The Real Estate Investing Strategy I’d Recommend to Newbies (as a Seasoned Investor)

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After having a real estate license for close to 30 years and having worked hundreds of real estate deals, as well as specializing in investment real estate, I’ve been fortunate enough to see people from all walks of life and incomes deal with just about all aspects of real estate.

I’ve pretty much come to the conclusion that the decisions one makes with real estate, especially first-time home buyers, are very critical. A few minor tweaks in the strategy and order in which they do things with their real estate can have a monumental impact on their overall investing career.

Recently, a young, single, 23-year-old guy in my Investor Relations Department began looking for his first rental property. I agreed to help him on his way to building a nice real estate portfolio by showing him some of the strategies that I’ve employed and lessons that I’ve learned while becoming a multimillionaire on a modest salary.

For someone looking to buy that first investment property, in most cases, it still makes sense to utilize FHA owner-occupied financing if at all possible.

FHA Owner-Occupied

Now, I know what some of you may be thinking: “FHA is the most expensive way to buy, especially with MIP (Mortgage Insurance Premium). Isn’t 5 percent down on a conventional mortgage better?”

Well, not really, and here’s why.

With FHA, they not only allow seller assists, as do most mortgages, but you can purchase with as little as a 3 percent down payment. You are also able to count up to 90 percent of the current rents (as opposed to 75 percent with conventional mortgages), provided that they have a one-year lease agreement signed, and they’ll count this towards the buyer’s monthly income. This can dramatically increase one’s buying power, especially since you can purchase up to a four-unit dwelling with FHA financing. Keep in mind, you can normally only have one FHA mortgage at any given time.

modest single family home green siding white trim two-car garage on grassy green lot

Related: The Achievable 5-Step Process For Getting That First Property Under Your Belt

So, instead of my guy buying, say, a $100,000 single-family rental property FHA, he could possibly buy a $200,000 quadraplex, live in one unit, and count 90 percent of the $750/month per unit rent of the other three units toward his monthly income, enabling him to live in this building almost completely free.

This will enable him to buy the next property in a year or two much more easily, since he’ll be able to save up more money that would have been spent on higher housing expenses.

Just think, he’ll have almost double the write-offs because you can’t depreciate your primary residence nor write off any repairs or maintenance.

Buying the Second Property

When it comes to buying the second property, if he rents out his apartment (the fourth unit of the quadraplex) that would help him pay the second property’s mortgage, thus enabling him to save even more money for the third property, which he could purchase owner-occupied a year or two later. The best thing you can do here is to buy conventional, owner-occupied with 5 percent down payment and utilize another seller assist.

The trick here is to only buy a house where the mortgage payment is less than rent. By purchasing these first several properties owner-occupied, he’ll get much more favorable interest rates and terms, such as lower down payment requirements.

Also, if he keeps all of the properties he’s ever lived in without selling any of them, he would not be wasting the past settlement costs he’s already spent. (See “Plan to Sell Your Primary Residence? STOP…And Consider This First.”)

Errors in Judgment

A big error in judgment when young and starting out in real estate is buying as much house as possible in the best area possible (usually to impress family and friends), with the highest payment possible (usually one that’s much higher than rent).

By doing this, it’s much harder to save for the next property. Often, the investor then has to sell this owner-occupied property prior to buying the next one since it doesn’t make sense as a rental.

Even if the person is doing well later in life and their accountant is telling them they should buy an investment property for the write-offs, now it’s going to cost them big time because they already could have had an investment property if they had used the right buying strategy when starting out to really accelerate their real estate investing portfolio.

Let Me Illustrate

Let’s say you bought a $100,000 property owner-occupied, with a 5 percent down payment on a 30-year mortgage of $95,000 (4.5 percent interest, with approximately $3,000/year in taxes and $700/year in homeowner’s insurance). With a monthly payment of around $789.68 or so toward the mortgage, it rents for $1,000/month and you live there for five years before renting it out. With this strategy, you acquired the property owner-occupied with a great rate and little down, and you’re five years into your 30-year loan before making it a rental property.

If you waited until later in life to get a property (not owner-occupied), now you’ll need a 25 to 30 percent down payment, you’ll pay a higher investor interest rate, and you’ll have around 8 percent in closing costs. In this scenario, you would need a whopping $38,000 to purchase an average $100,000 SFR ($663.011 monthly PITI), as opposed to approximately $13,000 on a conventional, owner-occupied deal.

Now you might say, “Yeah, I’ll have more cash flow since I put more money down.” But the truth is, your yield went down.

Let’s look at the numbers…

FHA owner occupied 5% down payment:

$210.32/mo. cash flow x 12 mos. = $2,524/yr. ÷ $13,000 total invested = 19% return before expenses (i.e., management, maintenance, and vacancies, etc.)

Conventional mortgage non-owner occupied 30% down payment:

$336.99/mo. cash flow x 12 mos. = $4,044/yr. ÷ $38,000 total invested = 10.6% return before expenses

As long as you’re cash flowing, the less money that you put down, the higher your yield.

two young caucasians, one male and one female, wearing black glasses and checkered shirts going over something together at a table

Related: Newbies: These 3 Simple Steps Will Prepare You For Your First Deal


So, although buying a property FHA owner-occupied may not be the cheapest way to own, as far as monthly payment, it can be a great strategy for the first property, especially if it’s a multi-unit (less than four units). When starting out, it can cost the buyer the least amount of capital up front, and by counting 90 percent of the rents, it can also enable the investor to catapult into a much more valuable property.

FHA can have other advantages as well since their underwriting can be more lenient, and their front-end and back-end ratios are much easier (for example, 29 percent versus 28 percent on the front-end ratio and 41 percent versus 36 percent on the back-end ratios).

FHA will also send an inspector out who may require additional repairs to be completed. This may enable the buyer to get more work done prior to closing, and it’s usually paid for by the seller.

Also, it puts pressure on the seller to accept the FHA appraisal, even if it comes in low, since the seller has to use this appraisal for up to six months if a future buyer is FHA/VA.

So, if you’re a newbie real estate investor looking to buy your first investment property, maybe it makes sense to purchase owner-occupied with FHA financing, too.

[ Editor’s note: We’re republishing this article to help out our newer members. ]

Newbies, are you using this strategy? If you’re a seasoned investor, what advice would you give to someone just starting out?

Let’s talk in the comments section below.

About Author

Dave Van Horn

Since 2007, Dave Van Horn has served as president and CEO of PPR The Note Co., a holding company that manages several funds that buy, sell, and hold residential mortgages nationwide. Dave’s expertise is derived from over 30 years of residential and commercial real estate experience as a licensed Realtor, a real estate investor, and a fundraiser. As the latter, Dave has raised over $100 million in both notes and commercial real estate. In addition to his investments and role as CEO, Dave’s biggest passion is to teach others how to share, build, and preserve wealth. He authored Real Estate Note Investing, an introduction to the note investing business, helping investors enter the “other side” of the real estate business.


  1. Brian Gibbons

    Awesome David, this is great way to get started when you do not have any children, when you’re young

    When you’re older and you have children, you want your backyard and your garage and you don’t want any common walls or downstairs neighbors

    If you want a single-family house, Think about a FHA 3% loan

    • Robert Easter

      Just going to be a devils advocate here a moment …

      When you have yet to make head way in real estate, you’re older, have kids, you want your back yard, your garage and your cake and eat it too…is when it’s that much more imperative that you should be doing exactly what David is suggesting.

      After all good business requires sacrifice of some things in order to take advantages of opportunities. And if you wait…you’ll be your job and the same SFH you bought with a FHA 3% loan and your kids will be paying for their own college education because …you didn’t choose to make the sacrifice of the back yard and garage for two years, and put up with neighbors across the wall.

      Plus all you have to do is live there for two years…It’s hardly a sacrifice.

      • Ira Ashton

        What about when you have 6 children in your home? I have yet to see any multi family properties (aside from the one I’m renting) that could even fit our family of 8. We’ve looked for years with local investors & can’t even find more than a junky duplex in a junky neighborhood for $400k+ that can hold us (hopefully options will appear in the next market correction). Then there is the neighborhood & school situations to think about. There’s more to it than just money. Having a family of 8 complicates things. Sometimes that “sacrifice” you speak of can take a real toll on a family. And I’ve lived in some of those types of neighborhoods & would rather rent in this great one with good neighbors & schools. I feel it is an investment in my childrens’ futures in a different way. It’s a multi-faceted issue when you discuss where & how you think people should live.

        • Brenna Walker

          We are in a similar situation. We have four young kids in a three bedroom one bathroom house. We live in 900 squarefeet. We choiced our kids into a better school district. Our girls share a room. Our eldest has his own room. The youngest will share when he weans.
          It is hard. It does mean sacrifice. Which feels impossible when you have such a large family, I know. We are going to sell our current house and move down to Texas.
          It really comes down to your priorities. When we get to where we are going we will be buying a duplex or a triplex as our owner occupied (2 or 3 bedrooms) and possibly another small house to rehab and rent out.
          We intend to stay in the duplex for the full two years and then transition into a more comfortable arrangement. Our ultimate goal is location independence.

        • Brad Taylor

          You could have always chosen not to have 6 children though… I’m always amazed that people will have that many kids these days. Why?

  2. Scott Trench

    I did this back in November of last year. Instead of buying a quadplex (which is too expensive for me here in Denver), I bought a duplex and rent out both the other unit AND half of mine.

    Almost to a tee, everything you state in this article rang true for me, with the exception of the rental income (property was vacant when I bought it):

    I put down just 5% (could have put down less, now kicking myself..)
    Tax advantages
    FHA Appraiser forced the seller to make plumbing repairs at seller’s expense 😉
    I rapidly built up an emergency fund for the property (in case something goes wrong) and now am saving up really quick for the next property with no mortgage/rent to pay

    What I can’t for the life of me understand is why on Earth people think this strategy wouldn’t work for a family. That’s absurd to me. My tenants are a family… It’s the same exact life! One person does a little bit of work and lives for free… the other pays rent…

    • Patrick Desjardins

      “What I can’t for the life of me understand is why on Earth people think this strategy wouldn’t work for a family.”

      It’s not that it wouldn’t work. It’s simply that it is a major sacrifice for many. If you’ve lived in the suburbs all your life then you’re used to having a lot of space and an apartment feels like a downgrade. Heck, the only 2-4 unit real estate around here is extremely low end type real estate that rents for $400-500 per month.

      Granted, some duplexes look like houses but you get my point. The expectations are very different if you’ve lived in the city all your life.

    • Bryan O.

      Hi Scott, the problem with the family strategy is simply a matter of mentality and lifestyle. I am in my mid-30’s, wife, child, and we want a yard, dog, and garage. Instead, we are in a 3-unit with a shared yard, no dog (the tenants have them), and no garage. The strategy works amazingly, but it is not common that people are willing to sacrifice the comforts they “deserve” and that they’ve “worked so hard to earn” in order to actually build their wealth. I mean, what would the Jones’s think?! 🙂

  3. Jonisha .

    I hope this isn’t a silly question. Is this strategy available for existing homeowners? I currently own a home that is financed with a traditional 30yr fixed loan and I’d like to purchase another multi family. Would I have to sell my home in order to qualify for a FHA loan?

  4. Joel W.

    Why doesn’t this work for a family???? Let me start. As Dave said, farther along in life you can’t always make business decisions and pay with personal sacrifice. As a young 32 year old I have 4 kids, and a job that takes me away from the family for over 8 months a year, and BTW I don’t get to choose where I live in the country (yes you guessed it Military!) I would admit my situation is somewhat unique. But it brings into perspective a few things that does make this strategy difficult at this stage in my life. First, it is difficult to find a multi family home with enough square footage to house a family the size of mine. Second, find it in a good area. Third, I would like my wife to stay somehwat sane while I am deployed (square footage and 3 bedrooms helps). Fourth, if it has all of these items the entry purchase price usually does not allow it to cash flow. Notice I said difficult, not impossible. When I find this pie in the sky property I will buy it.

    • Dave Van Horn


      You’re right it’s definitely not a one sized fits all strategy. But since you’re military, you do have the opportunity to obtain a VA loan which is even better than an FHA loan. Hopefully this could help you get closer to finding that property.


    • Robert Easter

      Your situation is more unique but not more difficult. But as one poster presented you can use VA loans which are more beneficial and with no down payment and generally cheaper loan rates. Perhaps look through this article to see exactly how you can utilize VA loans to purchase multi family dwellings.

      Also perhaps multi family isn’t necessarily feasible for your situation because of Duty commitment and location station. Perhaps an FHA 3.5% loan to purchase through Turnkey companies would be a better more cost effective situation for you.

      Turnkey companies are companies that find appropriate properties for you that meets your Cap Rate, and Cost of Cash specifications that will theoretically cash flow for you, walk you through remote closings and titling process, will take charge of any necessary renovations to make it rent able and then offer you property management services so all you do is provide the cash for purchase and renovations or the mortgage and you are pretty much just an investor. You’ll own the property and have the responsibility of property ownership but build equity and cashflow.

      There are many… in various cities. Currently I am focused on Philadelphia but other markets such as Birmingham, Kansas City, Cincinnati, Detroit people I know like as well. message me if you want to learn more on that avenue

    • Jake Thompson

      It’s crazy, around the same exact day you posted this comment I was closing on my first rental — A duplex in San Diego. I used my VA loan. We bought 2 detached houses on a single lot, both 3 bedrooms. We currently live in the nicer unit which is about $1,600 sq ft and has 2 bathrooms, central heat and air, a 500 sq ft workshop and large back yard where our 2 kids and 3 dogs love to run around. It’s in a decent area of town, not the best, but far from the worst. Just wanted to let anyone out there know that it is definitely possible!

  5. Paige Clarke

    Thank you for this detailed blog! I am currently looking in NJ for options on how to get an owner-occupied deal! How would you recommend starting this process? AKA- do I go to a mortgage company? Do I go to my bank? Should I speak with several brokers before embarking on this process? Is it true that you can tie in a FHA and 203k loan for rehab costs?

    Ideally- I am looking for a 3 or 4 unit place that is below market- probably a distressed property- and purchase it, rehab it and live in it.

    Thank you-

  6. Sean Gregg

    This is the exact strategy I used buying a duplex at age 25.. now i’m in contract for a triplex using a 0$ down VA loan… Thanks for the great article and I would definitely recommend this strategy to any other young investor.

    • Bryan O.

      You have to live in the property for the first year for FHA. You most likely won’t be able to refinance out of the FHA so soon because you (probably) won’t have enough equity. You can look to some of the other 5% down owner-occupied loans for the next property. Check with your banks on which ones will allow the 5% for 1-4 unit for the next purchase.

  7. Greg Cooksey

    Thanks for writing about this…. this is my strategy to get into the game. I plan on using my VA loan for a multifamily property. I am playing with the idea of buying a distressed property and doing a rehab before moving into one unit and renting the others.

    Interesting point you make about using the rental income for tenants with at least a year lease signed. I am guessing that my strategy would remove that benefit from your plan, is that right? And just to clarify, you’re talking about using those rents as income on the loan app, is that right also?

    Hmmm. I have some thinking to do then. My thought was to buy a property that is not at retail price (or near it) so that I when I rehab it I will have some instant equity and then rent it ASAP… Maybe this would still work if I found a move-in-ready property in foreclosure that could be had at a good price, but then there’s the question as to why the current setup caused the property owner to go into foreclosure.

    I’m just kind of thinking out loud here… I’m still new to this, and it’s blogs like this that really help me lean what I’m doing. Thanks!

  8. Darren Sager

    This is a great way to start and similar to my approach when I began in ’98. I didn’t use FHA but used an 80/10/10 loan only putting down 10% and avoiding PMI (which at the time wasn’t tax deductible in my income range). Like Scott Trench I started off in a duplex. The town I was in exploded a few years later and rents went through the roof allowing me to live for free and have opportunity to expand my holdings.

  9. Excellent Article, I wish I had read this a year ago. I am looking at my second property (currently in a single-family) and feel ethically conflicted with the goals of this article because I believe to have signed a form stating that “I would not use this mortgage to rent out the property” (something like that) when I closed on this property. In short, is it mortgage fraud to get a low-percent-down “owner-occupied” mortgage only to turn around and move out of the property after a short time and use it as a rental? My standpoint is that I hope-not, I feel that I would be personally very invested in something that cost me thousands and is turning a profit. But what about to the bank views and the laws? If your advise is not mortgage fraud, why is there such a difference between the 1st and 2nd cost of property? FHA % down (3-5) compared to the 1st rental (25%). Thank you, Ian

    • Dave Van Horn

      Hi Ian,
      The example I showed in the article was of a young man, who would live in one unit of a multi-unit property (renting out the other units). He would intend to live in the property for some time (a year or two, or even more) while saving for his real estate goals.
      Usually the rule of thumb is that the property should be owner-occupied for at least 1 year. I cannot speculate as to what was stated in your agreement, but it may be helpful to speak with your loan officer to review your options. I hope this info helps!
      All the best,

  10. Excellent Article, I wish I had read this a year ago. I am looking at my second property (currently in a single-family) and feel ethically conflicted with the goals of this article because I believe to have signed a form stating that \”I would not use this mortgage to rent out the property\” (something like that) when I closed on this property. In short, is it mortgage fraud to get a low-percent-down \”owner-occupied\” mortgage only to turn around and move out of the property after a short time and use it as a rental? My standpoint is that I hope-not, I feel that I would be personally very invested in something that cost me thousands and is turning a profit. But what about to the bank views and the laws? If your advise is not mortgage fraud, why is there such a difference between the 1st and 2nd cost of property? FHA % down (3-5) compared to the 1st rental (25%). Thank you, Ian

  11. David,

    One take home point I gather from this is the value of doing owner occupied for your first investment . How long do you technically have to live in the property to maintain ‘owner occupied ‘ status ? And are there ways around this if you don’t want to move out of your current residence but want to take advantage of lower down payments ?


  12. Jason Estes

    Excellent Writing, Dave. Thank you for sharing. I agreed with you before I saw this post, as I opted for FHA for my first property. As a strategy, I would add that a first-time buyer could look into a value play/rehab opportunity (if said buyer is able to accommodate a project amidst their daily life). I was able to acquire my first at 65% Appraised Value as a foreclosure that needed modest work, with $10k down from my Roth IRA (up to 10k is available for first-time buyers, so long as they have that at least much principal contributed, the account is seasoned enough, and a few other stipulations are met) that covered closing costs and about 4% of Purchase Price, and caught a learning curve with rehabbing at the same time. Now, I’m 4 months in on the FHA ’12 month owner-occupant’ clause and working on the finishing steps to the rehab. In 8 months, I will be able to move into a second property. There happens to be a REIT that has a smaller comp for rent on my street, so based on the asking rent I can estimate a conservative $500/month in cash flow for my property once I move into my second property and rent this first one out. At that time, momentum will really begin to build up as I will be able to save roughly $500/mo, plus anything I can keep from the day job. So, another 12 months after the second purchase, with 12k in hand (less any repairs, etc.), I could possibly be looking at buying a non-performing note with cash; or going to the courthouse auction; etc. I could potentially be looking at having 3 properties with only 2 mortgages that are cash flowing, with equity from the value play(s). The possibilities really open up! Maybe Dave will have a note to sell me at PPR at that time, which is now less than 20 months away 🙂

  13. Kanalu DeMello

    Wow, awesome article. Thank you very much for sharing your perspective on this topic. Definitely one of my favorites recently, as it’s something that I’m currently looking into doing with my first property purchase. Seems like a great way to get into acquiring that first investment property, especially when you can tie it together as an owner-occupant in a multi-family.

    Dave, or the BP Community, have you any personal experience that you can share on some of the smaller differences/intricacies for securing and holding an FHA loan vs conventional? Things other than the obvious 3-5% down, owner-occupancy requirements, that a newbie investor or first time home buyer might not think about or consider beforehand. Thanks!

    • Dave Van Horn

      Hi Brandon,

      There might be other differences that a lender or loan officer could suggest that I might not know about or thought of mentioning in this article. One of the biggest differences I talked about is the lenient qualifying ratios with FHA allowing a higher percentage of gross income and debt. Another major difference is that FHA loans also count 90% of the rent towards your income vs. a conventional loan which only counts 75%, therefor allowing you to purchase a more expensive or valuable property.

      One thing not a lot of people mention is that an FHA loan can be more expensive to obtain because of the mortgage insurance premium costs, but you may be able to refinance out of that loan to a conventional mortgage down the line if and when the property builds equity. I did just that after holding a property for about a year, and my payment only went up $15/month because it was at a time that rates happened to fall significantly. So sometimes that strategy can really work to your advantage.

      Best of luck.


  14. Dan Clark

    I tried to convince my wife to do exactly this when we bought our house 3 years ago. There was a nice 4-plex in an area we liked that was approximately the same price as the house we ended up buying. She was having none of it. Like others have mentioned, when you’re married with kids sometimes you make choices based on lifestyle and what keeps the peace and makes everyone happy. She gets really stressed when the kids are right on top of her and don’t have their own space to play. Add tenants next door/above/below and she wouldn’t even consider it. We chose the house with the yard and lots of space, and it was probably the right choice for us in the scheme of things.

  15. Max Pickus

    This is the strategy that I am working on implementing in the next 1-3 months. My question is how important is the first deal since I am going to be living in the other unit? I am unsure how to calculate what my best deal is going to be as an investor in the Denver Metro area where deals are scarce.

    Also, how can I address people with the @ function? I would like to comment on a few other’s post.

    Thanks for the write up!

    • Dave Van Horn

      Hi Max,

      I wouldn’t overthink it. Perfect deals are scarce, I would act sooner rather than later because chances are it doesn’t matter. I paid retail for my first multi-unit that I purchased with a FHA loan and I still cashflowed, refinanced 5 times since buying it, took the tax write-offs, and I still own the property to this day. Was it the best price when I bought it? No, but I knew everything else made sense, especially the cashflow.


  16. Filip Gjorgioski

    I’m interested in purchasing a multi family home as my first investment. After the first year (or two?) that you have to occupy the unit for FHA you are free to rent the unit you live in. Are you also able to refinance, and transfer the property to an LLC and then get another multi family also through FHA? Just curious about any restrictions with FHA, or your experiences!

    Thanks in advance!

    • Dave Van Horn

      Hi Filip,

      Yes you should be able to do that for your next property as long as you have enough equity to refinance, which can sometimes be a challenge. But that doesn’t mean it can’t happen, especially if you’re in an appreciating area. Sometimes it makes sense to buy the 2nd house conventional, especially if time is a factor.


  17. Raphael Gomez

    WOW! I just want to say a special thank you to Dave. Very often we take it for granted that this information is well known, and anyone can access it, but the truth is, simple blogs like this are changing lives daily. When a much needed message “hits home” it’s impact can have both a profound and residual effect. Just reading this has inspired me to call a few friends and family members to share this information in the hope that it will benefit them as well.
    Great post Dave, job well done!

  18. Brandon W.


    This article is awesome so much advice in one area is a gold mine. I do have some questioned though.

    With the scenario given could the individual use FHA for the first property ( a multi unit ) and then after two years refinance from a FHA loan into a conventional loan and then turn around and do another FHA loan on a multi unit like last time. The reason I ask is because like you mentioned in the article you can only have one FHA loan at a time, I just don’t know if you can refinance into a different loan to get out from under the FHA loan so you can do another FHA loan?

    Also going along with my first question on FHA loans doesn’t it have to be an owner-occupied scenario and if so how long does the person have to live in the property before he can rent it out? Or like I mentioned above in two years refinance under a different loan then rent it out and do another FHA Loan?

    The reason I ask is because FHA loans are very nice they don’t require a large down payment so with an individual with a modest income its easier to achieve and like you brought out in the article the less you put down and with the property cash flowing the higher your yield. So if there is a way to get loans with small down payments that seems like that is the way to go. I appreciate any feedback on this, thank you Dave for your time.

  19. Dave Van Horn

    Hi Brandon,

    Yes it’s possible to do what you’re saying but it only makes sense in certain circumstances because refinancing definitely isn’t cheap. It could cost several thousand dollars to refi and to do it usually requires some time to go by so as to build up equity in your property. Also, if you were to refi out, and there isn’t enough equity the bank could want more LTV for your new loan. So they may want anywhere from 5% to 20% equity, and that amount depends on multiple variables (such as how many doorways you have, your income, etc). And if you didn’t have the equity you’d have to bring cash to the table to get to the right LTV plus the closing costs. Otherwise you won’t get the refi loan to go through and you’re out your time and money (with non-refundable mortgage application fees that cover the appraisal and in-depth credit pull, which could be up to $400-$500).

    A couple cases that may make sense are if property values jump up quickly and interest rates fell dramatically. In this scenario you could refinance and the cost could come out of the equity. Plus since your interest rate fell your payment would also drop.

    Another scenario where it would make sense would be if you owned the property awhile and you refi out of it to get rid of the MIP (Mortgage Insurance Premium) of the original FHA loan.

    So if either those things aren’t happening, it would probably make more sense to buy again using conventional financing or hard money.

    As for your other questions, FHA loans do require that the property is owner occupied and the length of time you would have to stay there could vary as well. It’s really not about a specific length of time, rather your intent as a borrower/owner occupant. That being said the rule of thumb is usually a year or two of occupancy at a minimum.

    So, to sum up the money for what it would cost to refi you could just as easily put towards a down payment on the next property. Hope this info could be of help.


    • Dave Van Horn

      Hi Allyssa,

      Other than a title seasoning issue, I don’t think there’s a set term for the seasoning to obtain a refi.

      It really depends on the bank. I would suggest talking to a mortgage broker to get more clarity.


  20. Randy Wilson

    I agree with the overall strategy, but your math is a bit misleading. (Sorry I didn’t read through all the comments this might have been covered already).

    If someone were to buy a house as a rental and use it as their primary residence for 5 years they are still paying more that just the 3.5% down. The P&I made in those 5 years is like a forced savings plus fee. After 5 years you’ll have added another $10,000 in equity, paid $2400 in PMI fee and given $15000 to your local government in taxes. Maybe I’m looking at it wrong, but that seems like the wrong investment.

    3500+10000 in equity and $17000 in holding fees. In that same time you cold have saved the entire PITI and put down 30% on two houses that are rent ready.

    • Dave Van Horn

      Hi Randy,

      Thanks for reading.

      This is a good question but the thing to think about is, you need a place to live and why throw that money away on rent when you could be putting it towards an investment? I’m not saying this strategy is better than investing but it could be. So take your example of doing two deals as you suggested, what you’re saying could be true. The return of those two investments could be more than buying a residence intentionally but what you’d have to look at is, is your rate of return of these investments higher if you were to subtract it by what you pay in rent? I’m merely suggesting a way to kill two birds with one stone, if you’re thinking of buying a house to live in anyway (in certain markets), then it could be a right fit for you.


  21. Justin Huett

    This is similar to what I did, Though not with an FHA. In 2008, I purchased a 3 unit for $125k mortgaged $100k for 15 years, over paying mortgage to pay it off in a little over 11, which will be early 2019. In 2010 I purchased a double with a FHA for 30yrs, refinanced a couple years ago to 15 years (Payment only went up $60). I’m looking to buy my next property after the first one is paid off in 2019 and use the surplus from each property to pay the mortgage.

  22. Josh Wallace

    I love this plan and I want to make it work. What is your suggestion for a newbie trying to start out using this strategy in a high priced market (Los Angeles) using a VA loan?
    With the VA loan the PMI is waived but there is a limit of roughly $636K. You can exceed that amount but you need 25% down on the difference (purchase price – 636K). That price ($636K) might sound absurd to some but that won’t get you a 2 bd 2 ba condo in my market.

    • Dave Van Horn

      Hi Josh,

      This strategy really only works the way I did it, in certain markets. My son lives in LA and it’s tough for this strat to make perfect sense in regards to cash flow. If you’re looking for an appreciate play this type of loan could really get you the best financing possible. Most Southern CA investors I know usually have to get creative with how they invest for cash flow (i.e. AirBnb) or invest out of state.


    • Dave Van Horn


      If you didn’t already use an FHA loan for your first property, I’d say why not just rent the house you currently own and buy a multi-family with FHA financing? And if you did already use your FHA loan, it would still probably make sense to move onto the next property anyway. If you sold the property you currently own now, I’d assume there hasn’t been much appreciation since it sounds like a relatively recent purchase, plus you would essentially lose the settlement costs from when you bought it.

      Your best bet is probably to keep the first house as a rental (if possible) and move on to your next property with either FHA or conventional financing.


  23. Hanan Kim

    Hi Dave!

    What a great post – very informative and valuable. I’m interested in buying a multi family home that would be owner occupied and keep my other two single family residences as investment homes. Is this a possibility even though I’ve already used a FHA loan in the past? (FHA loan home was sold and is no longer mine). I’d appreciate your thoughts. Thank you.


    • Dave Van Horn

      Hi Hanan,

      Appreciate the kind words, thanks for commenting.

      The FHA still counts since it was in your name. You’re usually only allowed one FHA loan. The only other time I’ve seen someone get more than one is if you were to buy a property with a partner and essentially use their FHA status (by co-signing the loan with the primary borrower).

      You can still get an owner occupied conventional loan with probably close to 10% down for your next multifamily though, so I would look into that. Still pretty favorable, especially if you combine that with a seller assist then it can really be worthwhile.

      I actually wrote another article on precisely that if you’re interested:


  24. Colin Johnson

    Awesome points David! I am in that position right now of looking into our first investment property.

    We definitely want to do an owner occupied duplex, but I wasn’t sure on what type of lending to do. I have been afraid of FHA since there is PMI, and less equity from the start, but looking at it from this perspective is eye opening! Will definitely be considering FHA moving forward.

    Thank you for this write up


  25. Brenda Whittaker

    What is never addressed and isnt again is what if you are 55+ and unemployed? No government program is going to let me borrow real estate funds without a certifiable income. What about income? Are there stated income programs we are unaware of? Or are we just forced to deal with finding those really good deals that seem to only exist in theory because they’re bought up by the wealthy so fast that the rest of us are left in the dust as usual.

  26. Konrad Wallerstein

    Hello Dave, compelling advice for those starting out in life. I read that a FHA loan requirement is to be employed. I have stopped working and have income from some real estate investments. Might it be possible to find a mortgage to buy a small multifamily unit or sfh or is my profile beyond the pale?

    • Dave Van Horn

      Hi Konrad,

      The short answer is…it’s unlikely. Unless it’s a reverse mortgage, to my knowledge a bank wouldn’t lend to you for a mortgage without earned income. So unless you have a co-signer, private money might be your best option here.


  27. Hannah Rubin

    This strategy seems to seriously play down the expenses. Based on the 50% rule, your expenses would be 50% of the income. That means you would need to put away $500 of that $1000 in rent a month towards expenses before the mortgage is already paid. This doesnt sound like it is cash flowing at all, which is the main issue with most of these FHA deals. They make the mortgage so high with the PMI that you’re negative cash flowing.

    • Dave Van Horn

      Thanks Carol!

      And sure thing. The bank usually counts between 75% to 90% of the rent of the other units depending on the loan. You would need to show a lease (preferably 1 year lease) of the tenants occupying the units you’re leasing.

  28. Sam Schrimsher

    Appreciate the article.

    Two questions:

    Could you buy a fixer for cash, then finance it with an FHA loan?

    How does the FHA decide what the rental income is (for purposes of counting as part of the buyers income)? Do they look at what existing tenants are paying or what typical market rents would be? What if you purchased a property with no tenants, in that case do you miss out on being able to count rental income as part of the buyers income?

    • Dave Van Horn

      Thanks Sam!

      As for your questions:

      After you purchased with cash, the new buyer could potentially buy the house from you with an FHA loan as long as it passes the FHA inspection (including the Use and Occupancy and the termite inspection).

      And they do look at market rent to help determine this. And I believe they’ll only count it if there’s a 1 year leased sign on the units. They’re really looking for stability in scenarios like this.

      Hope this helps answer your questions!


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