Starting Real Estate with FHA

6 Replies

Hey everyone, I'm 19 years old and an aspiring REI. My starting plan is to buy a multifamily property under an FHA for me and my mother, and to rent out the other unit/units.

I'm looking to get any feedback on if this is a good strategy, or hear others experiences on using an FHA for a multi family property.

@Adam Amero

Welcome to the site.

That is a great plan. You can buy a 2-4 unit with only 3.5% down. Have the tenants pay your mortgage for you.

That is one of the many goals and seems to be how many aspiring investors start out. I also have been seeing that FHA only require you to live on the property for 1 year, when I thought 3-5. I can really take advantage of the 3.5% down payment and can continue to hop around from place to place since I'm so young and free.

Just remember that for the next units you will be unable to use FHA. You will therefore need 20%-30% down payment for them.

@Adam Amero Welcome to BP! Using an FHA loan is a great way to start and it's exactly how I acquired my first investment property. Run two scenarios for cash flow - one with you living in a unit and one for when you move out. You can actually use an FHA loan multiple times, but only once a year and only one active FHA loan at a time. So if you like this strategy have a plan to drive equity and refi the first FHA so you can use it again.

There are a few challenges with FHA loans however. They have strict property rules and will not loan against any non-compliant property (e.g. chipped paint, missing handrails, asbestos, etc.). This limits the types of properties you can go after and negotiations with sellers. Also, they will go through your finances thoroughly so be prepared to explain that Grandma gave you a $100 check for your birthday.  

Last, have the FHA appraisal before your own personal inspection. I did it the other way around and when my inspector found asbestos in the basement, he told me it wouldn't pass the FHA appraisal. The seller pulled out at that point, but I could have saved the $450 on my personal inspection if I knew it wouldn't pass the appraisal. J Scott wrote an FHA checklist for BP about 5 years ago that I've linked below. I've also included a more recent checklist from Investopedia in case things have changed in that time.

Thank you for the advice and I'll definitely read the articles. 

My first property will be using my mothers name for the loan and I'll be a joint owner to build my credit. We are renters right now, so living in one of the units and having to pay the rest of the mortgage, that the other units don't cover, while we are living there for the required time of the FHA is not a problem. I'll be paying rent for my own investment instead of someone else's. The low down payment is key for starting out, and is why I need to utilize the FHA.

It seems that my biggest challenge will be dealing with lender. I've seen that the lender provides an appraiser but does that require me to pay for each appraisal? Money is tight and I want to do my first investment very efficiently with minimal expenses. Having to pay for an appraiser on every property would be a very big challenge. I would hate to spend 400$ on appraisers and inspectors and then having the property not fit my needs.

I've spent many hours learning online and read a really great book that I continue to refer to. The one thing I can't figure out is how to get appraisals, inspections, and all the numbers I need to calculate before I purchase without paying fees on every property I think will be a good deal.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here