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Build Your Own Equity and Home with a 203K Loan

I was chatting with a contractor friend of mine the other day about a recent flip of his. He followed the standard process for flipping a property: buy a home on its last leg, gut the place, slap down some gray, white, and black tiles/panels/vinyl and call it a day. Sure, I’m paraphrasing, but if you’ve ever watched an HGTV flip, he essentially followed the script to a ‘T’ (no barnyard doors on this one, though).

Ultimately there was a buyer. And the buyer purchased the home for what it was: a 3 BR, 2 BA, 1 garage, move-in ready home. The thing is, the buyer had already mentioned they would be looking to re-do the bathroom, change the flooring in the living room, and might even add a door entry to and from the garage (it was attached, but without inside access).

Long story short, the buyer did just that. But here’s the crazy part: they purchased the home for what it was valued at, bathroom, flooring, and all, and then proceeded to rip out said bathroom, redo said floors, and add an entryway to the home.

Translation: They paid for a bathroom twice, a floor twice, and a slight modification to the home to get it up to their own expectations.

Every day I see move-in ready homes selling for the appraised value, only to have parts of it gutted and redone, with all of that expense going to the buyer. Twice over!

A 203k loan from your mortgage lender opens up the door for you to snatch up a home in need of work for a lower price (although admittedly there’s a chance you’ll be competing with cash buyers/contractors), work in the modifications to your home on the front end, and build it out exactly to your liking. And the best part is, you’re only paying for it once.

There are some contingencies to this type of loan, including but not limited to the fact you will need to work with contractors approved by the FHA, and in all likelihood you won’t be able to live in the home during this time. However, if you’re in a position where you’re renting month-to-month and can’t find that exact move-in ready home that meets your expectations, talk to a mortgage lender today to discuss ways a 203k loan can work for you. When done right, a 203k can help you build out the home you want for close to the same price of the move-in ready one selling in the same town for a premium.