FHA loan, 4 plex, first property

8 Replies

A little background is that I am 19 and a sophomore in college. I work up in Alaska during the summer months so I make a fair amount of money (15000 to 20000 a summer) but do not have a part time job during the college months. My father is a full time investor in apartment complexes and mobile home parks so I have a great mentor to help me if I am in need of some wisdom. I also have a credit score of 728.

My idea is to buy a 4 plex as an investment while I'm in college. I plan on using a FHA loan because of the attractive down payment option. Because it is an FHA loan, I plan on living in one of the units with paying roommate/roommates while I finish up college. I am looking for a property in Phoenix that is between 150000 and 250000 dollars. I plan on moving out after college and keeping the complex long term. I also want to manage it myself so I can start learning more about it. I do already have some knowledge of management from my dad because I did something similar for my senior project in high school and I have him for any questions I may have along the way.

I guess some of my questions are what would be a good cap rate to shoot for? 8%? 10%?

Would it be unreasonable for someone like me to qualify for a FHA loan for 200000 with a 7000-9000 down payment and 4% interest rate for 30 years? If so who would be good to ask first for a loan?

I also know that to qualify for an FHA loan you need a consistent record of a job over the last two years and have a monthly income. I heard someone say that it can be bypassed if I have been in school for the last two years. Is this true or do I still have to have a monthly income? However, if I do need to have a monthly income can I co-sign with my father (even tho if at all possible I want to do it on my own) and get the loan?

I want to be a full time investor like my dad and think this is the best way to start. Do you guys think this is a good idea? I want to start as young as I can because I know that investing in RE doesn't happen overnight and that it takes time to start making significant passive income. Any advice would be great. Thanks

I wanted to 

Wyatt,

you are off to a great start! I am impressed with your logic and thought process, you have spent some time thinking this through. I wish I had had the same thought (4 unit) when I purchased my first home. I am assuming you are going to school there in Phoenix. Have you found a local real estate investment group? I think AZREA is in Phoenix. There may be local investors to point you to a lender in the area. If you can't qualify for FHA, you may try a local bank who does "portfolio lending" meaning they keep the loan there at the bank, so they make the decisions in house. There may also be an investor who would be willing to work with you for owner financing for a couple years, then do a refinance with bank financing after you have some history with the property. Also you will be able to count some of the rental income towards qualifying for the loan not just the money you make in AK.

Best of luck with this, you will do great.

Keep us posted.

@Jeff Hamel

Thanks for the ideas. I will look into that group as well because some more local knowledge would be nice. 

Great idea. 

You may have trouble receiving traditional financing with less than a 10% down payment, unless you seek alternative financing. You might think of asking your father to hold the paper on the property for a higher interest rate which would benefit you both. I think 10-12% is conservative for phoenix depending on how close it is to the college. You should shoot for 10-15% and make sure you calculate in vacancies and maintanence. 

by the way AZREIA is tomorrow night in phoenix  you should check it out. 

@Wyatt Ruff

You have some great ideas, but you will have trouble qualifying if you don't have a consistent job history. You have to have a continuous job history, just working in the summer months, isn't a long enough time period. 

The good thing is, your college education will count towards your experience once you start working in the field of your degree, allowing you to make a purchase sooner than the 2 year work history requirement.

If you claim your fishing job as a W2'd income, there is a shot. I would recommend sitting down with a lender to find out. 

If so, you could use your FHA for a fourplex with 3.5% down.

If that doesn't work, I might recommend getting a part time job and see if a steady history from that would come before you graduate and get a career field job. 

Some lenders only require 1.5 years of work history. 

Others above with more mortgage have answered you question regarding the job history aspect. One thing i just wanted to point out which can be very important is to remember that you are a first time home buyer. That means there is a chance you can qualify for special programs target to first time home buyers. These programs are usually state or city based so you would have to do research in your area. You can get anywhere from 2k to 30k in down payment assistance and favorable loan terms depending on the state. 

Check it out as you go along. 

@Wyatt Ruff

I just came across your conversation and I am in a similar situation.  I am looking at starting out with a 4 unit home as well.  I just wanted to see if you went through with your purchase and if so how did you get your finances for it?  I talked to QuickenLoans today and they were saying that all loans for 4 unit homes are going to ask for 25% down.  Did you get anything better?

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