Joe:   Hey, Joe McCall here. Have you ever wondered how to get government funding for your first investment property? Well, we're going to reveal some secret hacks on this podcast today. And I have a special guest. His name is Matt Porcaro, and we're going to be talking all about this stuff. This guy is an expert at this strategy of using government money to buy your first investment property. It's a topic. It's a subject. It's a program that very few people know anything about. We're going to spill the beans on this podcast. So you want to stay and pay attention and listen. Get some pen and paper out because you're gonna start wanting to take notes. Okay. So first of all, this podcast is brought to you by Simple Land Kit. Com if you go to simple land kit.com, this is my Land Flippers tool kit. You'll get all of my checklists, my contracts, and my seller scripts. I just did a video a little bit ago on my YouTube channel, where I actually called some sellers live, and I walked through the realtor script I use with Realtors and get all of that information my direct mail, swipe file contracts, etc. it's all free. Just go to simple and kit.com and check that out. I want to jump right into this podcast with Matt because this is very interesting. We met at a mastermind a couple weeks ago and I was talking to Matt. A mutual friend introduced us, and I said, Matt, this would be really cool to talk about because there's a lot of people listening to this show that are looking to buy some investment property, not necessarily land, but houses or multifamily or something like that. And they're wondering, where on earth am I going to get the money from? Or they're wondering, where am I on earth? Am I going to get the 20, 25% that they think they need for a down payment? Maybe they're just getting started. You know, so I was talking to Matt about this, and I was thinking this would be great for my audience because these are some secret loopholes. That's kind of, you know, they're not secret until you know about them. But this is these are really incredibly powerful programs that the government has to help you, the investor, buy your first invest. So, Matt Porcaro, how are you?

Matt:   Good, Joe, thanks for having me, man. I'm glad to be here. Big fan of you. Can follow you for a little while now. So glad to finally jump on. But, what an intro. And I think you pretty much nailed everything in terms of the fact that this isn't really talked about much, but it is something that's, you know, allow people to really carve their way to into the game if they're just starting out, especially with the crazy with the crazy market and the crazy climate we're seeing right now.

Joe:   Well, yeah, this is something I've not heard of before. And when you were telling me about it again, I was thinking this would be cool. So first let's talk about yourself a little bit. Matt, how did you get started in the real estate game?

Matt:   Yeah. So, grew up in a blue-collar family. And investing, the word investing never came up. I don't think it existed in my vocabulary up until probably I got out of college and started learning a little bit about it myself. But, you know, I was always kind of that person that always knew there was a better way. I always kind of looked at the world like always as a contrarian would see, see people do things and think, I could do that, right. And the same kind of happened to me with money, right? From a very young age, money was very volatile in my house, and it caused a lot of the stress and a lot of the emotion. And at a very young age, when your parents are talking about money the way they were, it kind of subconsciously puts you in this zone where you're constantly chasing it or just trying to learn like, is this the root of all evil? Is this the root of all good? You're trying to figure that out from a really young age. So that stuck with me. And, you know, my parents had their own business, a small construction business, and my dad saw a lot of ups and downs with the business. You I was just him, you know, and my mom pretty much running the business together. A lot of ups and downs. Financially, when times were good, they were good. But when they were bad, they were bad too. You know, everything from, you know, eating pasta every night to electric, getting cut off some times, that type of thing. So they told me, you know, go to school, go to college, get a degree, work in New York City and a paycheck every week is to them. That's what they were always reaching for, right? That was stability to them. They were like, do you? We picked this life with having our own business. But that's not the way. The way is working for someone else, never having to worry about, you know, where your paycheck coming from every week. And so I did that. I did exactly that. I went to I went to college, I went for electrical engineering. It's funny, I picked electrical engineering because going back to the money thing we were talking about, I was so focused on money and the sensitivity of it that when my guidance counselor at high school asked me what I wanted to do, I literally just said, well, what makes the most money in four years? I said, I'm not going to be a doctor. I'm not going to be a lawyer. I'm not smart enough for that. But, you know, in four years degree, what can I get? And she mentioned engineering and I was like, all right, well, I'm terrible at math ironically, but I'm really good at science, so let me go after it. So I did got into a college, did it in four years by the skin of my teeth and was lucky enough to get into the Or bridge construction engineering world in New York City and all during the talks about this, didn't we? Yeah, yeah we did. And all during the midst of, the 2008 crisis and everything, I was still lucky and fortunate enough to get a job, but very quickly that I realized that this is not it either. So. I think I was probably there for about a week until I realized that now people don't get rich from this either. But I didn't know how. And like many people, probably many people watching this, listening to this right now. I was actually walking down the street in Manhattan one day at one of my lunch breaks, and obviously always feeling disheveled and frustrated on what to do next. And there's guys in New York City that, like, sell books on the street, like used books. It's like a hustle in New York City. And I saw Rich dad, Poor Dad on the table and a couple other books right next to it, all the Robert Kiyosaki books, and I had always heard about it. This is probably 2008, 2009 maybe. And, you know, I was looking down at the books and I'm like, I've heard about it before, and I just kind of I don't know what it was in that moment. But I said, well, you pick this up and I picked it up and I, you know, I bought all the books that were used. I bought them all for like maybe five bucks or something. And I remember I was going to five Guys, and I remember it for a very specific reason. I don't know if you've ever been to Five Guys, but they give you the giant bag of fries. And I was so enthralled with the book that I sat down with my big bag of fries. And I just remember sitting in my entire lunch break and being so enthralled with rich dad, poor dad, that I ate that entire bag of fries. So. Wow. Yeah. And then if you know, you know how big that bag of fries is. So. But but I think the whole point of that was, was that that book for a kid that grew up in a very blue collar environment where investing was never spoken about, where a W2 was put on a, on a pedestal. It changed my life and it changed my whole view of the world. And, that really put me on my path to trying to figure this game out.

Joe:   Awesome. That's a cool story. Thanks. Did you eat the hamburger and the fries all together?

Matt:   Oh, yeah. No, the hamburger was smashed, too. Absolutely. I'm a big eater.

Joe:   So that's how we used to. Those of you listening, we. I used to do the same thing that Matt did. I worked for a large construction companies traveling all around the country, building huge hotels, hospitals, power plants, just a ton of different projects. What if we have built, like three different large aquatic centers, pools in the entire facilities, all around them? But anyway. Yeah. All right, so you got interested in real estate. You quit your job shortly after. What were you what kind of real estate were you doing when you finally left your job?

Matt:   So great thing. So I actually didn't quit my job shortly after. I actually just quit my job recently, though. Officially my engineering career. I'll say I didn't really my job became less and less of a job over the years. I, you know, as an engineer, I had a lot of flexibility with consulting and stuff like that. But, very recently I actually left that. But no, I was working my way through it while I was working my job. So really, you know, the Rich dad, Poor dad book turned into a slew of all different, you know, business ideas and trying to find different ways to make money. Because I read the book. Right. And I was like, okay, I understand the idea of having a business, having assets, you know, exchanging value for money versus time for money. But like real estate to me, obviously, they mentioned real estate a ton in the book. But to me, in New York, where I lived in Long Island, New York, right outside of New York City, one of the highest cost of living places in the United States, highest property taxes in the nation. The idea of owning, like, you know, multiple houses, let alone one house, seemed impossible. So I kind of put that a little bit on the backburner. I was like, real estate's all for like rich old dudes with big bank accounts and big for one case, like it's not for 23, 24 year old me. So I tried a bunch of different business ventures and things and tried, you know, I don't know, stop trading e-commerce, whatever it is. You know, it was always kind of had a side hustle, right? That was always my thing. And then eventually I was listening to a podcast and heard about some guy talking about how you can invest in real estate with no money, well, money type of thing. And he was talking about wholesaling. So I kind of went down that road and started learning more about wholesaling. And I went pretty deep on it. You know, I tried a lot of different strategies. I was doing it locally. I was trying to do it while I had my full time job commuting three hours a day to New York City and back. And really, I think the thing for me was like, I didn't have a lot of time and I didn't have a lot of money. And with wholesaling, you kind of need one or the other. Or if you're doing a combination of both, you got to be really savvy and really just be to it. And I think looking back, I know the things I did wrong with it, but I tried and struggled with it for a couple of years, but I still the seed was already planted at that point, but I just couldn't stand not figuring it out. So again, I always knew there was a better way to things and I would just kept turning over every stone, trying different strategies, looking up different courses, videos, whatever I can get my hands on. It wasn't until I joined my local Reia and eventually took the lady that ran it, this lady Melissa, to the side. One day. I was really frustrated, really kind of at my wit's end. It was getting to the point where, like, my family was making fun of me. My friends were making fun of me, you know, my my, my, you know, my girlfriend now wife, my girlfriend. At the time, I was kind of rolling her eyes, being like, what is like, what do you like? You have it a great you have a good job in New York City. You work for a big, big construction company, got great benefits. Like, what's the rub, man? And I just couldn't stand to, like, let this defeat me, so I. Anyway, I pull this lady, Melissa, to the side. I'm like, listen, Melissa, I got, you know, a couple grand saved to my name, maybe ten, 15 grand in my bank account. I really don't have much. I've tried the wholesaling thing. I don't know what to do. If I said if I was if I was if you were in my. I mean, you could do this all over again. What would you do? Obviously, knowing being here in New York. And that's when she dropped it on me. She said I would use something called an FHA 203 K to buy your first house if you don't have a house yet. And I had never heard of that before. I'm like, okay, well what's that? She's like FHA. You're familiar with that? I said, yeah, it was it's a government backed program, right? She said, well, it's government backed. It allows, you know, it's subsidized. So it only needs it requires you to put only 3.5% down. I said okay, great. The 203 K version though is their renovation program. So what that allows you to also do is get all the money to renovate a house. It allows you to purchase as is properties, foreclosure properties, anything that typically was only reserved for cash buyers you now have access to because you can buy the property, subject to the fact that you're going to be repairing it and fixing it up and, you know, holding it longer term, she said. But what I would do, though, is combine it with house hacking and her strategy. So essentially what you'll do is in New York, in Long Island, basements are very popular. So basically she said, buy the house. You know, the only caveat is you have to owner occupy it. I didn't have a house yet at the time, but the owner occupancy rules only a year from the closing date. So she said, listen, you do it temporarily. You get the house, buy a fixer upper, buy something that's really distressed, a foreclosure. Foreclosures were big at the time. Live in the basement, right out the upstairs to pay the mortgage off. But then most importantly, build some equity into the deal, like you're doing a fix and flip. And then what you can do is take that equity, use that new equity plus your new bank ability, plus your new experienced to go raise private capital, go repeat the process and go do it over again. So lo and behold, she blew my mind. Number one, because I had never heard of this kind of to your point, you haven't heard of this and you've been in the game a long time and you know your stuff. So, you know, it was mind blowing to me, but I'm so glad she told me about it. But what was crazy about it, though, was I went home and looked it up and googled it, and there was just zero information out there. So when you talk about it being real estate's best kept secret, especially for beginners, there isn't much information about it and it is gate kept for a couple different reasons which we could get into more, but essentially what the what it led to was I just kind of went down that rabbit hole regardless, and I took a lot of what she said to heart. She was very successful woman who I, who I looked up to immensely, and I just had it in the back of my head and spoke to a loan officer that I knew he was about it. He said, listen, you know, this is going to be a great thing for you. Ended up finding a literal crack house duplex, even in New York. Even with that low 3.5% down payment, I still could barely afford anything beyond being so expensive, the property taxes being so expensive. So I found literally a crack house that would also happen to be a duplex. And I learned on accident that one of the cool things with the FHA loans in the 203 K loans, well, is that you're able to buy a multifamily property up to four units so you can occupy one of those units, rent out the others, and that other rent to the other units gets forecasted into your income. So it allows you to get to afford a higher loan amount, get a higher loan because they know that you're going to be getting some rent in the future. So the bank will give you a higher loan. So that gave me just enough money to purchase the house for 270 and get an $80,000 renovation budget, and I only had to pay 9500 bucks out of my pocket. That was it.

Joe:   Just so I'm clear, just so everybody understands, the FHA loan is the main loan for the mortgage, but the 203 K is the mortgage or the loan for the rehab, right?

Matt:   Yeah. So there are two I mean, the 203 K is a version of an FHA loan. They're two separate loan products, but they all fall under the guise and the regulations of an FHA loan.

Joe:   So they will lend you money. Just so I'm clear on this, everybody understands the power of this. They will lend you money for the rehab.

Matt:   All of it. 100%.

Joe:   Yep. That's insane.

Matt:   It is very insane. And they give you all of it. All they ask for a return is 3.5% of the total purchase price, plus the loan amount. They ask for two years of consistent, you know, income. Right. So it is a doc loan. It is a personal loan. You're not buying it under an LLC. You're living there. Right. The reason the bank's giving you these amazing terms is because you're living there now. You're watching this, you're listening, and you're like, well, I already have a house or I already have, you know, I have multiple houses. This might not be exactly your loan. There's obviously other options too we could get more into, but there are other government products out there that are similar that allow you to do this. But at the end of the day, it's what helped me as a beginner just getting into it. You know, someone that's watching that maybe has one house but is willing to go into another house? It's not a first time homebuyer program. Yeah. You just have to occupy it.

Joe:   Right? I have a couple questions here. Can you do it again a few years later?

Matt:   So that's a great question. And up until November of last year, your only option really was to maybe not do it once. But, you know, FHA has as a guideline where you're only allowed to have one under your name at any given time. Now, in my case, what I did was I did I basically did the BR strategy. Right. So again, so I picked it up for 270, put 80 into it. My loan amount was for 350. Okay. I knew when I was done renovating because I remember I had been learning about real estate for years up prior. Like trying to wholesale. I was like. If I can get in at $0.80 on the dollar. You know, all in. If they RV, then this will be a great deal. I could build 20% of equity into it, right? And that's exactly what I did. What ended up happening was I completely renovated it. Was able to live in one unit, rented out the other unit. So I basically my mortgage was essentially covered. I was maybe kicking in a couple hundred bucks a month to live for free. But most importantly, I built a $130,000 of equity into it to go buy more real estate. Now, what I do is I refinance out of that FHA so that I could go and use it again. Now I didn't I went and I think, like I mentioned in the beginning, you know, I went and started going into the flipping business because my background was in construction, kind of like yourself. And flipping seemed more natural to me with hard money and when everything like that. But to answer your question, the FHA, you're only allowed one at any given time. Fannie Mae, who's also, you know, a government that government subsidized housing authority, housing, bank, basically, they came out with the fact that now you can do up you can also buy up to four unit properties still with only 5% down, and you're allowed to have up to 11 of those under your name. So you can just keep repeating it and repeating it as long as you're willing to move into the next property, as long as you fulfill the guidelines for income, as long as you meet the income requirements, you're able to just keep doing this over and over and over again, which is really wild.

Joe:   All right. Cool. So my daughter, who's 13 years old, my kids know what I do. They know I'm into real estate. But just like most kids, they have zero interest in doing what their dad is doing until they're out on their own and they understand the value of a dollar and how much they have to work for just a little bit, and they see how much I'm making, doing what I'm doing, staying at home all day. They will come around. I know very I've done a lot of vacant land deals with my teenage boys.

Matt:   I think it's so funny that you say that not to cut you off, but like, you know, I grew up around, you know, a lot of friends of mine, some of which, you know, immigrant families and, you know, they're maybe first generation or second generation or something. And it's crazy. And where we're starting to see it, you know, I'm kind of getting at the age where I'm seeing it come full circle, where I went to college with these, with these guys, and they went for engineering and, you know, but their parents built very successful, very amazing, impressive businesses because they came here and with that immigrant hustler mentality. And they didn't have the opportunity to go to, you know, American school. And, you know, they didn't have the opportunity to go get professional degrees. But what's wild is they went they got the professional degree, they started working. And they're realizing that like in order to get to where, you know, the quality of life and the lifestyle that their parents gave for them, they're not doing it with engineering or they're not doing it with, you know, maybe, maybe like doctors or whatever. So it but now a lot of my friends are going back to kind of the family business and realizing many which many of which are real estate, many of which are real estate, and they're going back into the family business, which is very I'm glad you brought that up, Joe. I think it's I think it's a it's a it's a very wild thing. And of course, again, I understand kids. Everyone wants to be independent. Obviously my friends too. And they, they don't want to do it, but it's, it's very interesting.

Joe:   Well, anyway, ten year old. Yeah. Your daughter, my 13 year old daughter is now been talking to me. And she gets it sometimes a little better than the other kids. And she's like, I want to buy. She's just telling us her goals. And when she's turned 17, she wants to buy her first duplex. She wants to fix it up and rent it out. She doesn't she doesn't want to live in it, but she wants to rent it out, use her profits to buy, then go to college and then buy her own house while she's going to college, and then rent out the rooms to other girls and get their parents to cosign so that they're responsible for the repairs and paying the rent on time and all that. I think she getting this from this is so cool. But I'm wondering too, like, this could be a strategy that she uses in 4 or 5 years for buying a property in a college town that needs updating, but she would have to have two years of W-2 income to get one of these loans. Is that right.

Matt:   So not necessarily. I mean, you can cosign for her. You know, obviously the financing is always there's always different options. One of the interesting things is that with FHA and these loan programs, they include they include your college education kind of as job experience. So this really more pertains to like maybe she's been a year out of college or six months out of college or whatever, or not even out of college. She maybe just got her job out of college. She has said typically they don't go by just an offer letter. They want to see some trailing. But the exception to it is if they are, you know, they graduated college and they're going into their career or whatever it is, they'll take the years of college experience and use that as the two years and give you the benefit of the doubt going into a new job. Okay, obviously, if she's doing it not working yet, you can cosign for her. Yeah. And that's obviously an option there too.

Joe:   Right. Well, let's talk about some of the requirements for these kinds of loans. What are the income requirements. Credit score. Payment. You talked about that a little bit already. But talk about income requirements. Yeah.

Matt:   So income requirement there is really no requirement right. At the end of the day they're just going to approve you on what your total income is versus your total debt. Right. Your debt to income ratio. Right. So it's usually about a 50% debt to income ratio is what they're going to lend you on. Right. So that's take all of your gross income rents gross income, whatever you get from your employer. Right. And then you, you know, and then you divide that by your, by your expenses that are revolving credit lines, your student loans, your what your future mortgage payment would be. And they'll give you a max amount based on that. Now, again, the way to leverage this is to buy multifamily properties. Or you could also, I don't know if you're familiar with ADUs or accessory dwelling units. It's becoming extremely popular in the US is a very hot topic right now. FHA and Fannie Mae also just changed their guidelines back in November to allow income from those accessory units. Not even like legal separate units, but a mother daughter sweet. You know, the downstairs if you're able to get in, if you're able to get income from that, they'll forecast that to your debt to income ratio to raise your income, to give you a higher loan amount ability. So that's the first thing they approve you on a 50% debt to income ratio. Obviously, like you have to be realistic about what area you shop in. But again, for me in New York, that's what gave me the boost to get approved for enough to afford my afford my area. Because even with a decent job making $80,000 a year, maybe at the time it still was not enough to buy a house on my own in New York, especially crack house. So that's the other thing. Credit score five 80s minimum. Like you should be higher than 580, but 580. They will still give you a loan. Typically you want to be in the sixes at least. And really, that's pretty much it. The two years of consistent income and then occupying the property for at least a year after the closing date or the intention to do so.

Joe:   So again, you have to occupy the property for a year. But then after that you could refinance it, do it again, do that same loan again for another property. But you have to live in that for a year. So you could give an example of how you could maybe build your way up to getting a really nice home for yourself, or free and clear properties. Explain the strategy and how this kind of can go on and on to build a bigger portfolio.

Matt:   Yeah, absolutely. So, so, you know, one of my clients did this pretty exclusively, had the ability to move around quite a bit. So in the first year he bought it, this is an interesting one. He bought a five plex in Albany. Now FHA allows you to only buy up to four units. But it was able to get a flat. Was able to get a five unit converted down to a four unit using the renovation loan, get a rezone for the four unit. That fourth unit was a double size unit duplex that he's still able to fetch more rent for. So he ended up getting a master deal out of it, took it built about 90 something thousand and equity, you know, was cash flowing while living there and then immediately moved out and bought a duplex down the road and then just went on and continued to do that process. He's up to somewhere around 32 units now. That's in a couple years. Now he did pour. Here's the thing. What this really does is it's opening the door to a lot more opportunity that you know this Joe. Right. Like the difference between the people that have done a deal and the people that haven't is like a massive gap, right? It's like this giant cliff that everyone's at the bottom trying to get up that cliff. Right. But then when you get to the top of the cliff, like once you've done one, like the next one becomes a little easier and a little easier, right? But that would you agree that like that gap is like the really the biggest it's kind of for so many different reasons, right? Between financing, between self-confidence, between valid validity that like sink thinking that this is actually attainable. So what happened for him was like he did that first one and he was able to take that and he was able to use the equity, but also, more importantly, the connections he built, the deal finding strategies that he built from my trying to do that. It's basically like, again, like flipping a house and doing a real estate deal with training wheels on because you're putting so little down. It's so little risk, so low interest rate compared to any other loan product. That's an investor loan product, and it has a lot of fail safes built in to make sure that you're doing it the right way, that you can do it, and then open all the doors for yourself and keep going. So that's what he did. And he was bringing on other house acts. But what was also really cool about it was that he while he's doing this, he was also leveraging himself into creative finance deals, into 100% financing deals, that he was able to build that reputation just from getting that first one right. Because when you get that first one again, not only do you get the money from it and all the profit and all that good stuff, but you get the education from it. You get the skill set that you built. You have the track record and a resume now, and that's really what I did. So in my case, what I did was I finished it out. I was able to take this deal. Now back in when I did this first was 2016, back in 2016. It's a little different than it is now. Like hard money lenders would not talk to newbies like they just wouldn't. I don't know if you remember this, right. They'll some of them out, they'll do it now. They'll say no experience. They'll do it. They'll kill it. They'll bang you over the head with fees. But they wouldn't talk to you unless you've done a deal. So. But to me, it was like, okay, hard money was out there, but I was never attainable for me. Once I did that deal, I just basically made a deal sheet. I gave a little track record about me, who my mentors were. I made like a little pamphlet, and I was sending it out to Harmony lenders. All of the sudden they were giving me great rates. They were giving. They were offering me money. I was getting private people coming to say they wanted to work with me, all so that one deal, I didn't feel deserving of any of it. But the reality was, was I got a good deal and I did a great job on it. And they saw my returns. It made me valid. So I was able to partner with a hard money lender immediately after, who gave me basically essentially 100% financing on my next flip that I did six months later. So in my case, I went into the flipping game because flipping was always what I desired to do because of my background in construction, my dad being in the business. Hindsight 2020 I wish I held a lot of those flips. But you know, at the end of the day, you live and learn. But essentially, it kept my money rolling for me. I got another rental property under my belt and really just kept moving on it to the point now where me and my wife are building our forever home. Right now. We picked it up for 615,000 off market. The renovation is being covered. We're doing a, homestyle Fannie Mae Homestyle renovation loan, which is pretty much the exact same thing as the 203 K. It's just Fannie Mae's version, doing all the renovation. Probably about a 200, $300,000 renovation. When we're done, the property property's going to be worth probably 1.251.3 when we're done. So we're building almost a half million of equity on this property. Again, practicing what I preach using the bank's model. So over the years it got me into flipping, built me some assets. But it's also it's really cool to see the pinnacle of it now. Like moving into our dream neighborhood with my two kids, building the house of our dreams where we wanted it. And it's really a culmination of doing us all through the renovation financing.

Joe:   That's awesome. By the way, you're from New York, and I'm keep on waiting to hear your accent.

Matt: I shoot it in the back of the head every time I go on the podcast, and then it comes back, you know, family dinners and stuff like that. Listen to my kids. It's hilarious. They have my son, he's three years old, and he's got more of a New York accent than I do. It's pretty wild.

Joe:   Where does he get it from, though?

Matt:   My mom, his aunts, his uncles, his grandma, his grandparents. You know, my parents are straight to Long Island in Brooklyn, New York. Accents. I've kind of, you know, do it a lot of videos and stuff like that I've gotten away from. And now, because I'm not trying to be authentic, like, inauthentic, but it's just kind of evolved naturally over time. I'm not trying to get rid of it, but it's it depends on my environment, you know what I mean?

Joe:   Yeah. If you're hanging out with people from New York, I imagine you turn it back on.

Matt:   Oh, absolutely. Without a doubt. Yeah. It's like anything, right? Like, you know, if you've ever. Have you ever, like, gone away to, you know, the islands or something like that and you start to, like, have a little bit of a Jamaican, I'd say, like, you start bringing it on or. Yeah, I remember when I was in London, I would like start trying to have the little bit of the British, the British accent on things. Yeah, I think it's obviously who you're around, but it's a great point. People mention that all the time. It's funny.

Joe:   Well, feel free to talk however you want to talk.

Matt:   Oh yeah. Of course. Yeah, absolutely.

Joe:   I want to ask you a questions about, is there a minimum amount or maximum amount that you can borrow for these loans short.

Matt:   Yeah. So, so the minimum loan amount, I actually don't know what the minimum is. Obviously, with the pricing of housing trust issues, I don't think very rarely is the minimum. The more important kind of way to answer the question is what they give you. The loan on is based on the purchase plus the rent out. And it could be any combination of the two on the loan amount. Right. So if you get a streaming deal and you buy a house for 50 grand, or you could I mean, you could do this to the only requirement is there with 203 K with the renovation product, there just needs to be an existing structure of some kind. It could be just literally like it just could be just a foundation. It can't be. You're the land guy, can't be just land. But it can be a, you know, existing structure or something like that. So any combination like in my in my example, 50,000, you bought the house or the property for it's basically falling down while you're putting 300,000 into it to essentially build a new house. Then your loan amount is going to be 350. Right? So the, FHA loan limits are in by county online. You could just Google it. FHA loan limits, they're significantly higher than most people usually expect. I know here in New York, the FHA loan limit for a single family home is somewhere about like 1.1 1.2 million. And then if you buy a quad, Plex is somewhere in the neighborhood, 2.4 2.5 million. So yeah, it gets up there. It's usually and it moves year by year. So it, you know, it's been falling market pretty well.

Joe:   Now while you're renovating this property, you have to make payments on the entire loan amount. Right.

Matt:   Another great question and another great answer coming for you. So obviously they're aware that you're not going to be able to live in occupy a construction zone, right? Right. So FHA and Fannie Mae have the option to build in up to the first six months mortgage payments into the loan. Now, that goes to your principal. But for the people that are renting and this happens all the time, people that are renting, they are like, okay, well, where am I going to live? Well, they don't expect for you to paid for two places, right? So that you'd allows you to do up to six months. You can wrap those payments. That includes interest, insurance, everything like interest, taxes, everything like that. It wraps all whatever your payment is going to be. They wrap back into the loan as many and you could do it up to six months. They're actually making a change because as a lot of people now, I'm doing my own home renovation right now, it's taking way more than six months. They know that a lot of renovations are typically taking longer than six months, depending on the scale of the renovation. So FHA just put it. I don't know if it's a 100% push through yet, but they it is coming that they'll go up to nine months now. Now again let's think. Yeah. The thing to I, the thing to think about is it does it will increase your loan amount. Right. It will increase it significantly. But in my case for me, I knew that I wanted to wrap in as much as I could because I elected to do it because my tenants are paying down my mortgage. Right. I still have that property. A cash flows me 2000 a month, right? And I just I knew that like, who cares? Like my dad is are paying the mortgage. Like if I have more money in my pocket, why not?

Joe:   The thing I love about this, to me, was that you're renting out a newly rehabbed home, so it's going to be another 10, 15 years before you have to replace the roof or the water heater. And so this is you're going to get higher rents, you're going to get better quality tenants. We're going to get more applications. So you can prescreen your tenants better. You're going to have less maintenance and repairs because it's a brand new property you're renting out. This is fantastic.

Matt:   Yeah. It's a you're 100% right. And that's why when I tell again it's flipping a house, it's landlord ING, it's owning a rental. All these things with training wheels on. Right. I tell I tell the people in my community, right. Like, you know, obviously if they've come from, you know, maybe they have a, you know, they've seen some rental calculators out there, you know, read some books or whatever. And they're like, well, what about CapEx and what about property management? And what I'm like, the beauty of this is like, you really don't have those expenses upfront. Now, I'm not saying don't account for CapEx. One of the things that holds people back so much is just getting so caught up in the numbers and getting so caught up in the analysis paralysis. I just like to tell people like, just get your foot in the door with this. It's so little money out of pocket, 3.5% down. If you think of it this way, what is what is that? I think the average appreciation of the housing market over the last 50 years, on an average, is like somewhere around 4% a year. Over the last 50 years, you're literally making your money back in a year, even if everything goes wrong. Right? So at the end of the day, you're putting so little out of pocket, like, don't worry about the CapEx, don't worry about stuff like that. You're building a brand new home. You're going to ideally be pretty good in the beginning. And, you know, if you're house hacking, you're going to be living in the property and you're going to have the opportunity to kind of learn how to be a little bit of a landlord upfront, up close and personal. And then when the time comes where you have multiple units, then start bringing property management on board, like I personally still manage my own properties. You know, I don't see the need on property management for me, kind of where I'm at, but it's just good to kind of get your foot in the door and not have to worry about all those extra things that guys tell you to worry about, but like, really aren't that important in the beginning when you're just starting out.

Joe:   Yeah. Okay, cool. Couple more questions. What could go wrong in something like this? What are some mistakes that people need to be aware of to avoid?

Matt:   Yeah. So when I did mine right it was not rainbows and butterflies. Okay. So what I learned was with my lender who, you know, it was I hats off to him. I, I don't think I would have done it if it wasn't for him and him specifically. He was a family friend. He was my cousin's best friend growing up. I knew him for years. He was the only loan officer I knew and he gave me the confidence to do this. 203 cake is like I mentioned, there was no information on it out there, so I went with him because he was the only person I trust and just family friend. And I knew that, like, you know, worse could go wrong. Like, he, he, he knows us and he's not going to do bad by me. What I learned very quickly is that him, nor anybody in his office had ever done one of these before. So we kind of got in the weeds on theirs and realized that, like, nobody knew what to do and it was just paperwork flying everywhere. And and that's the common thing you'll hear. You'll hear from really like, well, I was mentioned in the beginning, why is it the best kept secret? Lenders and real estate agents don't want people to know about it, because to them it's more work because they've had a horror story about it or they don't understand it. And because what do people do to things they don't understand? They either avoid it or throw rocks at it or make fun of it. Right. So that's what that's what's been happening. And that's fine. And I'm okay with that because that's what makes it special to me. Because for the people that actually take the time to learn it and understand it, you know, you just said yourself like it's insanely powerful. This product is insanely with great power comes great responsibility. So yeah, when you're responsible, whether you know what you're doing, it's huge is paramount. So to my point, though, I realize that they had no idea what they were doing from the lender side. Now, if your lender doesn't know what you're doing, nobody else is going to know what they're doing. They're kind of quarterbacking the process. So number one, you have to deep you have to work with a deeply experienced lender. Right. You know, shameless plug. I've been able to network with the best lenders in the country that do this that specialize in it. The 203 K Way.com/lender, fill out a form and it'll just kind of tell it will introduce you a lender that services your market. But at the end of the day, whether you use someone through there or whatever, just make sure that this lender absolutely knows what they're doing. They're very experienced, not oh yeah, someone in my office did it before. Like it's like anything else. You want to make sure that I always make the I always make the analogy. If you have a Porsche and you want to get your oil changed, you don't bring it to a Honda dealer, right? You're going to bring it to a Porsche dealer because you don't want to take the risk on your Porsche. They now the Honda dealer might be able to do it, but do you really want to figure do you want to find out the hard way? No. You want to go with someone that does these. There's lenders out there that specialize in these. They know this game. That's really one of the biggest things. The other things obviously, are they come down the path of that. But that's why the lenders that's such the foundation because they're going to help you get the other talent that's needed for the for the process. Right. So the two other people that you need on your team for a 203 K consultant, essentially they're home inspectors. They're usually always home inspectors also, but also do 203 K consultants. Where did 203 K consultant does is they'll go in inspect the property and then they'll also. So and based on what's damaged or there's issues with they'll create a scope of work of what needs to be repaired. They'll also work with you personally to ask what you want done to the property in addition to the repairs. So. Right. So there's really no limit on what you can do. It's pretty much, you know, anything that's integral to the property you can do. Right. There's no limit on like how fancy your finishes could be as long as you can afford it in your budget for your loan. But they'll go in. They'll create your scope of work. Once they create that scope of work, then you're a construction guy. Build the build the scope of work first, then shop it out to the contractors. And that's where again, a lot of people I see making a big mistake. I have a background in construction. If you, you, you know, remember this called leveling the bid, right. They do an RFP like this is how big construction goes. So this is why small construction should also go like this. There's a reason why this is like not part of that rule. This is the way that we make sure that all the contractors are bidding apples to apples, that there's no loss in communication, that everything's very clear and line item and scoped out. And that way you can also negotiate better to get better pricing on from your contractors. So those are really the key main points. Those are the ways it could go wrong. But those are also the antidotes on how you can make them go right.

Joe:   So for the construction, do you recommend getting one GC to manage it all or what do you sub out. So the so the contract.

Matt:   So you have to hire a contractor in the it's the contractors responsibility to do the swabbing and everything like that okay. They don't want you to act as the GC on the project. Now some banks will do it if you're deeply experienced with it and you can prove it. But typically you just want to use a general contractor, right? So what I did in my case, you know, obviously I have the background in construction. You know, what I did was we had family, friends and friends in the business. So like we had them as our contractor. And you know, we knew we had a little more control because we knew what we were doing. But newbies mess this up all the time. They think that they can GC their own project, or they could do it themselves or whatever. And I mean, I listen, I know construction, I've been in the industry for as long as I've been able to swing a hammer. I still don't do any of my own work, really. I do very rarely. I can, I don't I would much rather the professional tile my bathroom in two days that it take me two and a half weeks. But yeah, you have to hire a GC licensed and insured. That's all they require. A common misconception is you need a 203 K certified contractor. There's no such thing. HUD does not certify contractors. There's no certified HUD contractor list. But the bank needs the documentation. Just stating that they're legit. They have licenses, they're insured, they have experience, that type of thing.

Joe:   So when you when you apply for the loan, you need to give them a contractor's estimate for the taxes. Right.

Matt:   Absolutely. So what happens is again like so the best the best course of action for it is you shop, you know, you look for a house, find a house, you get under contract. Once you get under contract, the first person that you go in there is your 2 or 3 K consult, because that consultant is going to inspect the property to see everything that needs to be done by code standards, by FHA guidelines, everything like that, just to make it up to snuff. And they're going to create that scope of work alongside you so that you can now take that skill before commit it out and give it to the contractors. Contractors. I mean, I'm, I'm doing my own house right now. I have subcontractors that I've used for 15 years. My dad is used for 15 years. I still didn't give them the job. I thought they for sure would have gotten the job. I ended up going with other guys because the pricing just wasn't there or they were busy or whatever it is. So always get. I mean, I say minimum three other bids on 3 to 5 is what you look for. So get 3 to 5 bids, compare apples to apples, and then when the contractor gives their number, that estimate will get paired in with that scope of work they call it in sorry, schedule of repairs is what they call it. They put that with the scope of work that gets submitted to the bank. Then the bank is ready. They close, and then at closing table, the seller gets the money for the seller gets the money for the purchase. Right. And. Then the remaining budget. Plus they automatically tack on a 10% contingency no matter.

Joe:   I was going to ask about that.

Matt:   Yup. And it will go up to 15% if it's a much heavier rehab. So but they'll do that. And they put all of that money into an escrow account now. And it's just like hard money, just like a hard money loan. Something like that. What happens is, is as you go through the process, they'll draw down and that's the 203 K consultant then becomes the draw specialist. So the draw specialists will go out there, inspect the property, see what's been done, and the contractor gets paid and they gets direct, you know, either direct deposit to them or check to them. And it's really, really the 203 K consultants especially like the referee. Right. You know being in the construction business, I can't tell you how many times my dad would come home all upset because, you know, a customer is holding 20 grand back from him because, you know, they didn't get the hardware for the cabinets. And it's like, listen, the hardware is a couple hundred bucks. Why are you holding back 20 grand? But they'd use that as leverage with this. It's very black and white. Here's what you're paid for. Here's what you've done, and they'll give you percentages of it. Hey, the kitchen has done. We'll give you half the money for it.

Joe:   Nice. Yeah. This sounds like an amazing opportunity for a lot of people here listening to this. I wish I would have known about this long time ago. Cool. And just so I'm clear again, there are FHA limits. And so you need to look into just Google FHA limits. And depending on where you live, I think in Saint Louis, Missouri, last I looked for out to look right now it was 400 or $500,000. Yeah, it.

Matt:   Sounds probably about right. Obviously the higher cost of living areas had get a bit a little bit of a boost, or it needs.

Joe:   $498,000 in Saint Louis, Missouri 500 grant that could get you a really, really nice house. Okay, cool. So, Matt, how why are you talking about this? I mean, what's in it for you? What do you what do you sell? What do you do?

Matt:   Why am I talking about this? It's a great question. Well, the reason I'm talking about it is because I remember finally being done with the 203 K and literally getting the last inspection, getting the certificate of occupancy after the after the years of trying to get into real estate. Smelling the paint on the walls, seeing the new floor and being emotional. Honestly, I was like, it's been like since I remember thinking back to the journey of like when I bought that Rich dad, Poor dad book to when I finished. That was years. And what was wild to me was in all those years, never once did anybody talk about this loan, and even through all the bills that I dealt with on the loan myself, like figuring I had to figure it out on my own, which it taught me a lot about it. I just didn't understand why more people don't know about it. Right? So essentially what ended up happening was I, you know, I was became very like, you know, very active on bigger pockets and stuff like that. And people were always asking me because, again, they hear about this product, like through the grapevine and to your point, like, it sounds great. They wish they would have known about it sooner, but there's no information about it. So and I know it's because that lenders and real estate agents, they keep it and I understand why they do it. But I am not an agent. I am not a I'm not a lender. I'm just the guy that used it, had it completely changed the trajectory of my life, and I want more people to know about it. So, you know, to answer, like what I do, what I sell. I mean, I don't, you know, I have a, I have a community called the 203 K Way. I have a Facebook group I post every day on, on social media on just tips on how to do it. For me, the first thing is awareness on the back end. Of course, I've been able to create relationships that I have people that are like, hey Matt, I just want to do it. Do it right the first time, and I help them with the implementation of it. I build them their team. I help them find the deals. I help them walk them through it because I did find a need there, you know, that's available to people too. But, you know, I like to say that I give all the information I can on this on YouTube, Instagram, everything like that. You know, people want to work with me to make sure we slam down, and for them, that's an option to buy it. Yeah. Turned into this kind of holistic thing where for me, it's just a movement to try to get more millennials into homeownership, get them into real estate investing, and do it with very little out of pocket.

Joe:   Looking at your website. 203 I'm, I was a the 203 K way.

Matt:   Yeah. The government likes the numbers in the K is I don't know why, but they have a 203 B loan. I don't you know it's completely different than the two other guy. But yeah the 203 K Way.com.

Joe:   I love it. You've got a book. It looks like here too.

Matt:   Yeah a little PDF kind of telling you a little bit more about my story. Kind of how I found my deal, how I, how I underwrite the deals, how I, you know, how I refinance and all that good stuff. Got that again. The best place, I think, is probably my Facebook community that's free. Just look up the 203 K Way and I do live trainings on there every week. Again, my biggest thing is just awareness. I just want more people to know about it. It's insane to me how many people don't even know this exists.

Joe:   Yeah, well, this is cool. Matt, I'm glad that you are here. You have a cheat sheet as well that you give away on your website. What does that. So what's on that cheat sheet there? Yep.

Matt:   So, it's basically just a breakdown again, a little more in-depth on like step by step what to do the process again like the other thing too, since there's just no information. Shit about it. So, like, people don't like even real estate agents and lenders that I should know about it. They don't even know. Like the order of operations and what things can should be done in so. So that's another thing there too. Just all more little things here and there that just give people a little bit of a little bit of an edge when they go into this.

Joe:   Yeah. This cheat sheet looks really cool. How to find properties to buy, renovate and live mortgage free and create massive equity in four steps with little out of pocket I love it, that's it. Cool. And then people get Ahold of you. Mainly Facebook group?

Matt:   Our Facebook group. My Instagram is probably my main place. The 203 K Way at the 203 K Way on Instagram. If you just look up 203K on there, you'll find me. I answer all my DMs. It's me personally. It's not a I. There's some automations and stuff. If it sounds body, it probably is and you'll know it. But I will. I will always contact you and, you know, tell me, tell me you, you heard me on Joe Show, and I'm happy to help.

Joe:   Awesome. We'll go check it out again. Matt's website, guys, is the 401 K.

Matt:   The 203 K way. We have the 401 K so ingrained into our skulls.

Joe:   You should buy that domain. By the way.

Matt:   The 401k way, oh, yeah. Well, listen, you can use of your for your funds and you from your 401K to buy your 203K property. And I'm a big proponent of that because the 401K is not doing jack for you compared to what a 203 k would do.

Joe:   So the 203 k way.com, or just look up Matt on IG at the for the 203 k way. Matt, thanks for being on the show man I appreciate it. Looking forward to talking again sometime soon.

Matt:   Absolutely. Thanks, Joe. Appreciate it.

Joe:   We'll see you all later.