House Hack the Right Way: FHA/VA, 2–4 Units, Reserves, and Real Approval Math

John Thomas (00:00)

I’d say half the deals are coming in with seller pay closing costs. Sellers are looking to move properties. Builders are struggling with foot traffic. They’re offering incentives. Home buyers are offering incentives. it’s, what I tell people is don’t wait for the rates to go down. If you wait for the rates to go down, everyone else that waited for the rates to go down jumps in the market. Now, home prices get pushed back up again, more competition. Like, buy now. Like I like to say, we’re playing Monopoly. We’re all playing Monopoly. How do you win Monopoly? You gotta buy what?

Dylan Silver (00:24)

strength.

Properties.

Dylan Silver (00:24)

Hey folks, welcome back to the show. Today’s guest is a Delaware based real estate investor and educator who’s been active across multiple different asset classes, including single family land and commercial. Please welcome John Thomas. John, welcome to the show.

John Thomas (02:18)

Nice to be here, appreciate you having me.

Dylan Silver (02:20)

It’s great to have you on here, John. I always like to start at the top of the show by asking folks how they got into real estate.

John Thomas (02:28)

So great question. ⁓ Got into it buying a property to live in when I was young, just lucked into it, me and a buddy. And then still have that property, a townhouse, it’s a rental. Be paid off now, I think in like four years, even after leveraging it a bunch of times. ⁓ Tenants paying the mortgage. Got into doing mortgages after that and then into investing at the same time. Me and my partner, we did, I was investing with that. We started flipping some houses.

So, learned about flipping, worked out pretty good. We did a couple flips. Then I got into buying some rentals. And again, as I was doing mortgages, I got opportunities to do flips because people would bring, ⁓ I got this deal. What do you think about it? Because I was always an educator. I used to be a former teacher. So, educating my clients on financing and owning a home and wealth building and all that, they would bring me deals.

not even solicited and if it was worth it, I’d be like, no, don’t let that wholesaler buy it. I’ll buy it right here off you, you know what I mean? And give you a slightly better deal. ⁓ So got a couple of those flips in, couple rentals, and then got into ⁓ multifamily lending and more investor lending and then moved into commercial lending. So I do retail, which is most of my business, because commercial is just a long cycle. And if you get into commercial investing, it’s a long cycle. People don’t realize.

residential investing, can find a property in closing 30 days commercial. could be six months to two years. So, and the deal could fall out. So I always like to keep my residential mortgages going and still do the commercial. And then I got into commercial investing, which is I’m doing now only have the one rental left and a second home rental. And I just have the commercial properties now. So got into commercial buying and tripling that lease. And then also into

building a building, which learned a lot there. And now I’ve got another property we’re going to build from scratch, site work, everything all the way up. So it’s kind of where I’m at now. So I do that personally. And then I financing for other investors. And I teach classes for first time home buyers and for investors and different things like that.

Dylan Silver (04:27)

I want

I want to ask you about the beginning when you were getting into real estate. What year was it and how did that first deal go? was a townhouse that you still own,

John Thomas (04:45)

So yeah, so that was 1998, I think. Again, got kind of screwed a little bit by a real estate agent and I mean, it worked out because markets, you if you hold it long enough, you will make

in real estate. So all mistakes can be cured by enough time. And that’s the one thing in real estate. If you look at it, if you have enough time and you can pay it and hold it, you could buy it wrong and still make money. It’s when you’re trying to flip or you’ve got to.

five or a year or less horizon, you gotta make sure you know what you’re doing. So didn’t know anything, trusted somebody, didn’t even realize I was paying their commission out of pocket because I was buying from a builder and the builder wouldn’t pay their commission. So they built it on top. I didn’t know what was going on. So paid a little more than I should have for the house. Didn’t get any real representation from the builder. It was a national builder. I won’t mention who, you know, is very good at building houses on the cheap.

may not be the best. So I had some post-closing issues a couple years down the road and the builder wouldn’t fix it because it was past their timeline. So I learned a lot from that, but got all that stuff fixed. Still have the house, ton of equity. mean, you know, it’s going to be, think I bought it for 102 and I refinanced, leveraged it, equity lines, that kind of stuff, use an equity line to buy my next house. I have like 30 grand, it’s probably worth 350. So as I said, time cures all ills, right? And it’s cash flowing really good.

Dylan Silver (06:32)

What?

You decided

to go into the mortgage space after that deal or was it some years?

John Thomas (06:58)

After that,

after well after it was a it was after that, but it was a way a way after like I had a restoration company and we did a lot of stuff with real estate and stuff like that. And I ended up getting hurt having back surgery and we were still building a restoration business. I actually sold out to my partner on that and didn’t really have I was teaching at the same time too. And I didn’t really have anything to do over the summer. buddy of mine from college was like, Hey, why don’t you come jump in the mortgages with me over the summer? Sure. Did that, you know,

had an education based feel for it. So was educating people how to buy a house and yada yada. And this grew really good. Within a year, not even two years, I was making more money doing mortgages than teaching. And it just got to the point where I had to pick one and I went with the mortgages and

Dylan Silver (07:30)

Yeah.

Was this

pre-2008 with the mortgage or post-2008?

John Thomas (07:44)

This was pre 2008. But you know, what’s funny is I, I never had a bad cycle until COVID, post COVID, because I always was teaching and going after first time home buyers. So every market shift, it was always the move up buyers that just that market tanked. First time home buyers didn’t have anything to sell. So I always did great until post COVID or during COVID to post COVID during COVID because

That was the first time that group couldn’t buy a because you couldn’t. Yeah.

Dylan Silver (08:18)

I want to get into the mortgage. I’m a licensed realtor, but I encountered this so many times. You know, the process doesn’t really start with the realtor. It really starts with the lender and getting approved and getting a

John Thomas (08:31)

If you don’t know that though, most people don’t know that because nobody goes and says, hey, I’m gonna go get a mortgage today. They say, I’m gonna go buy a house. So the house is the product, but unless you got cash, then you quickly realize you need the mortgage to buy the house. So it’s actually ends up being more important because if you can’t get the mortgage, you can’t get the house. But most people aren’t going out and saying the mortgage isn’t the sexy part. The mortgage is what they have to have. What they want is the house. So the house is the bait. The mortgage is what you actually need. And then the…

Dylan Silver (08:39)

Right.

John Thomas (08:59)

The mortgage itself is the most important piece because you’re trying to figure out how to leverage money, how to get the right mortgage. Most people have no clue how to shop for a mortgage at all. And because they think they need to shop on rate and they want the lowest rate. Nobody wants the lowest rate, maybe 1%. Because here’s how you get the lowest rate. Now, proof that you don’t want it. You get a 10 year mortgage, you pay three discount points, the match you can pay to buy the rate down. Well, most people are going to go, well,

I can’t afford payment on a 10 year mortgage and I don’t want to pay $300,000 loan. I don’t pay an extra nine grand to get the lowest rate. Well, then you don’t want the lowest rate. So stop shopping for the lowest rate because nobody wants the lowest rate. And that’s where getting educated on what’s more important than a rate on a mortgage. At the end of the day, there’s only two things investors care about, home buyers care about, cash to close and what’s my payment.

Dylan Silver (09:52)

want to pivot a bit here and ask you about the first time homebuyer space. think right now, especially ⁓ maybe some

even within the real estate field of how difficult or not difficult it is to get approved for a home. I have both perspectives because I have people who work a lot with new construction. I’ve had some of them on the show and it’s easier to get people approved I’d say on the new construction in many cases and they often have some type of

⁓ relationship with a lender maybe in-house financing to some degree but I also have the experience of being a younger person looking at buying homes and having my friends as well and even having stellar credit but not extensive credit and not having bought a home previously and unless you know the right lender you go and you’re all excited you’re like I’ve got the credit I’ve got the

diploma you go find the realtor and then the realtor says go get approved and then you don’t get approved and it’s like well what the heck was I working so hard for for all this and so I’m curious

John Thomas (11:30)

It comes down

to, and this is the same if you’re trying to get started investing, if you’re trying to get started shopping for a home, who you work with matters. So I always tell people success leaves clues. Poor people are poor, that stay poor, become poor, are that way because of one thing. They think differently about money than middle class people, and they think differently about money than rich people. So rich people do not shop expensive things on price. They shop it on value.

Poor people do just the opposite. They shop cheap stuff on value, aka they’ll buy Starbucks coffee. Not shopping on price if you’re going to Starbucks. You’re gonna pay 10 times the price of a coffee. And then they’ll shop expensive stuff on price. It’s just the opposite of what rich and poor people do, and that’s why they end up different places with their money. So if you’re talking about real estate investing, you’re talking about getting a mortgage, you shouldn’t be going online to get your mortgage. You’re gonna get no advice, you’re gonna shop on the wrong thing. We already talked about that. Everyone’s gonna go online and look for the what? Lowest rate. Wrong way to shop for a mortgage.

Dylan Silver (12:27)

Yeah.

John Thomas (12:28)

Just like shopping for a real estate agent. Again, you need a master negotiator. It’s what you need. Do you know how to determine their master negotiator? I do. You probably don’t. You might, but I’m saying note the average person doesn’t. So I think it comes down to who you work with matters. And what a lot of people don’t know is like, if you might go to a bank and you got a 600 credit score and they go, ⁓ you can’t get an FHA loan, you don’t qualify. What they’re not telling you is no, our bank needs a 620.

Dylan Silver (12:40)

Right.

John Thomas (12:58)

But that’s not the rule. FHA says you can get a loan down to 500. It’s just the bank has an overlay. So the challenge is if you’re talking to the wrong bank or the wrong person, most people, their commissions, they’re not going to tell you, hey, I can’t do it, but call John because they’re a direct lender. They service their own loans. They can go down to 500. Same thing with VA. Did you know VA doesn’t even actually have a minimum credit score in their guideline? You’re right. Most people don’t because the lender tells you their minimum credit score, which if VA has no minimum credit score, that’s called an overlay.

Dylan Silver (13:20)

No.

John Thomas (13:28)

So when you’re looking, whether you’re an investor, whether you’re a home buyer, if you’re getting turned down and you’re not getting educated on why you’re turned down, then you might not know, it me or is it the bank I called? So my, again, I’m being a former teacher. So if you were to apply with me and we had a challenge, and I don’t like to say problems, challenge, right? Then I would explain why. And I almost always want to give you a solution to solve that challenge, whether it’s now or later. The only time there’s a few circumstances I can’t like, if you come to me, want to buy a house and you are

live by yourself, no one can co-sign you, all you make is $400 a month in social security. Well, I got news for you, you’re never ever gonna buy a house. No one can get you approved for a loan making $400 a month in social security. I don’t have a plan for that. But if it’s a credit issue, if it’s debt to income issue, if it’s, whatever it is, it’s, you’ve got to work with somebody who’s gonna give you that plan. And that’s why who you work with matters. And starting on the internet shopping for a mortgage is like a poor person going to Starbucks, right? You’re shopping on price versus value.

Dylan Silver (14:09)

Thank

John Thomas (14:26)

That’s why who you work with matters so much.

Dylan Silver (14:29)

wanna ask you about some other creative ways that I’ve heard people get into their first home. I’ve heard about people buying quadplexes and that it may be even a better way for them to get approved than a single family home. I have heard this now from several people. I’m curious to get your perspective on this.

John Thomas (14:47)

Well, I love fighting the tick tock rumors. ⁓ So if you want to get started buying a first home and build an investment portfolio, buying a multi unit is a great way to go. But

it’s actually not as easy to get approved on a multi unit as it is on a single family for various reasons. So each agency has different guidelines. So FHA and VA are the most lenient because they don’t change their minimum down payment requirement if you buy

Two to four unit FHA still three and a half down VA still zero down But what they do change is you’re gonna need reserves that you don’t need on a single family So you’re gonna actually need more money and people don’t tell people that upfront and then FHA if you go above a two unit They have an extra calculation which is a you know, you afford it type calculation will cash flow without you know, renting your unit so there’s some different overlays what you know might need more money, but

Again, who you work with matters, not everyone might want to do a four unit, but it’s a great way to get started because number of doors determines how much your cash flow is, right? So if you can get into a four unit, and again, a lot of people don’t know this, there’s another strategy is when you start wanting to invest in real estate, you got to have capital. So, but when you buy a house to live in, you need way less capital. You can get in anywhere from three to 5 % down on the primary residence. You go to buy an investment property, it’s typically 20 % down.

Can you do 15? Yes, but the problem with 15, I can do 15, is it almost never cash flows with 15 down. That’s the problem. Because what happens is when you do 15 down on a conventional, you got mortgage insurance and a higher rate. If you do it on a non, you know, traditional type mortgage, DSDR, whatever, you’re gonna have a much higher rate with 15 % down because there’s no mortgage insurance, they jack the rate up. So theoretically you can do 15 % down, it usually doesn’t make sense, you wanna do 20.

Well, here’s a strategy to slowly build wealth if you’re not in a position to have that money is every 12 months you can buy a new primary residence.

Dylan Silver (17:31)

Hmm.

John Thomas (17:31)

So

if you buy that four unit, live in the one unit for 12 months, now maybe you gotta live there a little longer. So let’s say 12 to 24 months, you gotta save up instead of 20 % plus closing costs. Now you may only need to save up 5%. Then you go buy another primary, live there for 12 to 24 months, move out, go buy another primary. In 10 years, you could have five to eight rental properties.

Dylan Silver (17:37)

Right.

John Thomas (17:59)

And that’s all you need to retire very comfortably because you get that paid off in 30 years. You know, you’ve got a two to three million dollar asset easy cash flow and what 15 20 grand a month.

Dylan Silver (18:10)

And so that’s, you need to live there for one year. And then at that point in time.

John Thomas (18:15)

When you sign

the note for a primary residence, you’re saying you’re going to occupy that as your primary residence for 12 months.

Dylan Silver (18:22)

and then would you say burr out of it?

John Thomas (18:25)

Well, you would then you want if you’re trying to build a portfolio, you just need to save up your 5 % now. then you’re going to want to, you know, there’s ways to use the rental income. You would go with a conventional loan because on a departing residence, conventional allow you to use 75 % of the rent. You just got to get a signed lease and a signed in first month security deposit, first month rent. Now that should offset the mortgage payment so that you can should qualify to buy the new property 5 % down conventional.

Now, and you can do that. You can have 10 conventional loans. As I said, you’re going to, you know, by the time you get 10 properties, you’re in a different position financially. have equity to tap off on those properties with home equity loans and stuff like that. And a lot of people don’t even know. You can get second mortgages on investment properties. He locks or fix seconds. A lot of people don’t know that because most banks won’t do it.

Dylan Silver (19:01)

Right.

That’s a big, big, big nugget you just dropped there. I’m thinking right now, and the cogs are turning in my head about, how do I get that first property? Because once you get the first one, it’s like saving up ⁓ for people who’ve saved money and gotten off the ground in bootstrap. It’s like saving up that first.

John Thomas (19:31)

Well,

I’ll give you an example. I have a first time home buyer closing today and the CD literally has them bringing $276.

Dylan Silver (19:35)

Yeah.

$276.

John Thomas (19:44)

Right, first home. Well, they got two down payment assistance programs and boom. Right. Now that’s not the norm, but I’m just saying like what is the first time home buyer you want to look, you want to work with a lender that does the down payment assistance programs and the local programs, that kind of stuff. Your internet lenders don’t do it. You go to rocket as a first time home buyer, you just got screwed. You just missed all your first time home buyer programs. They don’t do it. You go to your big banks, Chase, Capital One.

Dylan Silver (19:49)

Unbelievable. John, we…

John Thomas (20:12)

Discover whatever they don’t do the first time homebuyer programs So you got to work with a lender that does first time which I do right and we’re licensed in every state But New York so I can help you anywhere, but New York ⁓ You know you got and we do all the programs so that’s my job and my team’s job is to solve your challenge So if your challenge is cash to close and you’re a first-time homebuyer, let’s see where you’re buying What programs can we get you in different programs have different guidelines some have income restrictions minimum credit scores so

And I’ve got a, you we’ve got five different in-house programs that our bank, primary residential mortgage does. If you, and then, and then each state has their own housing agency program. So as a first time home buyer and what, I love this question. Hey, I want to buy an investment property. Do you own a home? No, I want to buy a restaurant. No, no, no. Don’t, don’t do that. Cause if you buy an investment property first, guess what? You’re no longer, no longer a first time home buyer. You always buy your first home as a first time home buyer because you can take advantage of other people’s money.

You’re going to put the minimum down. They’ll let you 3 % 3.5, whatever it is zero and then get the free money from the pro whatever program and then your goal is to live there for 12 to 24 months. Save up your 5 % plus closing costs to go buy another house. Now the market has changed in most areas. You can actually get seller pay closing costs now couldn’t for the last four years now.

Dylan Silver (21:32)

Right.

John Thomas (21:35)

say half the deals are coming in with seller pay closing costs. Sellers are looking to move properties. Builders are struggling with foot traffic. They’re offering incentives. Home buyers are offering incentives. it’s, what I tell people is don’t wait for the rates to go down. If you wait for the rates to go down, everyone else that waited for the rates to go down jumps in the market. Now, home prices get pushed back up again, more competition. Like, buy now. Like I like to say, we’re playing Monopoly. We’re all playing Monopoly. How do you win Monopoly? You gotta buy what?

Dylan Silver (21:59)

strength.

Properties.

John Thomas (22:03)

Right. And if you are a first time home buyer, you’re not even in the game yet. Like just get in the game. Don’t buy it. You don’t need your McMansion. Like buy a townhouse. Make it your first. Like your mindset is this is my first rental property. It doesn’t have to. I don’t care if I like the kitchen. I don’t care if I like the layout. It’s just, is this a good rental? Like I asked you real or what’s the market rent on this. So then you know, okay, my mortgage payment is this. This is the market rent 12 to 24 months. If I move out and it’s cash flowing, boom, sign the deal, buy the house.

Dylan Silver (22:08)

They’re not.

John, we are coming up on time here. Where can folks go if they’d like to reach out to you? Maybe they are in the process of buying their first home or maybe they have a deal that they’d like you to take a look at.

John Thomas (22:43)

Yeah, so ⁓ I live in Delaware. So my mortgage website is DelawareMortgageLoans.net. But as I said, I do loans all over anywhere but New York. You can also find me all over social media. If you just Google John Thomas Mortgages, I probably come up. ⁓ I’m really active on social media. I’m on Instagram. So if you do Instagram, I’m JohnThomasTeam. TikTok, I’m JohnThomasTeam. Okay, so you can find me there. My email is jthomasatprimeres.com or you can call me 302-703-0727.

I answer your questions and I do a lot of classes. I got Real Estate Investing 101 coming up next week, Tuesday at 6.30. ⁓ I can get you registered for that. don’t charge for it. I got a home buyer seminar coming up this Saturday. I can get you registered for that. I do one every month if you’re a first time home buyer and you want to learn all the stuff.

Dylan Silver (23:29)

John, thank you so much for coming on the show here today.

John Thomas (23:33)

I appreciate it. Hopefully it was helpful.