AI Powered Financing: FHA 203k Loans & Renovation Financing with Skip Schenker

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Good morning, good afternoon and good evening everybody. Hey, welcome to this episode of the Note Closure show. As always, Scott Carson jacked up to be with you today. Today's episode I think is going to help answer a lot of questions for you on some opportunities. You know, recently we did a webinar as I recorded as we did this last night, but I think this is coming out a couple days later. We did a breakdown, kind of went through 66, you know, vacant reverse mortgages that were in default. They could pick up, you know, you know, 70, 80 cents of either the BPO or the unpaid balance depending on where it, where it is inside. And then we've bought these types of deals before. But a lot of people out there, especially when I get new investors out there, they're like, oh, I got to have all cash to buy real estate or I, I want to buy a fixer upper and don't know how to rehab it besides using my own money. Well, there are some different ways of financing properties. Previously we had on hard money, Gary talked about buying a hard money, you know, buying a property, a hard money loan and going that route, which is short term finance. Liar. So we also talked about DSCR loans on that aspect of things with Gary, but we didn't talk about a loan. Product has been out for a while and I would tell you we have that type of loan. World ambassador joining us today. This guy I've known, I guess I've known him about seven, eight years now. He is just an absolute resource when it comes to this type of loan. He became passionate because he used to design in his own house as well and he does just a great job. Who am I talking about talking? The legendary Skip Shanker. And joining us today from the Bay Area. Skip, what is going on, buddy? How you doing?

Hey, great to see you, Scott. I'm doing great, thanks. Yeah. And I'm excited and passionate about being here and talking to your audience about what renovation loans are and how we can help both investors and potential owner occupant buyers. You know, there's a huge pent up demand of buyers that have been sitting on the sideline. They got pushed out because prices got, got increased you know, 10,000, 20,000, 50 grand over list price during COVID and then right after Covid, interest rates went from 3% to 7%. So they're all sitting out there. There's millions of buyers sitting out there. So how can your investors net the most when they own a property? They take it back through reo. How can they net the most instead of, instead of sell it to another fixer upper. Let's sell it to the end user and help that end user buy that house and give them the money to create their dream home. And that end user is going to pay more for it because they're not looking to fix it and flip it. And, and so they're going to pay more for it. So how can your investors sell it as is not spend their time and money investing in fixing up the house the way they like, the way they think someone's going to want to buy it. But we can facilitate where that buyer can buy it. Get in with FHA loan with 3 and a half percent down, your seller can actually pay the buyer's closing costs and build that into the sales price. And look at that huge pool of buyers that can buy these properties and create a win, win, win, win for the buyer, win for the seller and win for the community because they're fixing up these houses.

Yeah, let's. That's why, that's what we got you on, buddy, to talk about all this stuff. Stuff. So let's talk about that because that's we're talking about, if you guys don't know it's a 203k loan is what it's known as. Right, Skip?

Correct. So back in the 70s, FHA started to recognize that the age of housing stock is getting older and these people need money to fix them up. So it's one loan that includes money to buy the house and fix it up, fix whatever deficiencies. So it could be on any end of the spectrum. So it could be a house that's well, fire damaged. I mean, obviously now we're talking about all the fires that are going on, especially in the LA area, right? So if the house burnt down to the ground and all there is is a foundation, you can use an FHA 203k loan to rebuild that house as long as there's a foundation there. So that's on one end of the spectrum. The other end of the spectrum is just the house. We were talking briefly about the heck of loans that are coming on the market. You've got these seniors that have lived in their house for 30, 40, 50 years. And it's got the original, you know, avogado green shag carpet and harvest gold wallpaper.

And the pink tile in the bathroom. And the blue tile in the bathroom.

Yeah, yeah. So, you know, you've got homes that need to be modernized and then you've got, in the middle, you've got these homes that are, that are 50, 60 years old that still have the original electrical. It has maybe no insulation and it's got single pane windows. So these homes that need to be retrofitted because the original products that were used when the home was built, you know, the, the, the advance in technology and home building is just, is gotten so much better to seal the envelope and make it more energy efficient. And you know, even things like just paint, carpet, new appliances, new countertops, we can do that as well.

Awesome. Well, let's, let's, let's dive into this a little bit deeper. So if it's, it's an FHA product, which means that they, all the buyers of these properties are going to qualify for these loans, was it three and a half percent of the down payment is required.

Three and a half percent down, yeah. And so one of the, one of the misnomers is there's just not enough education around the FHA 203k. Most real estate agents don't know if they see an offer come in and it's an fha. They say, oh, well, this house is not going to qualify for fha or you see how it's listed, you know, cash only. They just don't know that there's financing available for an end user on homes that, that have deferred maintenance, that are distressed, that may have, you know, mold, may have broken windows, may have holes in the walls, things like that. But yeah, so originally FHA was the very first one that rolled it out back in the 70s. They've made some enhancements over the years. In fact, one recent enhancement is you can actually finance up to $75,000 without the oversight of a consultant. And having the oversight of a consultant is good up to a point. If they're doing, you know, a roof window replacements and a kitchen model, they don't really need the oversight of a HUD consultant for doing structural work. If they're doing a lot of, a lot of trades, electrical, plumbing, you know, moving walls, then it probably helps that buyer with having the oversight of the consultant. Consultant can add a couple of grand to the transaction upfront work, doing inspections and setting up the scope of work and then inspecting the Property for draws for the contractor. So that same consultant goes out there, inspects the work, makes sure it's getting done and then approves the draws for, for the consultants. So that's, and so they increase that from 35,000 to $75,000. So now a buyer can buy a house if it's under 75 grand in the scope of work and it's non structural. They can get in without the HUD consulting. There is.

Are you, are you talking on the 75, are you talking the full purchase price of the property at 75? Are you talking rehab work?

Well, they could, they could buy a house for anywhere at any price. We're just talking about the rehab work.

Okay, so that 75 grand you're talking about is the rehab work that was increased from 35 from HUD. Okay. Okay.

Now that's the limited version. That's what they call the limited version. There's the standard version that's been around forever that comes with the HUD consultant. And there's no limit. You can do 100 grand, you can do 200 grand, you can do 500 grand worth of work as long as it's within the max loan limit for, for FHA which is now like over $1 million in some of the high cost areas.

So as long as it falls in that hud, the HUD qualifications are non jumbo kind of aspect and it's, you know, different, different in California is different here in Texas a lot of cases.

Yeah. Based on counties. So you can, each county has its own FHA limit and, and it goes up to as two units, three units, four units. It goes up over two, up to $2 million.

Wow.

For unit property that someone can get in with 3 1/2% down if they're going to live in one of the units as their primary residence, believe it or not. So FHA was the original one. Fannie Mae and Freddie Mac came out with theirs. So Fannie Mae, they can get in with 5% down on a single family residence. They made another enhancement recently where you can actually buy a multi unit up to four units with just 5% down and they'll use up to 75% of the rental income on the other three units to help that buyer qualify for that mortgage on Fannie Mae.

That's really good. So you got to go through the normal underwriting qualifications, any credit score limitations. You know, I haven't done a Fannie mae loan in 20 years. So what are the, what's it normally take to get one of those done? If you're just doing traditionally, yeah.

So on Fannie Mae, you know, know when, when you get below 680 you, it gets challenging. You can do it for 650, but you're going to need some compensating factors. But if you got high ratios and you got a, a FICO score of below 680 and you don't have a lot of cash reserves, it's going to get maybe challenging. But for the buyer that's got good credit, got good down payment and good cash reserves, anything over 680 should be, should be pretty easy to go with a max debt ratio of like 45.

That's normal, that's good. You want to be below 45. If you're above that, it's going to be a harder, harder thing to swallow and may not be you may not be a good loan, may not be a good property for you putting yourself in, in, in trouble path like and non performing in a lot of cases. So let's just say 680, let's say somebody's got a 700 score, they're buying a house, needs upkeep to it. How does that repair number come into the into play? How do you guys evaluate that?

So before we, before we go into that, I just want to make sure that I'm just Communicating well, the 680 score is on your Fannie Mae and Freddie Mac conventional products, your FHA products, you can get down into the 620 range, you can get into the 50 debt ratio and gift money for the down payment with no reserves. So, so that's what separates like the FHA buyer from the conventional buyer. So there's a lot of flexibility, a lot more flexibility for the FHA buyer. Higher debt ratios, lower FICO scores, lower down payment compared to the conventional. So as far as the appraisal goes, what's unique about the FHA loan? It's all done based on the arv. And so we, any buyer who's buying any older house, you're going to want a home inspection. And so either, either with the HUD consultant or without the HUD consultant, we still recommend getting a full home inspection detailed report. And so the buyer is going to make a decision on what they want to do. There's literally two types of repairs. There's the health and safety repairs that you got to do. You know, things like mold, broken windows, you know, non working bathrooms. You know, it's got to be a habitable house. So health and safety comes first. Once you get those health and safety things in your bid, then you've got your wish list items, things like, you know, a kitchen remodel, new appliances, new flooring, paint inside and out, replacing windows, you know, single pane windows, more modern, dual pane windows, things like that that are on wish list. And so we get a detailed bid, detailed scope of work. And we give that to the appraiser and the appraiser goes out there and I call that bid the appraiser's rose colored glasses. So they put that, those rose colored glasses on and even though they're walking through a house, it's got broken windows, you know, flooring has been removed or it's nasty flooring kitchens, a mess, bathroom has been partially ripped out, or maybe.

Sheetrock falling in from a water leak.

You know, BTR blue tarpon roof, those things. So they walk in, they don't see any of that. They say, oh, brand new roof, okay, it's brand new roof, brand new kitchen, brand new flooring, new windows. So they appraise it as if all that work's already been completed. What's this house worth today if all this work had been completed? And they now look for comps that are, you know, in the C1 category, the, the good condition, you know, C1 or C2. And so they, so they appraise it based on good condition instead of a poor condition house which is like C5 or C6. And so we will close escrow on a house that's a C6 condition, that's not even livable as long as we have the scope of work that brings it up to a good living condition.

And by scope of work you've got that figured into it and then maybe plan upon closing and then it's handled. How's that paid draw aspect of things to the contractors?

Exactly. So again, part of the difference between the limited 203k and the standard 203k is the flow of money. So if the, the standard 203K, they, they, they close the transaction, no work is done prior to the close of escrow. It doesn't matter what condition the house is in. They don't need a two year roof cert, they don't need any, any of that stuff. We close as is, the seller gets paid and an escrow account is held, is, is created with the lender and the lender disperses those funds as the work is completed, they'll give some money up front to get the job started. Generally, you know, 10%, no more than 10% or 50% of the material costs. Like if they're ordering cabinets or special windows. They'll release those funds to order those windows and cabinets up front. But then progress draws as the work is completed.

So. And then it's basically like a, I don't want to misstep, but kind of like almost like a construction to perm loan then. Is that correct?

It is in that when we fund the loan, it's fully dispersed and it's a 30 year loan. They don't have to get another loan afterwards. They could if they choose to. There's no prepayment penalty. But, but yeah, the, the, the work is done and they get, they get paid as the progress is made.

Now on, on average, I know this will vary on the scope of work. So not trying to. Tanya, what kind of time frame are they looking for that work to be completed by the, the buyer?

Yeah, so the, and that's another enhancement they made. It was taken longer because it permits sometimes if, depending on what, you know, what's being done, but the standard, they have up to 12 months to get the work done. And the same thing on the limited, they have up to 12 months to do to do that work. You know, obviously the sooner they get it done, the better it is. One of the other huge benefits on both the FHA and the conventional is if that buyer is going to be displaced and the property is not going to be habitable for 2, 3, 4, 5, 6, 8 even now, 12 months, we can take that payment. The payment's 3,000amonth and they're going to be displaced for five months. We can take that 15 grand, build it into their renovation loan, amortize it over 30 years so they don't have to, have to worry about making a rent payment where they're living now and a mortgage payment on a house that they can't move into. So we're able to finance those payments during construction.

Wow. Now if somebody's buying this property at a. Let's, let's, you know, let's talk about like arv. Let's talk a little bit about kind of the, the mentality behind arv because I'm trying to paint a better picture as my mind is spinning here, as I'm thinking about opportunities.

You know what I mean? Yeah.

So like if somebody's got a house and comps on a fixed up house would be say 700 that falls usually below the 725 jumbo in a lot of cases, 700, but they say could pick it up. It needs a, it needs a full rehab. It's a three you know, brand new roof, new fascia, new appliances, new pump, you know, new AC because it took off on vacation, it has to been vacant for a while. Okay.

Yeah.

And they could pick it up at say 300 grand, but it's going to compound at 700 once the work is done. So if it's a distressed deal and they're getting a good deal on that, is is the amount finance limited by the purchase of the property or are we still talking like a percentage? 95% off of ARV.

So they'll go up to, you know, FHA. And it again depends on if it's FHA or, or, or conventional. But on a conventional, they'll go up to 95% of the ARV. And so they look at the lesser of the two. They're going to take the purchase price of 300. And if all in the hard cost and the soft costs, when I talk about soft costs on a renovation loan, they're going to, they're going to allocate another 10%. So if you have a bid for 250 to do this to scope of work where going to add another 25 grand in which is 10% of that 250 that, that hard cost in contingency reserve. Because we all know once you get started, you open up a wall. There's always.

Amen to that. Yeah, yeah. Okay.

So minimum 10% contingency reserve. The, the buyer can choose to increase that if they want. It's like, you know what, I don't know, I may want to do a little more. Let's, let's, let's throw, let's do 20% continuous reserve. They can do up to 20% if they choose minimum of 10%. It could get manned. It could be a mandatory up to up to 20% if all the utilities aren't on. So let's say the water shut off, the gas is shut off, the power shut off, you know, because it's been vacant and you know, they mess with it. So if, if they don't have all the utilities, it'll go either 15 or 20% contingency reserve. So we've got the scope of work for 250. We've got contingency reserve will save, you know, another, another 20%. Which puts the total scope of work at 300. So now they're at 300. Scope of work 300. Purchase price, they're at 600. So the, even though the ARV is 700, they're going to go the lesser.5% of the lesser.

Okay, okay. That makes sense. So, so purchase plus repair cost, holding it at the, you know, five or three and a half percent of whatever that is. Okay.

Correct. Yeah.

And then they want you to have six months of payment reserves sitting in an account somewhere too. Right.

Usually they don't. No, they don't require that.

Don't require that. And, or they could roll in six months of payments if possibly. Wow.

Yeah.

Wow. Okay, I'm getting some ideas here. What precludes you from being able to qualify for an fha already having an FHA loan? Being just a first time home buyer. I mean if, like I'll give you example, I've never, I went conditional on my first mortgage years ago. I haven't gotten a traditional loan in 30 some odd, you know, almost 30 years. Would I be able to call, I mean, credit score, anything like that, but if, would I be able to qualify for an FHA if it was going to be a primary residence?

Yep, absolutely. So, and, and again, that's, it's, it's, you know, people, people think that FHA is, is limited to only first time home buyers. It's not. So you can be a second time, a third time homebuyer. If you have an FHA loan already, generally you can't get a second one unless you're being relocated. Let's say you're, you're moving, you know, you're moving from one county to another because of a job, then they'll allow you to have two FHA loans.

Wow, that's, that's news.

Yeah. But other than that, most people, you know, especially if you've been in your house for a while, you're going to refinance out of that fha, get rid of the mortgage insurance, get a conventional loan and then, but yeah, you don't have to be, you don't have to be a first time homebuyer. And you know, as long as it makes sense, as long as they're, it makes sense that they're going to live in it as a primary residence, they'll qualify for an FHA loan.

That's, that's phenomenal. What do you see the stuff that you see, what's kind of the average stuff that's really getting lumped into the repairs. I know it'll vary on asset by asset basis, but some of the most important stuff, I mean, let's just say provide the house, all the utilities, working the roof is okay, Maybe it's a 10 year roof or longer, but all the appliances can be, but it's just outdated. The AVOCADO green fridge goes with the, the tile and everything and the carpet.

Yeah. You know, what it really depends on in what part of the country you're in. So there's still parts of the country that have knob and tube electrical. So that's the first thing that's got to go. You got to modern. You got to update the electrical. You know, same thing with the plumbing, same thing with the windows. So depending on what part of the country, in the age of the house and the condition, you know, we're looking at updating the systems. Plumbing, electrical, roof, windows, insulation is, Is a big one, especially in the colder areas.

Yeah.

And, and then most, Most, most buyers want to remodel bathrooms and kitchens. Flooring is next, and people want, you know, wood flooring. The new, you know, vinyl laminate is real popular. And, or just, you know, if it's got the original floors, let's sand them down and refinish them. And those, Those are beautiful. Oh, yeah, yeah, yeah, yeah. Those are the. Some of the repairs that we, that we see.

Now, you mentioned having a consultant, somebody that's. Is it somebody local that's versed in this with a loan with the, the bank or the lender? Or how do they find a lender that'll do this? Or do they reach out to you and say, hey, I can put you the appropriate lender?

Yeah, they reach out to me. In fact, you know, we're. We're working with multiple lenders. I talked to you briefly. We're creating a site that simplifies the whole process. One of the challenges that we've seen with the 203k loan is really, really three things. There hasn't been enough guys like me out there pushing it. Someone told me once, if you're willing to do what no one else wants to do, you can make a living for yourself. And so, and so when I learned about these renovation loans and everyone said, oh, no, those are too hard. You don't want to do those. I, you know, I'm a glutton for punishment. And because I came from the construction industry before I got into, into the mortgages, so I did everything from, you know, window replacements as a teenager. I did window screens and that. I did home improvement sales. I sold French doors and French windows, and I sold pavers. So I was comfortable with contractors, with remodeling. And so when I learned about this loan, it was, it was ideal for me. It was like, that was my calling. Okay, I'm going to help these people who are buying these older homes and so, but there's not enough guys like me around here, around the country that really push it. And so when real estate agents are working with buyers and they find one of these houses that need to be fixed up, if a real estate agent doesn't know of it or they don't have confidence in their lender partner to get the deal done, they're not going to refer it. So the problem that we have in the industry is you get this product that's a great product and, but you don't, you have real estate agents that aren't aware of it, they're not educated, they don't know how it works. They think that you can't get financing on a house that needs a bunch of work and they don't have the relationships with lenders like me to do it and that have the competence that knows how to get them done in 30 days or less in the industry, really, they don't want a 45 or 60 day close. They want to be able to close the deal in 30 days or less. They want. And so, so I've been working on, on how do we simplify this process? This process. And so over the years, you know, I've been working on it. Working on it. And now with AI, we've really finally figured out a way to get these properties sold. Educate the real estate agent, educate the consumer using AI, use big data. And to simplify that process.

Yeah, we talked a little bit about this beforehand and that's why I wanted to get through the, so excited about this. But we had to get through the basics that people understand a little bit because universally, let's agree, a lot of people, they can't see beyond their own face. They have no imagination. This is wrong color in the wall, I'm done. Or it's got wallpaper or it's got popcorn, I can't see beyond that. Right.

Or it smells funny. Walk in the house.

Well, that's a smell of money. The smell of shit and cat piss is a smell of money. Money. A lot of cases from where, from where I stand. But yeah, let's, let's, let's, let's. I know you're, you're anxious for this. Let's do a deeper dive into how you're using this AI to really make this a much more cleaner and be the, the miraculous. Create the miracle of allowing realtors and end buyers to actually see kind of more the finished product.

Yeah. So yeah, before I do that, let's talk about and you hit on it the first. So first Thing is, you don't have the real estate agents, the lenders. The second thing is the buyers can't visualize what the house looks like. They walk in a house, it looks, it looks like grandma's kitchen, you know, from, from 50 years ago. They can't visualize what the house could look like. And then thirdly, it just takes too long. And the reason why it takes too long is getting a contractor out there to, to, to do an inspection and to provide a bid. It could take weeks and we don't have weeks. And so what this platform is, is it helps buyers visualize what the house could look like and it provides an accurate bid within 3 to 6% of the actual cost to do that, to do the, the work that the buyer wants to do quickly. And it allows the lender to now order the appraisal within the first few days of the contract being accepted. And if we can order the appraisal, that was the delay. That's why it took, you know, 45 days, 60 days to close these because they can't order the appraisal until they get the scope of work and the bid from the contractor. And it just takes too long to do that. So we've, we've streamlined line that process using technology, using AI and, and, and so that's what, that's what we've done. That's what we've used used technology and that's what we created ready for remodel all about. And, and with your permission, I'd love to demo it for you.

Let's do. Yeah, let's share. You got, you got shareable rights. So if you're just listening to this is probably make a good chance for you to click on over and click in the link in the description to go watch the actual original video of this as we walk through this. But I'm, I'm pretty stoked about what this, this is something that can really tweak up your sales prices on the reos you're taking back if they need work instead of you trying to do a rehab across the country. It may be a potential opportunity for you to do this instead of having to try to deal with contractors individually. Sell it as is, but use the power of the AI that Skip has here. Okay, so take it away, Skip.

Okay, so I'm going to put you on the spot. We have this one area called found a fixer. So let's say, and actually let's do this. I'm gonna give me some city and state somewhere where you think you, where there's where there's properties or there might be fixer uppers.

I'll give you one right now that I'm evaluating. Down in Aransas Pass, Texas has been vacant for about 12 years. It's a beautiful, could be a beautiful property, but it's been vacant for about 12 years and I'm in the process of negotiating actually with a homeowner. All right, so 501 West Johnson in Aransas Pass, Texas is the address of the property. 501 West Johnson or W. Johnson? Probably. Yeah.

And where in Denison in Aransas Pass, Texas? Johnson Street. Is it street or just.

It was just West Johnson. Yeah. Street.

Yeah. And how do you spell the city?

Aransas. A R, A N. There it is. Oh, I just, I saw it there. A N. Yeah. A R, A N. SAS Space Pass. Pa aransis Pass. It was there. Texas.

It was there, huh?

Yeah, I saw it there.

Wow.

Maybe for the common after Johnson, because everything else looks like it's got a common there. Try that. There it is. West Johnson Avenue. That's, that's it right there. First one.

There it is. Okay, so we're going to import that. And so if this was listed and if there was photos, we would import all the photos, but it looks like there's just one image. So it's probably the street, the picture of the front of the street. And there's not a lot of data. We know it's 3,240. 3,242 square feet, but it didn't, it didn't pull up the bedroom.

You want a different address to give a bit more information. Would that be better?

Yeah.

Okay, that's fine.

Let's just find one.

And I've got another one. It's an actual physical one here. Let's do this. Okay, so it's going to be in Oklahoma City. The address. Hang on. Here, let me pull it up here. Okay, I've got it. All right, let's do 2529 North NW Northwest 58th Street.

58Th, yep.

In Oklahoma City. Yeah, 58th Street.

There it is.

Yep, the first one. There you go.

Okay, so it's going to pull in photos. It's going to pull in bedroom, bathroom account. Okay, so two bedrooms, two baths, 1828 square feet. And it's got one photo too. So while it's importing it, it's going to take the photo, the first photo, and it's going to make it look like AI is going to convert into a modern looking house.

Okay.

So I don't know if you can see that.

Yeah, you can see it gives it that kind of different AI Glow to it. It's. It's trimmed the tree up. It's turning almost like. I don't want to say in a cartoon, but it was almost. Turn it into cartoonish a little bit. Right. Versus the actual street view in a good way.

Yep. Yeah. So there's a modern look to it. If you had photos of that house, you can actually click this button right here and upload whatever photos you had.

Okay.

The second part is estimating your upgrades. So you know this house better than I do. Does it need paint?

Yes, it needs paint. It needs new carpet. The bar was deceased. It's in pretty good. It needs a little cosmetic stuff.

You think windows and. And as far as good, better, and best solar, like the quality here. If you click this quality button, it tells you, like, the description of what good, better and best is as far as the quality of materials. And then as you click on the scope of work, whether. If you're replacing windows, it talks about the actual scope of work that you're doing. Kitchen remodel includes appliances and backsplash and cabinets and all that. So. So there's a deeper description right there. So. Well, let's say it needs windows. Does it need a kitchen remodel?

Yes, it does. It does need a kitchen remodel.

Yeah. And as far as, like, the neighborhood, what do you think? Should we. Should we do just mid range Better?

Yeah.

Okay, so you'll see, like, on this, we clicked better, which is 28 grand. If we did good, it's a little lower quality. 20 grand. If we did best, it would be 42 grand. But we're gonna. We're gonna pick the mid range, which is better, which is 28 grand. Exterior doors.

I think the doors are okay.

Doors okay. Exterior lighting okay.

I think it's okay.

Yeah. How about the roof?

I think it looks like. Looks okay based on what I can tell from the experience.

Okay.

I've got another one that we rehabbed a little while ago. I know there's gonna be a ton of photos on it online when you want to try that instead. So just. Just throw address.

Yeah, we could do that next, but I just kind of want to show, like, even if you don't have it becomes a powerful tool for estimating, like, what your repairs are going to be like. Okay. We know what the ARV is going to be. We know what we can get the note for, and we know, like, the scope of work that's going to need to get done. So, you know, you know, if they need to do bathroom remodels. So it builds, it builds the estimate. We have a hard cost of 81,000. Remember we talked about the soft cost, which is the contingency reserve. The soft cost, you know, 10% of it is continuous reserve. So if there are questions, just hit this little question mark and it, and it tells the end user what, what it's all about. So we've got a, we've got a remodel budget right now, about 93,000. And then build your payment. It takes the list price or the sales price and the remodel budget that we just created. You have a total amount. And so the buyer can choose either a dollar amount that they're going to put down or a percentage. Let's just say they want to do an FHA loan, put 3.5% down. That's almost 11 grand. And then it builds the loan for them. It defaults at 7%. We don't quote interest rates, but they can play with this. And if they're doing a hard money loan and the rate, you know, the.

Rates, can we compare?

Yeah, they can see what that's going to be here. If they're going to put 15 or 20% down, it tells them what their payment's going to be, what their holding costs are going to be. You know, so. But here it lets them know what their, what the total payment is going to be. Exactly. So. And yeah, so you have another property you wanted to.

Yeah, let's do. This one's a little higher end down in Cutler Bay, Florida, but it should fall in that number. So the address of this one. Oh, I just had it up here a second ago. It is going to be 7813 SW 19th Terrace in Cutler Bay, Florida.

There it is, right on.

It should have a lot of photos on it because we did a rehab.

On it, but let's just see.38 photos. Yep, it says it right there. So it's taken that again, the first one that shows up. And it's going to design it using generally a modern look. So that's what it looks like now. Doesn't look like it's not bad. And there's, there's, there's a little different.

Yep.

And, and so we can go in. Oh, this is the. After the, after remodeled. So it's already been, it's. But let's say, let's just take the kitchen and let's say we want to, we want to redo the kitchen. So we got to tell AI, you know, give it some hints. It's the interior, it's the kitchen. We can choose a style. You want to see what Mediterranean looks like?

Yeah, let's do Mediterranean. Exactly.

All right, so usually takes 10 or 20 seconds. It's already recognized that it's Mediterranean. So that's what it looks like now. And there's your Mediterranean look.

Huh?

Yeah, there it is. So. And it does bathrooms. You know, let's do. Let's just. Let's find some fixer upper somewhere, and that has an ugly kitchen or an ugly bathroom.

That's. That's the harder point because getting those ugly photos. Do we have any? I'm trying to think of an address. I've got. I mean, I've got some of these. This one in Oklahoma City. I think I've got the extra BPO or the internal BO but it's all, you know, photos in the actual document. It's not going to help us.

All right, so what we can do is we're going to look for fixer uppers for sale. So let's say you have a good. That's looking for a fixer upper in. In Oklahoma City. This one. All right, let's see what this one looks like.

Oh, there we go.

Perfect. Yep, that's perfect. So. So all you need to do is just copy this address.

Now, is there any cost for using this service on your website?

There is no cost at all.

Wow.

Nope. There's no cost at all. It's free. So found a fixer. We're going to paste in that address, and now it's going to import all those photos, the bedroom, bathroom, square footage, all that, all that info. So that's a three bedroom, one bath, 1040 square feet. 105,000. So, you know, our, our, our initial goal really was to help these entry. I got, I got kids, you know, in my late 20s, early 30s, you know, and it's like, if you got kids, it's hard to find affordable housing.

Yeah.

So that's what it looks like now, and that's what it could look like according to AI. But let's just say, you know what that is. Let's see a different design. So it's exterior. Let's. And it's the front of the house. Let's say we want to do a. A Victorian look.

Okay.

And so there's almost an unlimited number of design options that they can.

Yeah. Oh, yeah. See, that looks more like it. Yep.

There's the original, like now, and there's and that's, I mean, that's not too far fetched.

No, it's not. Not at all. Wow.

Yeah. So let's go and look at the kitchen. So if you have, if you have an REO that looks like this, you can list it on our site. Doesn't cost you anything. And. And then push it out to your social media, push it out to everybody that you know. And then any home buyers are going to be able to play with this and visualize what it could look like all fixed up. Let's try Scandinavian this time.

Nothing. Nothing says old and outdated. Less wood paneling does in a kitchen, right?

Yep. Oh, man. Exactly.

But that's really cool. So they. You could basically upload your REO on this, put a couple decisions, and then you it. The website generates a link that you can share with your audience and social folks.

Exactly. So that's what it looks like now, and that's what it could look like with a modern kitchen.

H. Yep. Modern. Yeah. Appliances.

You can say.

Painted cabinets. Different a little bit.

Yeah. White cabinets, you know, and it's almost. I feel like Forrest Gump. You never know what you're going to get with. With AI.

That's true. That's true. Right.

Sometimes it works and sometimes you got to do it two or three times. It didn't do much. It looks like it's pretty close to the same cabinets. They changed the countertops. The countertops are green and they did stainless steel appliances. But. But anyway, we saw a bit of it.

I mean, we can see definitely exterior stuff like that.

Yeah. So. Okay, so let's just see. Okay. We're going to do. We're going to do a nice kitchen model. Let's just say it needs new windows, it needs exterior paint. Let's say it needs doors. The roof looked a little rugged, so we'll.

Yeah, we definitely need a roof on. And then. Okay.

And new flooring, bathrooms. We're putting it all better. It may maybe high, higher end. And let's just say it's going to need a water heater and an H vac refresh.

Yeah.

So we got. We got 95 grand. So here's the. Here's the scenario. Purchase price is 105. Remodeling estimate is 95. They're all in for 200. They can do an FHA loan with three and a half percent down.

So 7K.

Yep. 7K. And their payments, 1500 bucks a month.

That's affordable insurance. Yep.

And that's at 7%, which is about where the rates are. Right now?

Yep.

And then, so what's cool is you generate your report and if you, if you could list it yourself and create a profile and anybody who generates a report, you're going to get that lead and that buyer is going to answer these questions and you're going to get this information. It's going to show the, the, the, the images that they created, shows the scope of work that they chose. Here's their, their, their, their budget for remodeling. It says their timeline. Hey, I just started or I'm ready to move right away or I'm still looking three to six months out and whether they're pre approved for a loan or not. And then do you want to see the property, yes or no? You want to schedule an appointment with a lender, yes or no. And then the lender who's attached to it, which is me, and the, the agent who uploads the property, they get that lead as well and they, they get to see that information. So here it generates a report and that report, they can click this and, and create a link and now email it to their loved ones, their friends. And then they get to play with the software too and say, hey, you know, these are my ideas as far as the scope of work. Or, or these are my ideas as far as the, you know, the design. And it gives them exactly what, what they, what they created. And then what's also cool is here's this report details, it gives us a detailed report of the scope of work based on, you know, granular work. Appliances, kitchen cabinets, backsplash, countertops, dishwasher, gas supply valve cabinet, granular scope of work. So all, all that buyer needs to do is print this out. They can download it, print it out, hand it to a contractor and say, hey, can you do this work for this price? And we can order the appraisal based on this. So we have lenders who trust these numbers who can order the appraisal based on this. And, and the buyer just has a couple weeks to find a contract to do the work and that way we can close it in 30 days or less.

Do you ever run into issues with bids being under bid and then the contracts, oh, I'm going to need ten grand more. We run over, you know, I mean Besides that, 20, 10 to 20% of that, is that why that's built in there, in case you got a contractor who tries to low bid a rehab to get it done?

Yeah, so, and that's one of the benefits of having a HUD consultant. So you have a HUD consultant who's got a lot of experience in that area. The cost to build and you know, if the contractor under bids and it costs them more then it's, you know, bad on them. If there's a surprise that happens and let's say there's, you know, there's a foundation issue and nobody caught it and the actual cost is going to be 30 grand and we only have, you know, 20 grand in the, in the rehab contingency reserve. Then, then that becomes a problem. It's really rare, especially when you're doing, when there's a HUD consultant, there's a home inspection that, that, that there's, that it gets underbid. What we're finding, in fact, recently I had a deal where, and it was in la where there's a shortage of contractors and the contractor's like, man, I'm busy and I don't care if I get this deal, so I'm going to overbid it by 30 grand and if I get it, great. And if not, you know, too bad, you know, I don't care, I'm busy. And so we're seeing, unfortunately we're seeing more of that than underbidding. But, and so it's rare that it gets underbid and unfortunately, you know, if there's not enough money, the buyer's got to find someplace else to get that, to get those funds. Sure.

No, that makes sense. Now let's say what happens if you have that 20% fudge factor? We say at the end, you know, the oopsie. What if you don't end up using that? Does that go towards the balance of the loan? Does that go into the vestors, the buyer's pocket? How's that kind of work?

Skip that. You know, when my kids were in college I used to say that that goes into my kids college fund. But, but good thing my kids graduated. That's all paid for. So, so no, that was just a joke. It goes towards one or two things. If there's capital improvements that the buyer wants to do and it's the standard tool 3K or if it's the conventional, they can do additional capital improvements to that property with that excess, those excess funds, oh, we got an extra five grand, let's build a deck out in the backyard. Or it goes towards principal reduction. Okay, so either one.

Nice. I are there, is this primarily, are you seeing more success in the major cities? Are you seeing it even in smaller communities? I mean by population wise, like I'll give you an example, like there's a Big difference in Aransas past Texas with 5,000 people versus Austin, Texas. You know what I mean?

You know, it, it really depends on where there's competent lenders. We're still, we've just rolled this out so you're, I mean your audience is some of the first ones who've seen this.

And it's an exclusive, no closer show release. Everybody, you're on a cutting edge of financing rehab technology here. This is awesome, man.

Yeah. And, and even though it's new, it's, it's literally 30 years worth of my experience in doing these loans. And, and, and I, in believe it or not, I did my first visualizer for an asset manager who was selling a distressed property back in 1997. I took the picture. I hired an architect who had this software before there was even Photoshop. And I think it cost me 250 bucks to visualize what that house could look like for a renovation loan. So I've been literally working on this. The technology's finally caught up to it where it empowers, we've, empowering agents who really want to get out there, but mostly buyers. They can find the property, they can visualize it, they can estimate it themselves, they can create a budget that they're comfortable with. And so it's still fairly new. So we're looking, I just saw a report, 10 hottest areas for first time home buyers. You know, and it's basically areas where the median income matches could buy a medium priced house. And so I think, you know, these are the areas that we're going to be looking at. And you know, they're all in the Midwest in, in the east for the most part. You know, Harrisburg, Pennsylvania Rochester, New York Villas, Florida Lauderdale Lakes, Florida Alamante Springs, Lansing, Michigan North Little Rock, Arkansas. Baltimore Wilmington, Delaware. So these are the areas I think where you know, I'm gonna, I'm gonna encourage agents, brokers, lenders to you know, let's go after, let's, let's try to help these entry level buyers get into that market because once we, you know, once they start buying then they become, they become homeowners and then they become investors like us. You know, it's like first I bought my own home first and then before I bought my first investment property and you know, and then bought my second and then sold those and bought a multi, multifamily mixed use building up here in the Bay Area. And it's like, you know, it's like how do we build wealth, how to create passive income? And that's what you've been teaching all these years, but you got to start somewhere.

Yep.

And this is a great way to start.

Yeah, this is just an absolute now this tool. I mean you, you don't have a problem with just rehabbers going on here and using this to kind of come up with some concepts and stuff like that.

I don't have any problem. In fact, in fact, the reality is, you know, I had someone tell me, he's like, skip, you know what? You're gonna get more investors using this than you are entry level buyers. And I'm like, you know what I, they say, you know, you can't, you can't decide who's, who your client's going to be. And so, you know, we, we encourage investors, Look, I'm an investor and the better tools that we have as investors in making investments, not, not everybody, not every first time home buyer is prepared mentally, emotionally, financially to take on a project like this. So if we as investors can, can use this. And, and by the way, there's you know, either DSCR loans, fix and flip loans we're looking for. In fact, if you, if you know of any fix and flip investors who are looking for leads, this is who, this, this is who's going to be paying for our platform. So we're, we're looking for, we create loan opportunities for lenders, whether they're fix and flip lenders for investors or, or FHA 203k and, and we've got one lender on board that covers the nation and we're looking to add more lenders as well.

Oh, we'll have a talk when we finish off this. I've got probably a couple for you to talk to for sure on this. Now you said they can, people can go on here and find, you know, fixer uppers as well too, I think.

So we got, find a fixer and we don't have, you know, there's, there's, there's a few, you know, we've got, here's the, here's the, the country. And so we've got, we got properties, we got agents who are using it, we've got lenders that are using it and putting properties on and so they can, they can search for a property here. My goal, Scott, is, you know, within a year that we get 10,000 properties on here. And so there's, you know, there may, there's less than 100 right now. And so we got aggressive goals. But the more people that use it, the more people are going to benefit from it. From the tools.

Yeah. This is, this is really, really cool. Just the whole. And now if through now the web, the website we're talking about here that he's showing right now is read four. That's number four, remodel.com with the AI software and the Find a fixer. Where do they go to apply for the 203k loan that you're talking about? They go contact you directly or through this website or how's that work?

So they do it through the website. So what happens is. Let me go back to. Yeah, so when they, when they find a fixer. Actually, let's, let's go. We'll just show you. You know, they find a fixer. Let's just say they go here on, on each page they're going to, you know, explore financing. So they complete that explore financing and then they can book a call on my schedule and they, they book a call and they answer a few questions. We get some basic information and then we, you know, so, so I'm prepared for the call. And then depending on where they are in the country, we've got, we've got loan officers who are licensed in every state. And so we just refer it and we partner with, with lenders across the country.

So should they have, what should they have available? Obviously the address. Should they have interior photos as well from the agent or from walking through the property or anything? What can make this, what makes it more optimal for your time on this aspect?

You know, the design part is really up to them. We, you know, when they get to me, we're really just looking at the financing part. So their income, assets, you know, they're, you know, pay stubs, W2s, bank statements, you know, that kind of stuff. And we run their credit and, and they just qualify for a traditional loan. And it's really no different. You know, like in that scenario that we gave before 300 purchase price, 300 remodeling budget, it's like they're just, they're buying a house for 600 grand.

Yep.

They got to qualify for a house of 600 grand.

That's awesome. This is so, so freaking cool. I can see so many ways for, for, for people to work with it. Not only note investors that are foreclosing, but buyers. Just an. Absolutely. This is a game changer for a lot of folks to help you move because the more you can visualize something, the faster it's going to move. Right. Versus it just being with the stench or the hole in the wall.

Yeah. I used, I used to tease real estate agents. It's like, have you ever showed a. Borrow a house and you walk in and smells like cat pee and you in the. And then walk right out. It's like, don't let cat piss get in the way of you making a sale.

Yeah.

It's like, okay, you walk in, you give them one of those clothes pins for their nose, you know, or you.

Show up early as bake cookies or light a candle before they get there. Yeah.

I mean, if that house meets their core values, if it's in the right neighborhood, the right school district, right bedroom, bathroom, counter. And now, in fact, Even with the tool 3K, it doesn't even need to be the right bedroom and bathroom account because we can add bedrooms and bathrooms. We can add ADUs. We. We're going to be rolling out. Oh, my God. You're going to. It's going to blow your mind. I just, my, my partner who's doing all the web design, showed me our ADU tool today, and it's not, it's not. It hasn't gone live yet, but we were going to have an ADU tool where people like, if you own a house, it's like, how do you, you know, again, building passive income, if you already own a house, build an adu. And so it's like, how do you want to build it? You want to build it on top of your garage, you want it detached, you want it attached to your garage, you want to your house on top of your house, on top of your garage. And so it gives you choices. How big do you want a 200 square feet, 400, 600, 800? What quality do you want it? What zip code are you in? You push a button, you know, and it tells you what the price is, and it gives you everything based on, oh, it's so much for foundation, so much for framing. So, I mean, it's amazing. I can't wait to release that. We're probably, you know, within. Within a few days or maybe a week or so from releasing our. Our ADU tool as well.

Wow. Well, this has been really good. Once again, the website is ready. Four. That's number four. Remodel.com the man, the myth, the ledge you've been listening to who's got, who's just a wizard when it comes to this stuff, is Skip Shanker. Skip, thank you so much for coming on the podcast today. Is the website the best way for people to reach out to connect with you, or do you mind if I put your contact info in there as well for him?

You're welcome to put my contact info as well. Yep.

Yeah, this, this has been really good man. Thank you for taking time to share this with us.

Hey, my pleasure Scott. Thank you for having me.

No problem. All right everybody that is going to wrap up this episode of the Note Closure show. We've got some great stuff like you listen to here. This is a great tool for you to help visualize get beyond the smell of shin piss or the holes in the wall, the ugly carpet, a way for you to plan your rehab or help to make your property even more marketable to end buyers by helping them take the guesswork out of the rehab, the guesswork out of the updating the property. So definitely check it out. ReadyForRemodel.com we'll put a link there in the chat. Roll along with Skip's information. So go take some action everybody and we'll see at the top. Hey real estate investors, this is Scott Carson. I'm known across the country as the note guy and I've been an active note investor focused primarily on the niche of non performing notes, distressed mortgage notes on residential commercial properties for almost 20 years down. My company is weclose notes.com and I know there's a lot of different things when it comes to the note world. Are you buying performing notes? Are you buying owner finance notes? Are you buying institutional debt? Like I would focus on, Are you buying first seconds contract for each? There's a lot of questions and it can be very confusing about what you can or cannot do. So one of the great things that we've hosted for the last couple years that we do on just about a regular monthly basis is we host our one day class called Note Weekend. If you go to noteweekend.com you can register for a free three and a half hour class. We'll talk to you and share with you how you find fun and flip non performing notes. And yes, you can buy non performing notes from banks, hedge funds and a variety of different hard money lenders out there for your own portfolio. No, you don't have to have millions of dollars to dive into the non performing note game. We've got students that have bought plenty of deals with 2530 grand getting their ball rolling using their self directed Iraq who are tired of dealing with toilets, tenants, trash, yes, tired of battling contractors and GCs to get properties rehabbed. We all know the market is changing and while it may not be like 2008, 9 and 10 again, it we do see a lot of distressed debt out there on both the residential and the commercial side. So if you're thinking about diving into the note game, becoming a note investor, a lean lord as you'd like to say, versus the landlord, or you just want to figure out what it is about the sexy side of real estate in the note space, well, check it out. Noteweekend.com doesn't cost you anything. We host it live usually the first or second Saturday of each month. You can go today. Register at the website noteweeking.com Register for the next live class we host. You'll get sent a replay to the previous class so you can start learning about the note business today. No questions asked, no credit card needed. This is a great way for you to dip your toes in the water and see if it's warm because I guarantee going through our three one day class, you want to dive into the deep end and become a note investor. So check it out. Noteweekend.com you also go to our website. We close notes.com check out our podcast. Check out our YouTube number one YouTube channel. We are here to help support you. Whether you're experienced investor or you're brand new investing, Note weekend is a great place for you to get the ball rolling. People often say we cover more in our three hour class than most people cover in their three day class. So check it out. Love to have you be of our note family but get signed up today@noteweekend.com thanks and have a great day. Sam.