TTP) “Justin’s ability to connect with people and help them understand what he is teaching, is unparallelled” – Kent Clothier (REWW) “We have been in the trenches flipping homes in Phoenix for over a decade, he is one of the best to do it.” – Sean Terry (Flip2Freedom) Subscribe To Justin Colby: http://youtube.com/justincolby View All My Videos: https://www.youtube.com/c/JustinColby  

All right science flipping podcast listeners as always in this episode is brought to you by Rocketly.ai if you're looking for a seller lead generating system that has automation in AI bot And has sellers coming to you then Rocketly.ai is your choice make sure you head over to the website Fill out an application and schedule a demo now to see the power of Rocketly.ai. Yo yo, Science the 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 Percaro is here.

What's up, bro? What's going on, man? Thanks for having me. 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. Yes, 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, which is essentially a program where people can

get to you and ask you questions and understand how to utilize this loan, right? So the whole platform, I built everything on Instagram, but the 203kway.com, you know, it'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 like get into the game. Um, but yeah, the two or three K way.com, um, or even your Instagram. What's your Instagram? Uh, at the two or three K way to Matt Porcaro, but the two or three K way as

well. So, uh, 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 lowers. 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 I grew up in an environment, working class. 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. 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. 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, but created 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 and who really is the best use case for it? Yeah. So the FHA 203k loan is an FHA loan. So if anyone's familiar with the FHA loan, it's a government-backed government backed loan product that, um, you know, allows people that are just starting out, uh,

to buy a house with very little out of pocket, right? Three and a half percent. The two or three K 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 multifamily property and this is really big with the house hacking community. 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 really get a good deal, pay for more N plus cashflow while you're living in the property. So the 203K really just pours gasoline 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, 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 multifamily real estate so it is like House hacking on steroids. I mean it's like the burr method and house hacking. In your own home. In your own home with only 3.5% down. So you know I love the Burr method, right? Because as an investor I'm buying a rental, a 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. 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 when the loans were a little bit nicer to us. Now that all may come back here in the next year or two, but the burn mild for a real estate investor is like, to me at least, it is the perfect model. Cause 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 of dollars,

your ROI on that model, meaning I'm always looking for a 20% return. So that means if I leave 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 that 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? So to put it into perspective, on my first house, I bought a crack house duplex in New York, okay? It was choice. Is this a real story? Yeah, it's a real story.

It was literally a crack house. Nobody wanted to touch it with a 10 foot pole, but it was kind of the only thing I could afford even in the New York market. 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 9,500 bucks down on this to family. 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 9,500 out of pocket for that. 9,500, 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 justinkolby.tv or listening to it on Apple or Spotify, like everyone should be looking into this. Like if you are sitting here, I have friends that literally last night texted me, like I really wanna buy a new home. Yeah.

But the homes I want that are already pimped out look beautiful, they're the ones, 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 going to be into it for a fraction.

I mean legitimately a fraction of what you would be in if you bought the already done model. 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 it. 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. Like I had, you know, again, 10, 15 grand, that was it. And that took me a long time to save up. Right. Like 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 bank's money, 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 9,500 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 when you say like you look at 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% I was just gonna say something like I don like, I don't wanna say infinite, but it's like, God, at that point you're like. It's like not even in the same.

No, you can't find that anywhere. It's not even the same universe. You know what's funny, I use the analogy like, in our world of real estate, a lot of people talk about like a three X return on investment, right? Like if you're gonna go market, you wanna get a three X return on your investment,

things of that nature, right? This would be like, you can't even compare the two. When you take our normal world and you say, hey, great, you want a three extra turn? I'm getting a 600 extra turn. Like you say, why aren't more people doing this? Now the caveat is, is more traditionally for a home you're gonna live in, right?

This is the burr model, but owner occupied BRR model, right, house hacking. So there's a trade off with everything, obviously, right. 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, or 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 home buyer loan. 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. 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, 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. And then the bankability, I mean, so I call it bankability, but being bankable. 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, 200 grand, 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 schedule and they see that you have like hundreds of thousands of dollars in equity, they know that you're good for it. 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 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 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? I was 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 took one. Like I remember thinking like, oh I only did one. Like I'm nobody.

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. And that was the beauty of this. Think about that one got you into a room that I'm sitting in. Gets 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 because you're one. People wanna go, I use the analogy swallow an elephant. They wanna go get the whole thing right now, all of it at once, take one bite at a time. Just like 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? 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. 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 I'm very aware, as you just had your second child recently, and I'm about to have my second, changes the game a little bit. So I get it. I do get that. If I wanted to move somewhere,

let's just take Scottsdale Arizona. What if I wanted to move back to Scottsdale? I have a permanent residence here, I own it, I have a loan on it. I have a million dollars of equity on it, right? Does that, and the home I'm gonna 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 would move. I would make this next thing a permanent home, right? The guidelines are very black and white.

I mean, at the end of the day, to answer a bunch of the questions, right? 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 it's a lot higher than you think. For example, 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 it there is a baseline Obviously you're looking you're looking at some as some sweet pads. Yeah, but remember that's the loan limit now What's not to say that you?

You being a great deal finder yourself you find a deal that you know The ARV is gonna be 2.4 But you pick 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 goes the loan limit they give you is based on... It's not the value of the home, it's the loan limit. Correct. That's the highest loan you can get.

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 the big thing too. And then again if you're going into the new residence, they're gonna ask 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 it's doable, too It is a dock 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%. So do they, would I have to have my personal residence in Miami already rented out before I made the move? So there's a couple couple different loan products that exist and they have different requirements. 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 the Homestyle loan, we're renovating our own house. That's another example, we picked it up for 615. We're putting about two, 300 into it,

but it's gonna be worth like one, three when we're done. So we're building almost a half a million in equity. So did they finance your purchase and rehab on this as well? Yeah, 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? Everything. All you get, there's really no limit. There's no cost, addition cost, as long as, let's just say I even have to add square footage. Does it allow for that? Everything. All you get, there's really no limit. There's really no cost, 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. As long as I'm all in for the loan at 1.4 or less, it doesn't matter.

Additions, add a thousand square feet, add a pool, whatever. We added 800 square feet to my house. Santa, I can add a pool if it didn't have a pool So great question great question FHA the the 203 K 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 have a pool and I can redo a pool. You can 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, basketball court, whatever. It's kinda just gives you carte blanche. Now they will, so obviously there's the loan limit, but what they really look at for your average buyer is they look at what the ARV of the property is going to be. And they give you up to 100% of that on the homestyle. 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%. Obviously not something I am a big fan of as a real estate investor. I feel like we've seen that story before with 2006, 2007. 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. So they're assuming you're going to be there for a little while. So if you're willing to over leverage it,

you know, if you're there in 10 years, the appreciation is gonna make up for it and you'll be fine, you know. Interesting. 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.

And 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 go into the 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 roughly a million dollars worth of equity in this home. But bankability too, right?

It gives me bankability. So in the sense of, hey, we might move somewhere, I wanna buy a rental, I wanna 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 on 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 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 by your own home. And then I would make an argument, everyone should, because if you're adding the value, just like a flipper, a burr, again, a burr, I wanna add so much value, I have equity.

Bingo. 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? 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? More in 2005. Yeah You have a you have a pulse and an antis, you got a loan. Approved. That was me by the way, I literally,

I got a 6%, 100% finance deal, top of the market, brand new build, they didn't care. I just submitted my social security and they're like, yeah, you're fully approved, 6% interest, I was like, this is wild. And to that point, right, you're talking about 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 as they go in and they spend a ton of money do you know? Maintain it and landscape it and repair it. Over the course of 30 years, it's not a true investment. You're not making money on it. Appreciation will go up. But again, I think his point is when you add up all the expenses and you add up the interest

that you pay over it on 30 years, you ever look at it, you know what obviously a truth in lending statement is, right? So when you take out a 30 year mortgage on a a five hundred thousand dollar property over the course of 30 years You're actually paying over double of that five hundred grand So in what universe is that a good investment right you paid a million dollars to make five hundred thousand, 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, it's value add investing, right? It's the burr 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 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, like down here in Miami, they have like casitas, like your 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, there's ADUs, accessory dwelling units which 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 multifamily,

I live in an area that's only in single family homes, well, you could just plop down a, 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. Why don't, you're just blowing my, I mean, that whole Amazon housing thing.

It's crazy. Amazon's just gonna own the world at some point. Yeah, they will. I mean that whole Amazon housing thing. It's crazy. Amazon's just gonna own the world at some point. Yeah, they will. I mean this is getting insane. Yeah, yeah. So like you could buy a prefab house. Obviously you have to like finish it and do some 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 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 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, 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 multifamily 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.

Am I a young kid? I mean, I don't know. 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 HouseHack using this loan. 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, but 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 your 30 depending upon where you buy it 100% this is like the 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 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 can take advantage of, right? And it's, you know, I'm not the biggest fan of the government by any means. 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're not gonna get something for nothing Right. Do you live in the home? 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? You know, I bought the property. It was an eight month renovation

So the the requirement is you have to be you have to intend to be there as your primary residence for a year after The closing date. So what happened was that 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 to pay for two, like a mortgage and rent at the same time. However, they have it built into the loan

because they know. You had eight months to live 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 change it up to nine months of the mortgage Into a 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 let them when you're done, you can go in and then start making the payments. So it's- I feel like this is going to make me want to move every two years. It's, listen- And I'll just build a portfolio for the rest of my life. I'll just need to sell my wife on this idea. Yeah, but honey, we're going to have, you know, $42 million homes across the country. And 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, let alone renovate it. We saw, it was all in the news, like there was a big downturn 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. They thought that jacking the interest rates,

they thought would help it, but it didn't. Actually people were just like, well, we can't afford anything and sellers are like, we can't go anywhere. So it did the opposite, like value stayed up. So FHA and Fannie Mae, even though their government is not doing anything, they're still doing something. They're still doing something. They're still doing something. They're still doing something. afford anything and sellers like we can't go anywhere. Right. So it did the opposite, like, you know, value state 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 that they were, had to go back to the drawing board and be like, well, how else are we gonna continue to make these, these programs more feasible, more attractive? Cause we gotta 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 3.5% down or a low down payment if you own or occupy it, right? With Fannie Mae, you could buy a quadplex, but you would have to put 25% down or a low down payment, if you own or occupy it, right? With Fannie Mae, you could buy a quadplex,

but you would have to put 25% down, even if you lived there. Fannie Mae changed it where now you can buy up 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 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. 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.

What? So you- I can have 11 of these? Yes, including your primary. What is the length of like having to move or like how quickly can I buy it? Live in it? A year.

So every year I could move my happy ass for the next 11 years. As long as you follow the guidelines on what you're doing, you have something that's going to cover the debt on the previous property and you qualify income wise and you're moving in earnest into the next property? Absolutely. Sanity to me. Yeah. And 5% down every time.

So I know people right now are probably feeling the same way I'm feeling mm-hmm the best place for them to inquire more is just go hit you up on Instagram is there any place that they can like apply or there's 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, how do I know more? How do I learn more? So Instagram? Yup.

203Kway? The 203Kway on Instagram. I've been posting consistently every day for six years on there. And again, when I built this, all I wanted to do was, 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? 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, because it taught me so much about it to walk me through it. I kinda had to just figure it out on my own, which I'm glad I did, because it taught me so much about it. So when I created my whole platform, the 203K way, I just wanted to let everybody know about it. So my Instagram, my YouTube, I have all the information you could ever want or know, step by step.

Obviously people are like, okay, listen, I get it, Matt. I understand it. I wanna do it, but I just wanna 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 guarantee that we walk you through the process

to get you six figures of acuity, get you cash flowing day one, right, using the strategy. So you could go to the 203kway.com slash apply 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 that's an option as well.

So when, I mean I just wanna not be totally selfish with the questions that everyone asks. Keep doing it man. 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. And that's kind of the benefit I have going on podcasts and stuff like this is like,

people are like, oh, what do you wanna talk 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 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. 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 quadplex. I would really encourage that. I'm kind of on a single family home, but I'd probably go do a duplex, triplex, or quadplex. I would really encourage that. I'm kinda asking questions like, hey, if I were ever to move, would this probably be a better strategy for me? And now, everything that we're seeing with loans, right,

interest rates going up, whatever, which is not even that bad. People are making it way more than it needs to be. My 203K, the first one I did, I got like 6.5%. What do rates look like now for a 203K? It's the same as FHA. So, 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 don't do it. This is why they don't wanna work with you, is because you can help navigate them, where to go. So here's what I'll tell everyone listening to this, everyone watching this on YouTube, make sure to reach out to Matt. Like, 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?

Or do I need to go find a 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? 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. Yeah. You're a spokesperson.

I am, I really am. 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 weight over here. You don't need to be on any government payrolls. But 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, it's just, I always make the analogy, if you have a Porsche, right, and you have to get the oil changed or something and your tires rotated, you don't bring it to a Honda dealership. Right, right. Now the Honda mechanic could probably do it, but why would you, he's gonna fumble over it,

he's gonna make mistakes, he's gonna have, you really just give you a problem with your asset, right? So the 203kway.com slash 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 that 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 9,500 bucks on a 350 thousand dollar 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 two point five percent or two point seven percent. How'd you was that? with meth, they'll be like, well, 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 with FHA of the purchase price. My 6% seller's concession overpaid my closing costs. 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. So my net out was 9,500 because you're able, again, when you find a good deal, you do all this stuff. You could wrap in all your closing costs. 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 is. 100%. 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 Mm-hmm 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 is 2 million by the end of it That's the right type of deal. Yeah, they're gonna finance up to 1.4 million in the New York area No, no's around the country. Yep. Right? Like 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. You're interested in investing, right? You're just going to help them take that. Everyone reach out to Matt, 203k away 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 max. 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 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 real estate

investing endeavor, right? 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. Like, you know, I call it the Goldilocks zone. You're basically playing in this part of the market

where you can afford more than 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 gonna pass inspection. You can go on the MLS and everything that's in as-is condition and stuff they say like cash only, you can purchase all of that. 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. You could move into a, you could get a house that's moving ready, totally financeable, but if you wanna renovate the kitchens and bathrooms and as long as it, you you know the loan to value works out

You could do that, too It has all the principles in like I was just thinking like the only caveat is If you wanted the aesthetic that that doesn't count within the loan meaning You know when I bought my home here, Miami, so we took out all the lawn. We put in turf We put in pavers.vers, that's aesthetic. They're not gonna wrap that in the log. Because they will, on a homestyle they will for sure. 100%.

Yep. Yeah, that's interesting because I'm just thinking about homes that I would like, maybe I wanna remodel the inside, that's the obvious. But what about the backyards and making them look better because they're just, aw, 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. 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. 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. Airbnb's. 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, they will refi me out of the remodel. Now, in my space, I actually have to pay the first draw, they reimburse me. Yeah, you're paying points up front, stuff like that. Is it the same thing in these type of loans where you're paying the contractor the first 20 or 30

or 40, 50 grand, then the lender reimbursed, or is it? No, you don't have to pay out of pocket for your contractor. The check goes directly to the contractor. This, I mean, listen, we only have so much damn time but I can pepper you for hours. 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, even 30s or more, it doesn't really matter. But this is your way in to 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 if 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 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.

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 what's like the average appreciation rate right now in the US you know what it is I think it's like somewhere around five or six percent five percent a year okay so think about this if you renovate your house you're the new top of market yeah 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, your 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%, 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, 3 1 1 It's so wild. Yeah. Yeah, triplex and 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 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 when you have an asset is a real estate.

There's the benefit of having an unplanned place to live for you go make a for your in the game of real estate testing. That's guys. Make sure you go follow Matt Procaro. He is my good friend. I'm going to be peppering him with that lunch. Yeah, but 203k way on Instagram. Yep, YouTube. YouTube, follow them,

but apply, like get engaged with them. Like don't do this alone. That's the one thing I would say, cause I'm not, if I decide to do this, I'm not gonna do it alone. I'm gonna be peppering you with questions. 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.

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. This is phenomenal. Yeah, man. This is phenomenal. Thanks for coming by. Thanks for having me. Alright, y'all. I'll see you guys on the next episode of The Science of Flipping.

Peace out. Peace out.