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- [00:02]
Progressive Insurance
This episode is brought to you by Progressive Insurance. You chose to hit play on this podcast today. Smart Choice. Progressive loves to help people make smart choices. That's why they offer a tool called Auto Quote Explorer that allows you to compare your Progressive car insurance quote with rates from other companies so you save time on the research and can enjoy savings when you choose the best rate for you. Give it a try after this episode@progressive.com Progressive Casualty Insurance Company and affiliates not available in all states or situations. Prices vary based on how you buy.
- [00:43]
Capella University
At Capella University, learning the right skills could make a difference. That's why our business programs teach you relevant skills you can take from the course room to the workplace. A different future is closer than you think with Capella University. Learn more at capella. Edu.
- [00:59]
Justin Colby
All right, Science Flipping Podcast listeners, as always, 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 Rocket League 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 Rocket Ly AI. Yo yo. Science of Flipping family. We're back with another episode of the Science Flipping Podcast. I have a good friend of mine, someone who has made a massive dent in the universe in real estate investing and just real estate as a whole already at such a young age. Matt Porcaro is here. What's up bro?
- [01:45]
Matt Porcaro
What's going on man?
- [01:46]
Justin Colby
Thanks for 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.
- [02:13]
Matt Porcaro
Yes. Yep. Real estate's best kept secret as I always call it.
- [02:16]
Justin Colby
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.
- [02:30]
Matt Porcaro
So the whole platform I built everything on Instagram, but the203k way.com you know is 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 to like get into the game. But yeah, the 203k way.com or even your Instagram. What's your Instagram at the 203k way there you two. Matt Porcaro. But the 203k way as well. So I just, I dedicated when I first started this, I said I want to make sure that I have all the information out there about this that I never had. So.
- [03:07]
Justin Colby
Yeah. So you're not only the president, you're also a client.
- [03:10]
Matt Porcaro
Yeah.
- [03:10]
Justin Colby
So you yourself have used the 203k a lot worse.
- [03:13]
Matt Porcaro
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 called taking the red pill because, you know, I grew up in an environment, working class. You know, my parents told me to go to college, get a degree and go work 9 to 5. They had their own business. So like that actually like a, like a consistent paycheck every month was. That was what they wanted. Right. The grass is always greener type of thing. 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.
- [03:55]
Justin Colby
Yep.
- [03:56]
Matt Porcaro
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.
- [04:04]
Justin Colby
Yeah.
- [04:04]
Matt Porcaro
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, you know, six figures of equity and net worth on my first deal.
- [04:25]
Justin Colby
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?
- [04:35]
Matt Porcaro
Yeah. So the FHA 203k loan is an FHA loan. So if anyone's familiar with the FHA loan, it's, you know, it's a governmently, a government backed loan product that, you know, allows people that are just starting out to buy a house with very little out of pocket. Right. Three and a half percent. The 2 or 3K 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, right?
- [05:18]
Justin Colby
Yeah.
- [05:19]
Matt Porcaro
So obviously housing costs are the number one cost for anybody. Right. Like your rent or your mortgage payment is usually the biggest cost. So house hacking has become very popular where you rent out portions of your house to cover your mortgage or if you're, you know, you really get a good deal, pay for more and plus cash flow while you're living in the property.
- [05:37]
Justin Colby
Yeah.
- [05:38]
Matt Porcaro
So the 203k really just pours gasoline on that, on the house hacking method because not only are you able to buy a multifamily property, but you're also able to fix it up, build, 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.
- [05:58]
Justin Colby
So it is like house hacking on steroids.
- [06:02]
Matt Porcaro
I mean, it's like the Burr method.
- [06:03]
Justin Colby
And house hacking in your own home.
- [06:05]
Matt Porcaro
In your own home with only three and a half percent down.
- [06:08]
Justin Colby
So, you know, I love the Burr method.
- [06:09]
Matt Porcaro
Right.
- [06:10]
Justin Colby
Because as an investor, I'm buying a rental, true rental that I'm not going to live in. Right. Alabama and throughout Florida and whatever.
- [06:15]
Matt Porcaro
Sure.
- [06:15]
Justin Colby
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.
- [06:22]
Matt Porcaro
Right.
- [06:23]
Justin Colby
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.
- [06:37]
Matt Porcaro
Yeah.
- [06:37]
Justin Colby
When the loans were a little bit nicer to us. Now that all may come back here, you know, in the next year or two. But the bur mild for a real estate investor is like, to me at least it is the perfect model because you don't leave in and if you do it right, you don't leave any money left in. Now, even if you have to leave a couple dollars, your ROI on that model meaning I'm always looking for a 20% return.
- [07:01]
Matt Porcaro
Yeah.
- [07:02]
Justin Colby
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 to what we're talking about here, where you're basically going all in on your personal home, renovating it, updating it, making it pimped out, and you have very little money left in the deal because they finance it all.
- [07:27]
Matt Porcaro
Yeah.
- [07:27]
Justin Colby
I mean, this is insanity.
- [07:29]
Matt Porcaro
So when you talk about like return. Right. So to put it into perspective, on my first, my first house, I bought a crack house duplex in New York. Okay.
- [07:39]
Justin Colby
Is this a real story?
- [07:41]
Matt Porcaro
Yeah, it's a real story. It was literally a crack house. You know, nobody wanted to touch it with a ten foot pole. But I was kind of the only thing I could afford even in the New York market. Like, even I, like, I still had to scrape the bottom of the barrel. And I was using the bank's money and it was very low risk for me. I only had to put 90500 bucks down on this two family. Right.
- [08:02]
Justin Colby
And how much was the purchase price?
- [08:04]
Matt Porcaro
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 95 year.
- [08:11]
Justin Colby
10 grand this call. 10 grand?
- [08:13]
Matt Porcaro
Yep.
- [08:14]
Justin Colby
Into this property. And he renovated it. It was a full crack house. I mean this is like the end all be all for real estate. If, if people are watching this @justincolby tv or listening on Apple or Spotify, like, everyone should be looking into this. Like, if you are sitting here, I have friends that literally last night text me like, I really want to buy a new home.
- [08:37]
Matt Porcaro
Yeah.
- [08:37]
Justin Colby
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.
- [08:46]
Matt Porcaro
Exactly.
- [08:47]
Justin Colby
So what would you tell them? Go find it. Not find the neighborhood. Not the nicest one.
- [08:53]
Matt Porcaro
Bingo.
- [08:54]
Justin Colby
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.
- [09:10]
Matt Porcaro
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 things 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. 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 doll 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.
- [09:43]
Justin Colby
Yeah.
- [09:44]
Matt Porcaro
Like I had, you know, again, 10, 15 grand. That was it. And that took me a long time to save up, right? Like this. That was like the most money I had ever had in my bank account. So, you know, when you look at ROI and using the banks, 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, 2,500amonth. So when you look at, like, when you, when you say, like you look at a, you know, for example, if you're looking for a deal, right, you're like, I want to make a 12% cash on cash return, right? That's a respectable return, right? On a property, right? My cash on cash return with that 203k property was like 600%.
- [10:41]
Justin Colby
I was just, or something like, I don't want to say infinite, but it's like, God, at that point you're like.
- [10:46]
Matt Porcaro
It'S like not even in the same.
- [10:48]
Justin Colby
No, you can't.
- [10:49]
Matt Porcaro
It's not even the same universe.
- [10:50]
Justin Colby
You know, it's funny, I use the analogy, like in our world of real estate, a lot of people talk about like a 3x return on investment, right? Like if you're going to go market, you want to get a 3x return on your investment and things of that nature, right? This would be like, you can't even compare the two. When, when you take our normal world and you say, hey, great, you want a 3 extra turn. I'm getting a 600 extra turn.
- [11:15]
Matt Porcaro
Yeah.
- [11:15]
Justin Colby
Like you say, why aren't more people doing this? Now the caveat is, is more traditionally for a home you're going to live in, right. This is the Burr model, but owner occupied Burr model, Right. House hacking.
- [11:27]
Matt Porcaro
So there's a trade off with everything obviously. Right. The reason they're giving you the very low down payment the way the reason they're giving you the lowest possible interest rate that you can get or whatever it is at the moment that you get it is because owner occupancy to a bank is the most stable, you know, 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, you saying like with your friends, if they're willing to go move into another property, it just is owner occupancy. It's not exactly first time homebuyer. Now obviously, you know, it works well for that. It's, you know, it's also for the person that already has like a consistent income, right. Nine to five person, someone that's already working, that maybe wants to escape it. Kind of like I did, this is your way into it with very little out of pocket and then reap the benefits very quickly. Because what I did was once I had that equity, 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.
- [12:33]
Justin Colby
And the bankability, I mean, yeah, that's big.
- [12:37]
Matt Porcaro
I talk about that a lot. I don't think people realize what that means. Like when you build, when you increase your network worth 200 grand, like, you know, people are struggling like, oh, I can't find good financing for these. When you go to the bank and the bank runs your numbers and they see what you have on your asset, you know, on your asset schedule and they see that you have like hundreds of thousands of dollars in equity. They know that you're good for it. Fact that if they really had to like come down on you, you got some assets, so they're more willing to be more flexible with you. So one of the biggest things that I was so surprised about when I got that first deal was how much one deal changes your, changes your opportunity, changes how people talk to you. Like I was, you know, I'm electrical engineer by trade. Like you go to a party, you talk to People like, oh, what do you do for work? You know, I'm an accountant. I'm an electrical engineer. And, you know, you go to a party and then you. Then you talk to people and you're like, oh, what do you do? I like, oh, I invest in real estate. You immediately become the most interesting person in the room. Now, someone watching this might not be want that, but it's just a crazy thing to think about that, like the opportunity that comes your way. And it only took one. Like I remember thinking like, oh, I only did one. Like, I'm nobody sure, but that one. The distance between someone that's never done it to the 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.
- [14:01]
Justin Colby
And that one got you into a room that I'm sitting in, gets you into another room I'm sitting in. And then all the people that I'm with. Because you're one.
- [14:11]
Matt Porcaro
Yeah.
- [14:12]
Justin Colby
People want to go, you know, I use the analogy swallow an elephant, right? Like they want to go get the whole thing right now, all of it at once. Take one bite at a time. Just like every, every human puts on pants one leg at a time.
- [14:24]
Matt Porcaro
Bingo.
- [14:24]
Justin Colby
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.
- [14:32]
Capella University
At Capella University, learning the right skills could make a difference. That's why our business programs teach you relevant skills you can take from the course room to the workplace. A different future is closer than you think. With Capella University. Learn more@capella.edu 1.
- [14:48]
Justin Colby
It got him into rooms he never would have been able to get into without the one. Right. So let. Because I now I'm really curious.
- [14:56]
Matt Porcaro
Yeah, of course.
- [14:57]
Justin Colby
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 going to 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 daughter, the whole thing. And I hope to meet your family here soon.
- [15:17]
Matt Porcaro
Soon.
- [15:17]
Justin Colby
But it will happen. I'm very aware, as you just had your second child recently and I'm about to have my second change of the game a little big time. 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.
- [15:35]
Matt Porcaro
Yep.
- [15:36]
Justin Colby
I have a whole, I have a million dollars of equity on it. Right. Does that. And the home I'm going to want is in the millions. Right. Is there a price point that this loan won't work for if I already have a home, Am I not allowed to use this? And let's just use me as the example because now I'm like, maybe this is a move. Yeah.
- [15:58]
Matt Porcaro
So.
- [15:59]
Justin Colby
And I'm not working the system like I would move. Listen, I would make this next thing a permanent home.
- [16:05]
Matt Porcaro
Right. The guidelines are very black and white. I mean, you know, at the end of the day, to answer a bunch of the questions. Right. You know, first off, it is based off of national and local loan limits for Fannie Mae, fha.
- [16:19]
Justin Colby
Right.
- [16:19]
Matt Porcaro
So those you can Google, you look up FHA loan limits or Fannie Mae loan limits in Scottsdale or in Arizona, wherever you are looking to move, and you'll see that they're there. Now, you'll be surprised. Often people are very surprised that, you know, it's a lot higher than you think. For example, you know, in, in where I'm at in New York, a single family home, the FHA loan limit I think is like 1.4 million or something right now. So respect. So there is a, there is a baseline. Obviously you're looking, you're looking at some, some sweet pads.
- [16:48]
Justin Colby
Yeah.
- [16:49]
Matt Porcaro
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 going to be 2.4, but you pick it up for 1.4 or 1 or 100 or I mean a million, and you're putting 400 grand into it, it's going to be worth 2, 2 and change it. Only it goes. The loan limit they give you is based.
- [17:09]
Justin Colby
It's not the value of the home, it's the loan limit.
- [17:10]
Matt Porcaro
Correct.
- [17:11]
Justin Colby
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.
- [17:15]
Matt Porcaro
Right. And so, yeah, and so long as you qualify for it is the big thing too. You know, if you, and then again, if you're going into the new residence, they're going to ask, and you plan to keep your Miami residence, they're just going to say, okay, what are you doing with the Miami residence? Are you renting it out? What are you like, if you're, if you're covering or if you could afford both, that's, that's doable too. It is a DOC loan. Right. So they are looking at your income 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%.
- [17:52]
Justin Colby
So do they. Would I have to have my personal residence in Miami already rented out before I made the move?
- [17:59]
Matt Porcaro
So there's a couple different loan products that exist and they have different requirements. FHA is the stricter one.
- [18:05]
Justin Colby
Sure.
- [18:05]
Matt Porcaro
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, when I use a Homestyle loan. We're renovating our own house. That's another example. We picked it up for 615. We're putting about 232-300into it, but it's going to be worth like 13 when we're done. So we're building almost a half a million.
- [18:23]
Justin Colby
Finance your purchase and rehab on that as well.
- [18:25]
Matt Porcaro
Yeah, absolutely.
- [18:27]
Justin Colby
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?
- [18:39]
Matt Porcaro
Everything, all you get.
- [18:40]
Justin Colby
There's really no limitation. Cost, as long as. Let's just use the example. It's 1.4, just like in New York. Just to keep the example.
- [18:46]
Matt Porcaro
Yep.
- [18:47]
Justin Colby
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. Yep, whatever.
- [18:56]
Matt Porcaro
We added 800 square feet to my.
- [18:58]
Justin Colby
House and I can, I can add a pool if it didn't have a pool.
- [19:01]
Matt Porcaro
So. Great question, great question. FHA, the, the 203k FHA is a little more strict. Well, 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 it.
- [19:16]
Justin Colby
Have a pool and I could redo a pool.
- [19:18]
Matt Porcaro
You can redo a pool.
- [19:19]
Justin Colby
Add the.
- [19:19]
Matt Porcaro
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 kind of 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 home style. 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.
- [19:59]
Justin Colby
Like I don't feel like a story before with 2006 7.
- [20:03]
Matt Porcaro
Yeah, yeah you do. But I think, I think the reason that FHA probably does it is because again, they know that you're renovating it for your own home and they probably again, it's the owner occupancy. So we're assuming you're going to be there for a little. Yeah, they assume you're going to be there for a little while. So like if you're willing to over leverage it, you know, if you're there in 10 years, the appreciation is going to make up for it and you'll be fine.
- [20:24]
Justin Colby
You know, interesting. This is, this is an interesting thing. And I would tell you most investors should be looking like. So ironically, as someone who's a full time real estate investor, I'm not a big advocate of buying your own home.
- [20:40]
Matt Porcaro
Yeah, a lot of people aren't. Yeah.
- [20:42]
Justin Colby
This kind of changes that for me because I think like an investor. So I moved to Miami from Scottsdale and we did buy a home because my wife wanted to own the home here. Yeah, fair. 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 with equity in this home.
- [21:05]
Matt Porcaro
Bankability too. Right.
- [21:06]
Justin Colby
It gives me bankability. So in the sense of, hey, we might move somewhere, I want to buy a rental, I want to buy this flip. I can go get that money out of my home and use it as a tool as a real estate investor. But this, what we're talking about actually kind of spins my concept in my head saying, well, maybe everyone should actually buy a home because they have an opportunity be a real estate investor while doing it. And it doesn't have to be permanent. This loan, you know, you don't go to jail if you leave the home in two years like you did. Yeah. You know, it allows you to become an actual real estate investor, even buying your own home. And then I would make an argument. Everyone should. Because if you're adding the value, just like a flipper or a bird again, a bird. I want to add so much value. I have equity. And then when you have equity, you have the bankability. And then you can go rinse and repeat this model essentially forever depending upon your lifestyle. Right.
- [22:02]
Matt Porcaro
I say that this is like the new American dream, right? We can't trip and fall into a house anymore. Like we could, like society could 60 years ago. Right, right.
- [22:12]
Justin Colby
Or in 2005.
- [22:14]
Matt Porcaro
Yeah, right. You have a, you have a pulse and sign. You got a loan approved.
- [22:20]
Justin Colby
That was me, by the way. I literally, yeah, I got a 6%, 100% finance deal, top of the market, brand new build. They didn't care. I just like submitted my Social Security and they're like, yeah, you're fully approved, 6% interest. I was like, it's wild.
- [22:36]
Matt Porcaro
And to that point, right, like you talk about like the assets versus liabilities and there's that like common thing that Robert Kiyosaki said is like, you know, your own home is, is a liability. It's not an asset. It's other homes that become assets, your rental properties or assets. But your own home is a liability because typically for most people, their own home is. They go in and they spend a ton of money. Do, you know, maintain it and landscape it and repair it. And like over the course of 30 years, it's not a true investment. You're not making money on it now. Like appreciation will go up. But again, I think his point is when you add up all the expenses and you add up like the interest that you pay over it on 30 years, you ever look at it? You know what, obviously a truth in lending statement is, right? So when you, when you take out a 30 year mortgage on a $500,000 property over the course of 30 years, you're actually paying over double of that 500 grand. So in what universe is that a good investment?
- [23:30]
Justin Colby
Right?
- [23:31]
Matt Porcaro
You paid $1 million to make 500,000. Right? Right. Now of course it'll appreciate a little bit, but okay, maybe you break even 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 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, and really offset your mortgage or if not cover it all while in these higher cost of living areas. And one cool thing to know is that for every 1500 is it time.
- [24:30]
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- [25:00]
Matt Porcaro
Dollars in rent that you'd be getting from either. You know there's ADUs accessory dwelling units which are becoming huge right now because there's such a, 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 casino. I mean you could even buy one of those like Amazon houses, those pre built prefab houses and Dr. It in your backyard. The 203k will finance that.
- [25:28]
Justin Colby
You're just blowing. I mean the whole Amazon housing thing, it's. Amazon's just going to own the world at some point.
- [25:32]
Matt Porcaro
Yeah, they will.
- [25:33]
Justin Colby
This is getting insane.
- [25:34]
Matt Porcaro
Yeah, yeah. So like you could buy it, you could buy a prefab house. Obviously you have to like, you know, finish it and do some like stuff inside. But like it's a pre built structure that you drop in your backyard. As long as your zoning allows it, you can get the rental income from that, qualify yourself for more again. Now that's a true investment. You're making money off your own home and that's an investment and that's where you're basically beating the system. When I say like the American dreams new, like this is the new American dream, right. When my family came over from you know like Italy and you know from, you know, from Ireland, right. And they moved to New York City, they all house hacked. Yeah, it was called like this is how we're gonna afford to live in New York City. They had 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 in my young kid.
- [26:43]
Justin Colby
I mean I don't know and I know you coach a lot of people for this, but I would even say if you're a young kid and what I mean young, you know, 20 to 30, if you're in your 20s, going to college, just out of college, this is the move. Go buy a home in house hack using this loan. This would be everything. Now you might need. Can, can you do like co signatures, co signers on it, you know, because 21, you may not have the DTI kind of ratio and all that other stuff, but yeah. Then you get all your friends to pay you rent. You effectively are living for free. You're actually paying down your home mortgage, which we know the first five to seven years is heavily interest rate bill anyways. Yeah, 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 going to have the bankability from having all this equity that all your friends just paid you down.
- [27:35]
Matt Porcaro
Right.
- [27:35]
Justin Colby
You have a party house that you're going to love anyways. You're going to be with your friends all the time anyways. You now actually have your very first investment that could make you a millionaire before you're 30, depending upon where you buy it.
- [27:45]
Matt Porcaro
100%.
- [27:46]
Justin Colby
This is like the. I keep saying no brainer to me.
- [27:50]
Matt Porcaro
Yeah.
- [27:50]
Justin Colby
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.
- [28:08]
Matt Porcaro
It'S free money that everyone could take advantage of. Right. And it's, it's, you know, I'm not the biggest fan of the government by any means.
- [28:15]
Justin Colby
Sure.
- [28:15]
Matt Porcaro
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, you like, you're not gonna get something for nothing, right?
- [28:32]
Justin Colby
Do you have to live in the home like while it's being renovated?
- [28:36]
Matt Porcaro
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.
- [28:52]
Justin Colby
Okay.
- [28:53]
Matt Porcaro
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, I didn't have, I didn't have to pay for, to like a mortgage and rent at the same time. However, they have it built into the loan because they know living with your family. Yeah, but, but one of the cool things, and one of the cool features is like, they understand that you might be paying housing for another place while this is being renovated. So they give you the option to wrap up to. Now they just changed up to nine months of the mortgage into, of your mortgage payments into the loan. So now you don't, you can buy the property, not pay out of pocket for it while it's being renovated. Then when you, then when you're done, you can go in and then start making the payments.
- [29:34]
Justin Colby
So I feel like this is going to make me want to move every two years.
- [29:37]
Matt Porcaro
It's, Listen man, I'll just build a portfolio. Yeah.
- [29:41]
Justin Colby
For the rest of my life and I'll just need to sell my wife on this idea.
- [29:44]
Matt Porcaro
Yeah.
- [29:44]
Justin Colby
But honey, we're going to have, you know, 42 million dollar homes across the country and we're out.
- [29:53]
Matt Porcaro
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, getting harder and harder for millennials to buy a house, let alone renovate it. We saw it was all in the news. Like there was a big downturn in the, in the amount of mortgages being endorsed, Right. It was like an all time low or the lowest in 18 years, whatever it was. Right. And people were just not buying homes.
- [30:19]
Justin Colby
Yeah.
- [30:19]
Matt Porcaro
They thought that jacking the interest rates, they thought would, you know, help it. But it didn't actually people were just like, well, we can't afford anything. And sellers are like, we can't go anywhere.
- [30:28]
Justin Colby
Right.
- [30:29]
Matt Porcaro
So it did the opposite. Like, you know, value stayed up so FHA and Fannie Mae, even though they're government backed entities, they're still entities and they still need to make money. And what happened was they were had to go back to the drawing board and be like, well, how else are we going to continue to make these, these, these programs more feasible, more attractive? Because we got to do something because we're not bringing in any business. We have no mortgages being endorsed. So they made a lot of changes recently. Number one being that Fannie Mae Typically FHA was the only product that you could buy a four unit up to a four unit property with only 3 1/2% 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, the self sufficiency test. Right. FHA has this thing where like if the property doesn't pay, it makes sense. I mean it's, it's, you know, it's, 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 quad flexes. 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.
- [32:15]
Justin Colby
What, so I can have 11 of these?
- [32:18]
Matt Porcaro
Yes. Including your primary.
- [32:20]
Justin Colby
What is the length of like having to move or like how quickly can I buy. Living it a year. So every year I could move my happy ass.
- [32:29]
Matt Porcaro
As long as you follow the guidelines on what you're doing, you have a, you have a, something that's going to cover the debt on the previous property and you qualify on income wise and you're moving in, in earnest into the next property.
- [32:43]
Justin Colby
Absolutely insanity to me.
- [32:45]
Matt Porcaro
Yeah. And 5% down every time like, you.
- [32:47]
Justin Colby
Don'T have to put. I know people right now are probably feeling the same way I'm feeling. The best place for them to inquire more is just go hit you up on Instagram. Instagram, yeah. Now, is there any place that they can, like, apply or is there something that they can. Because I know I'm sitting here and I get the privilege of essentially asking the questions I want to know. Yeah, but I'm sure these watchers and the listeners are like, matt, what the. How do I know more? How do I learn more? So Instagram.
- [33:14]
Matt Porcaro
Yep.
- [33:14]
Justin Colby
203K way.
- [33:15]
Matt Porcaro
The 203k way on Instagram. I've been posting consistently every day for six years on there. And again, my. When I built this, all I wanted to do was, you know, I got done with that first deal and I just remember sitting in that property, being done with the renovation, smelling the paint on the walls, smelling the new floors, like, looking around and just being like, how the hell do not more people know about this?
- [33:38]
Justin Colby
Right.
- [33:39]
Matt Porcaro
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.
- [33:51]
Justin Colby
Right.
- [33:51]
Matt Porcaro
Because it taught me so much about it. So when I created my whole platform the 2 or 3k way, I just wanted to let everybody know about it. So my Instagram, you know, my YouTube, I have all the information you could ever want or know step by step. You know, obviously people are like, okay, listen, I get it, Matt. I understand it. I want to do it. But I just want to do it and get it right the first time, make sure I slam dunk it. So I do work with people, right. One on one, and I coach people through it and, you know, guarantee that we walk you through the process to get you six figures of equity, get you cash flowing day one. Right. Using the strategy. So you could go to the 203k way.com 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.
- [34:35]
Justin Colby
What? So when. I mean, I just want to not be totally selfish with the questions I want to ask.
- [34:41]
Matt Porcaro
I always say, like, the questions that you have are probably the questions that everyone else has on this. Not many people know about. About it.
- [34:47]
Justin Colby
Yeah.
- [34:47]
Matt Porcaro
And that's kind of the benefit I have going on podcasts and stuff like this is like, you know, people are like, oh, what do you want to talk about? I'm like, you're interested in it, Just ask. Yeah, because there's so much to know and there's so much I could tell. But the questions that are obvious to you are probably what everyone else is thinking.
- [35:01]
Justin Colby
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 would probably go do a duplex, triplex, or quadplex.
- [35:11]
Matt Porcaro
A hundred percent.
- [35:12]
Justin Colby
I would really encourage that. I'm kind of asking questions like, hey, if I were ever to move, would this probably be a better strategy for me? And now has the. Everything that we're seeing with loans, right? Interest rates going up, whatever, which is not even that bad.
- [35:25]
Matt Porcaro
That's not.
- [35:26]
Justin Colby
People are making it way more than it needs to be.
- [35:28]
Matt Porcaro
My 203k, the first one I did, I got like six and a half percent.
- [35:31]
Justin Colby
What are, what are rates look like now for a 203?
- [35:33]
Matt Porcaro
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.
- [35:42]
Justin Colby
Because you can help navigate them where to go, right? So here's what I'll tell everyone listening to this, this, everyone watching this on, on YouTube, make sure to reach out to Matt. Like, I, if I were to use this, I would be calling him saying, hey, where do I go? What do I do? What lenders do I do, what app do I need to fill out? Like, the questions I'm having is like, how far down the path do I need to go before I start the process, right? Do I need to just go get the approval first, or do I need to go find the house first and then go make sure I get approved? Do I want to have an offer in on a house?
- [36:10]
Matt Porcaro
Yeah.
- [36:11]
Justin Colby
Where, where do people start?
- [36:12]
Matt Porcaro
The first thing to do is work with a lender that knows how to do these. Now, luckily, over the years, I've been able to build relationships with lenders that do this. They do it nationally. I call them my preferred lender partners. I'm not a loan officer. I'm not a real estate agent. I'm just a big fan and proponent of this process. You know, I have a spokesperson. I am, I really am. I'm like the unofficial 203k influencer.
- [36:35]
Justin Colby
I was just gonna say, you guys better get this guy a sponsorship or something because this guy's pushing way.
- [36:40]
Matt Porcaro
I don't need to be on any government payrolls, right? But, you know, I've been able to build that. And for every lender out there that will tell you, oh, it's too much of a pain or that it's just, you know, I always make the. I always make the analogy. If you have a Porsche, right, and you have to get the oil change or something, your tires rotated, you don't bring it to a Honda dealership, right? Right now the Honda mechanic could probably do it, but, like, why would you. He's going to fumble over it. He's going to make mistakes. He's going to, you know, have you really just give you a problem with your asset, right? So the 203k way.com lender, you go there, fill out a quick form, say what market you're in, what you're, you know, little. Couple other questions. We'll 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 90500 bucks on a $350,000 loan, that was my first deal. Yeah, anyone that does math and is like, you know, not one of me, but people that are quick with math will be like, well, that's. That's actually like 2.5% or 2.7%. How'd you. What's that? I got a full 6%.
- [37:53]
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- [38:09]
Matt Porcaro
Seller's concession back at closing. So you could get 6% back at closing month with FHA of the purchase price. My 6% seller's concession overpaid my closing costs, so I got a check back at closing. I was actually supposed to lay out like another couple grand. Instead, that money came back to me, so my net out was 9,500. Because you're able again, when you find a good deal, you do all this stuff, you can wrap in all your closing costs.
- [38:34]
Justin Colby
So the principles are still the same though. Find a good deal.
- [38:36]
Matt Porcaro
Yeah.
- [38:36]
Justin Colby
Find the worst home in the best neighborhood. Like it comes down to the same principles I would teach as a real estate investor.
- [38:42]
Matt Porcaro
100%.
- [38:42]
Justin Colby
Find the right deal. Now, the caveat, you're going to live in this one, but find the best deal for you at the best price and then the same thing. Figure out where the end value is going to be. Make sure you are well under that. I would make the argument you want to be at 50% of the end value.
- [38:58]
Matt Porcaro
Yeah.
- [38:58]
Justin Colby
So if you buy $1 million home, you better hope that is 2 million by the end of it. That's the right type of deal. They're going to finance up to 1.4 million in the New York area. Who knows around the country?
- [39:08]
Matt Porcaro
Yep.
- [39:08]
Justin Colby
Right. Like you still have to use investing.
- [39:11]
Matt Porcaro
Principles a hundred percent.
- [39:12]
Justin Colby
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 going to help them take that. Everyone reach out to Matt 2 or 3K way. But like, because they need to learn more, they need to have someone like you to coach them through this process. Like, I've done this 16 years. I'm still going to call you and say, hey, dude, I think I'm going to do this thing.
- [39:36]
Matt Porcaro
Yeah.
- [39:37]
Justin Colby
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.
- [39:42]
Matt Porcaro
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.
- [39:52]
Justin Colby
Right.
- [39:52]
Matt Porcaro
I've helped hundreds of people do this and like I know where to push the button, where to pull to get the most, to keep as much money in your pocket as possible, where to, where to leverage and pull the most out. The other cool thing, like we're talking about finding a good deal and that's obviously the most important part of any, of any real estate 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.
- [40:22]
Justin Colby
Yeah.
- [40:23]
Matt Porcaro
Like, you know, I call it the Goldilocks zone. You're basically playing in this, in this in this part of the market where like you can, you can afford more than like a flipper or a wholesaler, but you're not playing with the retail buyers because retail buyers are looking for move and ready stuff that's going to pass inspection.
- [40:38]
Justin Colby
Right.
- [40:39]
Matt Porcaro
You can go on the MLS and everything that's in as is condition and stuff. They say like cash only. Like you can purchase all of that. Yeah, the, the, the really the only thing with the condition is it needs to be some existing structure of some kind. It doesn't have to be. There's no such thing as a two, you know, too messed up of a property. There's also no such thing as like too nice of a property. Yeah, you could move into a. You could get a house that's moving ready, totally financeable. But if you want to renovate the kitchens and bathrooms and as long as it, you know, the loan to value works out, you could do that too.
- [41:10]
Justin Colby
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 in Miami, so we took out all the lawn, we put in turf, we put in pavers. Yeah, that's aesthetic. Like they're not going to wrap that.
- [41:28]
Matt Porcaro
In the loan because they will on a home style. They will for sure.
- [41:30]
Justin Colby
One.
- [41:31]
Matt Porcaro
Yep.
- [41:32]
Justin Colby
Yeah.
- [41:32]
Matt Porcaro
Yep.
- [41:32]
Justin Colby
That's interesting because I'm just thinking about like homes that I would like. Maybe I want to remodel inside. That's the obvious. Yeah, but what about the backyards and like making them look better because they're just. Or they didn't do anything to it.
- [41:47]
Matt Porcaro
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 Home style loan. You can get a 10% down second home loan. So as long as you live there, some portion of the year follows like the second home standards. Right. You have to live. I don't know what the exact number is. Yeah, you could buy it and renovate it with only 10% down. And then they have an investment product where you can go and buy another Property, only put 15% down, but they give you the purchase price plus the renovation.
- [42:19]
Justin Colby
Airbnbs now, you know, that's usually like a hard money lender in my space you're talking about is a flipper as a brrrr guy. I buy it, I remodel it, my lender makes me put 10 down. Yeah, they Will refi me out of the remodel. Now in my space, I actually have to pay the first draw. They re, they reimburse me.
- [42:37]
Matt Porcaro
Yeah. Is it the same points up front, stuff like that.
- [42:40]
Justin Colby
Is it the same thing in these type of loans where you're paying the contractor the first 20 or 30 or 40 or 50 grand, then the lender reimburse? Or is it.
- [42:47]
Matt Porcaro
No, you don't have to pay out of pocket for your interest rate. The check goes directly to the contractor.
- [42:52]
Justin Colby
This, I mean, listen, we only have so much damn time, but I can pepper you for hours.
- [42:56]
Matt Porcaro
Yeah.
- [42:57]
Justin Colby
So because again, if you're watching this, if you're listening this, I would make the argument if you're in your 20s at all, if even 30s or more, it doesn't really matter. 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 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 brrr is if you do it right, your money's all out. You don't need to have any money into that thing. Right?
- [43:35]
Matt Porcaro
Yeah.
- [43:36]
Justin Colby
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.
- [43:47]
Matt Porcaro
What's the, what's like the average appreciation rate right now in the U.S. do you know what it is? I think it's like somewhere around 5.
- [43:52]
Justin Colby
Or 6%, 5% a year. Okay, so think about this.
- [43:56]
Matt Porcaro
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 going to 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, a year and a half. It's a million plus dollar property, big renovation. His equity has gone up like a hundred thousand dollars in the time it's taken him to renovate the property. He's not even in it yet and he's already made us a, 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. Yep, three and a half percent. So he.
- [45:02]
Justin Colby
That is so wild.
- [45:03]
Matt Porcaro
Yeah, yeah. Triplex in New York. And it's again so like you're, you can't I just say like this is not an FTC thing to say but like literally like every person I've worked with like never loses. You're putting so little down. If you follow my strategy, you work with the right people obviously that like know what they're doing.
- [45:23]
Justin Colby
Yeah, it's.
- [45:24]
Matt Porcaro
You can't lose on. It's three and a half percent.
- [45:25]
Justin Colby
It appreciates when you have an asset, it's a real estate.
- [45:29]
Matt Porcaro
There's the benefit of having an flip.
- [45:33]
Justin Colby
For you go make in the game of real estate investing. That's. Guys, make sure you go follow Matt Procaro. He is my good friend. I'm going to be peppering him with passions at lunch, but 203k way on Instagram, YouTube, follow them but apply like get engaged with them. Like don't do this alone. That's the one thing I would say because I'm not. If I decide to do this, I'm not going to do it alone. Yeah, I'm going to be peppering you the questions.
- [45:58]
Matt Porcaro
So 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.
- [46:04]
Justin Colby
This is phenomenal.
- [46:05]
Matt Porcaro
Yeah, man, this is phenomenal.
- [46:06]
Justin Colby
Thanks for coming by.
- [46:07]
Matt Porcaro
Thanks for having me.
- [46:08]
Justin Colby
All right, y'all, I'll see you guys on the next episode of the Science Flipping.
- [46:12]
Matt Porcaro
Peace out.
- [46:19]
Capella University
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- [46:36]
Trevor Sikoma
Hey everybody, I'm Trevor Sikoma, host of the PFF NFL show, here to tell you what you can find on all of our shows throughout the week. On Mondays we have the grade release show where myself and Dalton Wasserman break down every single game that you just saw in the NFL. On Tuesdays, we have the Quarterback Breakdown with Seth Galena. On Wednesdays we've got the Rookie Review with John Ledyard and the preview for the upcoming week in the NFL. So make sure you are subscribed to the PFF NFL show wherever you get your podcasts.