The 203K Mortgage provides maximum leverage by requiring a comparatively small down payment for an improvement project. Because the 203K provides most of the funds for the purchase as well as the improvement costs, it is possible to create a great deal of added value with a relatively small initial cash requirement.

For example, if you buy a home for $70,000 and put an additional $30,000 inimprovements into the structure, then you have a total of $10,000 in costs basis in the property. Yet, because of the improvements, this property could now be worth $130,000. This means you have created $20,000 of equity. What did it actually cost you to create this added value? Assuming the Seller will help with the closing costs, you were probably required to put down about $6,000 between down payment and closing costs. As you can see, the return on investment is very attractive.