Transform Your Property: Expert Tips for FHA Renovation Financing

John Harcar (00:01.769)
All right. Hey, guys. Welcome back to our show. I’m your host, John Harcar. And I’m here today with Garrett Feis. And what we’re going to talk about, you know, besides his journey in business and what he’s done in real estate, we’re going to talk about how he was, you know, kind of instrumental in the 203K renovation loan. I don’t know if you guys have heard about it. I know I haven’t yet, but I’m going to be learning today just like y’all. Remember, guys, at Investor Fuel, we help real estate investors, service providers, really all real estate entrepreneurs

to 5x their business. We do it by providing the tools, the resources in the community to scale and grow the business you want to have, which helps in turn, you know, live that life you’ve always dreamed of. So Garrett, welcome to our show.

Garrett Feis Sr (00:45.452)
Yes sir, thank you.

John Harcar (00:46.695)
Yeah, I mean, I’m intrigued to talk about this. Like I said, I don’t do any flips and stuff. I don’t know that much about the 203k renovation loan, but I love learning more. But before we talk about that and get into the weeds, why don’t you tell our audience a little bit about you, know, kind of your background, how you got into doing what you’re doing and what brought you to today.

Garrett Feis Sr (01:07.886)
Well, I originally started out as a contractor when I was young, and then I got into building inspections. So my background is in contracting and in home inspections. And back in 1992, FHA in Chicago called me and asked me if I would be willing to go to Washington to look at a loan that’s not performing.

And my response was, what the hell do I know about loans? I’m a building inspector, right? So she talked me into it and I went. And I’m proud to tell you today that there’s things in the FHA guidelines with the 203K renovation loan that are actually things that I wrote word for word. So my history is that I’ve been an FHA 203K consultant since 1992.

John Harcar (01:37.715)
Right.

Garrett Feis Sr (02:03.598)
Now, what is a 203K? A 203K is an FHA loan that allows you to purchase a piece of crap property, even if it’s half burned down, you can purchase the property as is, and you’re going to have to hire a consultant, somebody like me, to come in and do a work write-up. Now, the work write-up is what all the work that’s going to be done to the building.

John Harcar (02:06.012)
Thank you.

Garrett Feis Sr (02:33.834)
So you can purchase the property as is, get the money to fix it up or modernize it or do whatever you want to do to it, and put it all into one loan. And after the loan closes, anytime the contractor wants to get paid, they have to call us. We come in and we inspect not only the quantity of work they’ve completed, but also the quality.

John Harcar (02:41.094)
Mm-hmm.

Garrett Feis Sr (02:59.872)
So the consultant is in the project from conception all the way through to completion.

John Harcar (03:06.342)
Why does someone need a consultant for this? That maybe is a piece that I don’t understand.

Garrett Feis Sr (03:12.972)
Well, most people are not construction literate. They don’t know anything about building codes or health and safety issues or FHA’s minimum property standards. So that’s why FHA makes you hire somebody like me is because FHA doesn’t trust contractors.

John Harcar (03:31.196)
Hmm got it. So let’s go back a little bit, know, anybody that ever watches my podcast know I like to talk about the backstory What got you into construction in the first place or in Bre? know, it was there an influence in your life Was there someone that you were you’re rounded and exposed to it a lot?

Garrett Feis Sr (03:48.622)
Yeah, absolutely. The wood shop teacher in high school came to me and said, you know, look, you’re never going to be a lawyer. You’re never going to be a doctor. Why don’t you hang out with me and I’ll make you a good businessman and tradesman. And I did. I wound up taking four or five shop classes the last couple of years of my high school.

John Harcar (03:54.952)
He

Garrett Feis Sr (04:13.602)
Then in the summertime, he was the local handyman guy and we got involved in remodeling bathrooms, kitchens, room additions. And my deal with him is if he’d let me smoke in the back room, that I would do it. So we, yes sir. And it was only because of him that I actually graduated high school and went on to college.

John Harcar (04:19.368)
Hmm.

John Harcar (04:30.979)
Easy, easy deal.

John Harcar (04:39.762)
That’s awesome. That’s a great story. mean, a lot of people don’t have that, get offered that opportunity, but that’s cool. So as you got into being a contractor and an inspector, what were some of the struggles that you had when you first kind of got started, really having to do in this full time?

Garrett Feis Sr (04:56.918)
in any new business or any business in general, you’ve got to get the message out. I had a professor in college tell us one time, and I don’t know why I remember this phrase, but this is what he said. If you don’t tell them you’re in business, they’ll never know. And I’ve remembered that phrase all these years. Now, all the girls at the bank know what I do for a living.

girl that used to cut my hair knows what I do for a living. All the kids at the pharmacy know. And that’s because everybody I meet, I tell them about the 203K loan because it’s FHA’s best kept secret. Nobody knows about this loan.

John Harcar (05:44.186)
I’ve never heard about it in my 10 years in this, I’ve never heard about it.

Garrett Feis Sr (05:48.578)
Yeah? Well, again, it’s a loan that allows you to buy a house that you almost love, and you can make it house that you do love. Now, in Atlanta here specifically, we have a lot of homes that were built in the 30s and 40s, and they got tiny rooms. They’re only 11, 1200 square feet. And the floor plans are functionally obsolete. Kitchens are old, bathrooms are old, so…

On a lot of these homes, we’re doing is we’re blowing out the master bedroom wall, making the master bedroom bigger, and then adding a full master bath there as a room addition. Then we might take the walls down between the kitchen and the dining room, or take the wall down between the kitchen and the living room, and create that great room effect.

John Harcar (06:41.198)
open floor plan type of deal. Yeah.

Garrett Feis Sr (06:43.554)
Yeah, and you know, the way I teach this loan to realtors is that they need to learn how to sell a vision, not the product. They’ve got to be able to look at this piece of crap property and say, you know what, this is what it can be. So, as the average buyer, I’m going to come to a realtor and I’m going to say, look, I need a house, I need three bedrooms, I need two bathrooms, I need a fence yard and a two car garage.

John Harcar (07:00.178)
Yeah.

Garrett Feis Sr (07:13.4)
So as a realtor, you’re going to go out and you’re going to find ten homes, and you’re going to show me all ten. But the issue is going to be that you never stop these people at the door and say, wait a minute, this one checks all the boxes, what’s wrong with it? And the people will tell you what their arguments are, or what their dissatisfaction is with that home. Then you turn around and you bring them into the thought process of, you know what, we can make this house

John Harcar (07:27.592)
All

Garrett Feis Sr (07:42.466)
the house you want it to be. We got a special loan product that will allow you to purchase the property as is, and it will give you all the money that you need to do all the remodeling. Puts it in one loan, and you don’t have to make any mortgage payments while the house is under construction and you can’t live in it. You can finance mortgage payments into the loan. So, you know, how attractive is that now?

John Harcar (08:03.208)
Mmm.

Garrett Feis Sr (08:09.782)
So instead of showing 25 homes to these people, you can show them two or three and then pull out your deck of cards.

John Harcar (08:20.55)
Wow, okay. How come now, okay, well, let me ask this question. Is this more for someone who is going to be physically living in the house or is this something an investor can use?

Garrett Feis Sr (08:31.99)
Now this is an owner occupied loan.

John Harcar (08:34.152)
Okay, this is owner occupied. Okay, that makes sense. How come people don’t know about this? I mean, why is this kind of like, like you said, the best kept secret?

Garrett Feis Sr (08:43.886)
Well, I’ve talked to people at FHA and their argument always is, is we don’t have that in our budget to advertise. We depend on the mortgage companies to go out and advertise this loan because we’re an insurance company. You know, we don’t write the loans, we don’t give you the money. All we do is guarantee the mortgage company that if you follow our guidelines and the property goes belly up, then we’ll…

take it from you. So FHA is actually an insurance company.

now.

John Harcar (09:20.2)
Is there specific guidelines that the property has to meet? Like it can only be up to 70 % of ARV or it can only have XYZ amount of rehab cost.

Garrett Feis Sr (09:34.25)
No, at the end of the day, has to conform to FHA’s minimum property standards. So, that’s why you hire somebody like me, because we’ll go in and we’ll do a mini home inspection to identify any mandatory things that need to be included in your budget. Those are things like health and safety issues, code violations, things like that. Then they tell us whatever their desires are.

So the write-up that we perform and we generate actually goes to the appraiser. Now the appraiser is a financial guy. He’s the guy that’s going to say, oh, when you get all these repairs done, this is what the after-improved value will be. And as long as we’re under the ABR, then we’re good. Or ARB. If we’re under that, then we’re good to go. Close alone.

John Harcar (10:21.38)
Right.

John Harcar (10:34.152)
Hmm, okay. Lending requirements, do you have to have, I mean, is it just traditional, like the normal FHA loans with the credit score, with income, all those types of things, nothing different?

Garrett Feis Sr (10:36.984)
Yeah

Garrett Feis Sr (10:44.91)
Yeah. The credit package is identical. Your DTI has got to be under 55 debt to income. Your closing costs and all that can be wrapped into the mortgage. It’s only three and a half percent down. And your credit score, minimum credit score has got to be 580. Now, a lot of lenders that are out there want at least a 620 credit score.

John Harcar (11:08.36)
Hmm.

John Harcar (11:13.777)
Sure.

Garrett Feis Sr (11:14.612)
it depends on the lender that you’re dealing with, but FHA’s minimum is $5.80.

John Harcar (11:20.688)
Wow, okay. So that’s something new. So if someone wants to go and, you know, go buy a house and do kind of like a live-in renovation, is there a certain time you have to hold on to it for? So let’s say I bought the house and not trying to make a profit or make it like investment, like two years down the road, my job changes and I have to move. Like, is there a certain length you have to hold on to it for?

Garrett Feis Sr (11:44.906)
No, there’s no prepaid penalty with any FHA loan. So you can pay it off six months later. Now, what I do is I teach a lot of people how to get a two-flat building, two unit, because the FHA 203K can go up to four living units. So you can do four-flat. Then you can have somebody else paying your rent every month, and you’re done.

John Harcar (11:45.681)
Okay.

John Harcar (11:50.471)
Right, okay.

John Harcar (12:05.16)
Okay, so you can get up to a fourplex.

John Harcar (12:13.084)
How’s that?

Garrett Feis Sr (12:13.998)
as a new cash flow of 500 or 1,000.

John Harcar (12:17.448)
House hack. Yeah. Yep. I love that. It’s so weird how I’ve never heard of that. Why do you think it’s been so just, mean, or let’s better yet ask a question. Pros and cons versus a traditional FHA.

Garrett Feis Sr (12:19.288)
That’s right.

Garrett Feis Sr (12:33.358)
Well, the pros are, of course, is that you can take all the existing inventory that we have, and I read an article a couple of years ago that said that 94 % of America’s existing housing stock is over 30 years old. That’s a fact. Now, there’s a reason why mortgage companies only give you money for 30 years is because they’re not stupid.

They know that at the end of 30 years, these homes need major renovations. The plumbing system is outdated. The electrical system needs to be upgraded. The floor plans are functionally obsolete. So FHA wrote this loan originally in 1964, but between 1964 and 1992, all they had done was 3,800 loans nationally. That’s all they did.

John Harcar (13:10.47)
roof.

John Harcar (13:27.304)
Wow, so little.

Garrett Feis Sr (13:28.558)
in 30 years. And when we made the changes to the program that we suggested, we did 9,700 203K loans that first year, in 93 when we made the changes. They, you you get, it goes up and down. Last time I looked, it was about 15,000, 16,000 they did in a year.

But you can also build an ADU with the 203K. And an ADU is an accessory dwelling unit. So you can build yourself a little apartment off the back of your house, or you can convert the 2-car garage into a studio apartment or whatever, then have rental come in and off of it. Now, I had one guy by Mercedes-Benz Stadium here.

John Harcar (14:05.607)
Right.

John Harcar (14:16.389)
Okay.

Yeah.

John Harcar (14:25.224)
Right.

Garrett Feis Sr (14:25.272)
which is a very hot area. The guy bought this ugly 1,300 square foot crap house. Well, what we did is we knocked the house down and built another house on top of it, on top of the existing foundation. Because FHA says you have to use the existing foundation.

But if you do, it’s rehab and not new construction. That’s the designation. And with this guy, was on a corner lot, and we built three additional townhouse style buildings on the back. So the guy wound up with a fourplex, and he’s positive income of $5,200 a month.

John Harcar (15:09.906)
Yeah, three rental incomes.

Garrett Feis Sr (15:18.262)
I mean, the appraisal thing.

John Harcar (15:19.632)
That’s like a no brainer. I mean, you buy like a couple acres with an older house and you can come in and put three more townhomes on that sucker. Wow. It’s incredible. Yeah.

Garrett Feis Sr (15:23.042)
Yeah

Garrett Feis Sr (15:33.848)
Yep. Now, since the FHA loan has been so popular, Frannie Mae’s gotten involved with their Homestyle Loan, VA has gotten involved with their Renovation Loan, and then the USDA now has a rental loan. So, they’re all similar, but dissimilar.

John Harcar (15:51.441)
Hmm.

John Harcar (15:55.465)
Okay, but I was gonna say, what are the main differences that you would share with someone in the different types, different loans?

Garrett Feis Sr (16:03.662)
Well, the Fannie Mae loan, it’s called the homestyle and it’s not as restrictive minimum property standard wise. Like FHA says you can’t have a little crack in the corner of the glass. Whereas Fannie Mae says that’s okay. FHA says no peeling flaking paint. They automatically consider it lead-based paint.

Okay, so any place you’ve got peeling flaking plane becomes mandatory to scrape it and repaint it FHA mandates that you have at least a two-year life expectancy left on the roof now FHA or Fannie Mae looks at it and says if it ain’t leaking it’s okay You know, so so the criteria is a little different but

John Harcar (16:32.487)
Yeah.

John Harcar (16:51.08)
Yeah.

John Harcar (16:55.696)
Okay. Okay.

Garrett Feis Sr (16:56.974)
Most of those loans come in really close to the FHA standards. It’s got to be a habitable, safe living unit at the end of the day. Now the VA has no money down.

John Harcar (17:08.335)
If su-

okay.

Garrett Feis Sr (17:12.95)
So the FHA is 3.5 % down. The Fannie Mae Homestyle is usually around 5 % down. The VA can be no money down, or is a no money down loan. And the USDA can be a no money down loan.

John Harcar (17:31.56)
Okay, awesome. Man. So any recommendations for someone that they’re going out and they’re looking at properties and they wanna use this? mean, is there any just kind of advice you would give to somebody?

Garrett Feis Sr (17:46.358)
Yeah, you have to go in with an open mind and have that vision. Be able to see this property in your mind’s eye on what you want it to be, not necessarily what it is. Now, you know, a lot of times when I’m training realtors and I teach them that, if you get a bad home inspection and the borrower wants to bolt, have them adjust the sales price for the cost of the repairs.

and flip these people into a $203K loan. And that gives them the money to make all the renovations or repairs or whatever. Now, I want to go backwards a little bit because I didn’t tell you what the cons are.

John Harcar (18:18.29)
Mm-hmm.

John Harcar (18:28.218)
Yeah, let’s talk about those, that’s important.

Garrett Feis Sr (18:30.936)
Yeah, the cons are is that the renovation loans are all a little bit higher than current interest rates. So if today’s rate is 6.55 or something, then a rental loan is probably going to be up around 7, about a half a point higher. Now, why? It’s because they’re more risky loans. And of course, everybody wants to insure themselves against the risk.

The other con is with the FHA loan is that the PMI, the private mortgage insurance that you pay, stays with the life of the loan. Whereas the Fannie Mae Homestyle, once you’ve got 20 % equity in the property, then you can delete the private mortgage insurance. And that can be a couple hundred dollars a month sometimes.

John Harcar (19:21.672)
Hmm.

John Harcar (19:29.756)
Yeah, yeah.

Garrett Feis Sr (19:31.086)
So what I do is I teach people how to take this piece of crap house, renovate it, make it nice and pretty, then do a cash out refi, because we’re going to put you in a position where you’re in positive equity. So we’re going to do a cash out refi, get you into a conventional mortgage. Then you can rent that property out and you can go across town and do another 203K. You can only do one 203K at a time.

John Harcar (19:57.064)
Hmm.

John Harcar (20:00.732)
Got it.

Garrett Feis Sr (20:01.268)
And I personally have done three in my lifetime.

John Harcar (20:05.778)
Probably with no kids. Totin’ around kids doing that might be a little bit more difficult. Nine kids, wow! Wow, that’s incredible.

Garrett Feis Sr (20:09.972)
No, no, we got nine kids. Between my wife and myself, we got nine.

John Harcar (20:17.682)
Well, Garrett, thank you, man, for sharing all that information. That makes me think, because yeah, that makes me think about an opportunity now. If there’s folks on here that want to talk to you little bit more about it, maybe they want to hire you to do something like that, what’s the best way they can get in touch?

Garrett Feis Sr (20:35.982)
Well, my phone number is 404-925-7163 and my email address is 203KAtlanta at gmail.com Now, I’d also like to put out there too that we cover the complete southeast. We cover the Criparta Panhandle, all of South Carolina, all of Georgia, anything east of Birmingham, anything south of Nashville.

We cover all of that space.

John Harcar (21:09.094)
Are any of these type of things nationwide? mean, like are there other lenders? Cause like I’m in Boise, I’m in Idaho. So like, there other lenders out this way that might have a product like that? I mean, FHA, FHA, Fannie Mae’s Fannie Mae. Do you have like referrals for people that you would help with that?

Garrett Feis Sr (21:22.434)
Yeah.

Yeah, I can help put you in the right direction. I have a script that I give people is like, look, if you’re looking at a mortgage company, these are the questions you want to ask. When you’re dealing with a realtor, these are the questions. When you deal with a consultant, these are the questions to make sure that you’re saying everything exactly the same to each one of them, and you can make an educated decision on who you want to work with in the future.

John Harcar (21:30.056)
Okay.

John Harcar (21:38.834)
Perfect.

John Harcar (21:54.428)
Yeah, that makes sense.

Garrett Feis Sr (21:56.27)
So I’m a big script guy.

John Harcar (21:58.141)
Very cool. Yeah, I I’d love to see that. Guys, I hope you enjoyed the show. I you got a lot of good information. I mean, I know I did. We’ll put all your contact information in the show notes so that way Garrett can get ahold of you. But thank you again. Guys, I hope you enjoyed this show, and we’ll see you on the next one. Cheers.