FHA, 20% or keep saving

[Joe Capobianco]

There is a single family home I've been interested in down the street from my home. I have been more interested in purchasing a multi family but this single family is a good deal. Problem is when I spoke to my mentor he recommended keep saving my money until I have 20% down. "Fear" has been holding me back getting my first property and I don't want to delay it any longer. The plans I told my mentor about were 1. Buying the single family with FHA loan, live in flip for a year and sell. Use equity in 1031 exchange and have the 20% for a multi family. 2. Buy a multi family with FHA loan and try to house hack. 3. Just keep saving until I have 20% for multi family. I wanted bigger pockets opinions on what I should do to get started.

[Dave Foster]

@Joe CapobiancoThere's several things you may want to examine more in your scenarios.

1. You will incur taxes in the scenario you describe.  

     A. You cannot 1031 because it is your primary residence.  1031 exchanges are only available for investment property (and not property that your primary intent is to immediately resell).

     B. You will not get the 250K/500K exemption that @Upen Patelis referring to because you would have to live in it for two out of the previous 5 year period.

2. So that leaves you with a potential upside of 15K (the 40K discount on list less the 25K repair costs).  That only represents a 10% potential return if the house is 150K or less.  And you'll have costs of sale to contend with as well as ongoing expenses like taxes, insurance, etc.  So was it that good of a deal?

3. I'll throw this one out to @Upen Patelor @Mark Creasonas lenders. I don't think you have to put 20% down on a multifamily of 4 or less units if you want to live in one of the units. I think FHA standard financing is an option. If that is the case now you've got yourself a lot of options. Stay in one unit for two years and then sell if you want and take the gain from that unit tax free and 1031 exchange the gain from the other unit into another larger or more than one smaller properties.