Deal Diary: How Matt Picaro Uses 203K Loans to Scale

In This Article

Name
Matt Picaro

Location
Long Island, New York

Occupation
Real estate investor

Assets
Three owner-occupied units

Investment strategy
House hacking, flipping

Financing
FHA 203K (3.5% down)

Matt Picaro grew up in a blue-collar household watching his parents’ construction business swing between good months and bad ones, and money stress shaped him early. He landed a good job in New York City, but it came with a three-hour daily commute and the slow realization that a steady paycheck wasn’t the answer he was looking for. 

Matt picked up a used copy of Rich Dad Poor Dad from a street vendor and got hooked on the idea of real estate, but quickly hit a wall: He had no savings and no idea how to afford a down payment in one of the most expensive markets in the country. 

A conversation with a local real estate agent introduced him to a loan product he’d never heard of, one most agents and lenders barely understand themselves. He used it to buy a condemned, feces-covered duplex for $9,500 out of pocket. Eight months later, he had $150,000 in equity and a real estate career. 

Here’s how he did it.

You only had $9,500 to put toward your first deal. How did you actually finance buying and renovating a property that needed $80,000 to $100,000 of work?

The FHA 203K loan changed everything. It’s a 3.5% down, owner-occupied product, the same as a regular FHA loan, except it lets you finance the renovation directly into the mortgage. Your loan amount becomes the purchase price plus the renovation budget, all rolled into one 30-year mortgage.

I found a two-family property listed at $290,000 that was a total disaster: squatters, feces on the walls, the works. Because it was a duplex, the lender let me forecast the future rental income from the second unit, which bumped my preapproval from $300,000 up to $360,000. 

All in, the loan covered $350,000, the purchase price plus rehab. I only had to bring $9,500 to closing. The loan was even wrapped in six months of mortgage payments, so I didn’t have to pay anything while the place was unlivable.

What did the actual renovation and payoff look like?

The rehab took eight months and was genuinely brutal. I was the only one on my team who’d ever done one of these loans, so we were figuring it out as we went. But when it was done, the appraisal came back at $500,000. I’d built $150,000 in equity off $9,500 out of pocket.

I moved into one unit and rented the other for $2,500 a month. My mortgage was about $2,900, so I was living in a half-million-dollar house in New York for roughly $400 a month. I took that equity and rolled straight into flipping and later did two more 203K projects that now make up three units worth over $2 million combined, with more than $1 million in equity.

How does the money actually flow during the renovation? Do you have to front contractor costs yourself?

No, and that’s one of the biggest misconceptions about this loan. When you close, the seller gets paid, and the remaining balance, plus a mandatory 10% contingency, goes into an escrow account. 

From there, it works like a construction draw. The 203K consultant walks the property as work gets completed, verifies it matches the scope, and submits a draw request to the bank, which pays the contractor directly, usually within a day or two. 

As the borrower, you never write a check to the contractor yourself. It also protects the contractor, because the bank is the one releasing payment based on completed work, not a homeowner who decides halfway through they don’t like the cabinet hardware and tries to withhold money.

What’s the biggest mistake you see people make with this loan?

Going with the cheapest contractor. If you get three bids and they come back at $90,000, $95,000, and $50,000, that low number isn’t a gift; it’s a missed scope of work. You won’t find out until the contractor walks off the job halfway through, and now you’re stuck finding someone else to finish it for whatever’s left in escrow, which usually means coming up with the gap yourself. 

The fix is simple: Get your scope of work written by the 203K consultant first, before you bring in any contractors, so every bid is apples to apples. Then pick based on who can actually deliver the scope, not who’s cheapest.

Why do you think more investors don’t know about this loan?

Because almost nobody who could explain it actually understands it past their narrow piece of the transaction. Agents think it’s too much paperwork. Lenders who haven’t done one assume it’s a hassle. 

None of that matches what I experienced. You need a line-item scope of work, a licensed and insured contractor, and a 203K consultant who functions like a referee between you and the contractor. That’s it. 

This loan is investing with training wheels on. It built me three times my salary in equity in six months. I’m still surprised more people aren’t using it.