Real Estate Investor · Medford, OR · Member since 2016 · 13 posts · 91 votes
For anyone looking to buy their first piece of real estate, STOP (unless it is a four-plex with an FHA loan). I did this 2 years ago and it was the best financial move I have ever made. If you start buying other properties you can say goodbye to this opportunity. Use the FHA loan and buy a four-plex with only 3.5% down. It is so much better than putting 25% down (typical for multi-unit buildings). It is the boost that every first time home buyer should take advantage of while starting their real estate portfolio. I purchased mine in 2014 and just helped my girlfriend purchase one this year (2016). If you have questions or input regarding FHA loans for multi-unit buildings for first time buyers post them here.
Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
9y
I always highly recommend all my clients start with a four unit from a financial point of view however some people value lifestyle over their financial freedom so I find that often times families will pick SFR's or duplexes still over 3-4 units.
Additionally, 3-4 units have more stipulations now than they did when @Ryan Hurd bought his fourplex. Currently, FHA requires a self sufficiency rule that is much more conservative. Prior the SS rule requires that current rents on all units had to equal at a "min," be equal or greater than the total monthly PITIA (prin/interest/tax/insurance/assessments - includes monthly MI too). Today the rule requires that 75% of this gross monthly income must be equal or greater than to your entire monthly PITIA which makes this fourplex dream much more difficult especially in higher priced areas where the rent to price ratio (gross rents monthly of all units divided by sales price) is higher than .90%.
Some will ask, can I increase rents so that I have a better chance going into a FHA fourplex? The answer is yes but these rental increases are a double edged sword because if the seller realizes that rents could be this much higher there may be a chance he/she may want more money or may not want to sell any more so working with the seller to get the leases higher prior to entering into contract may be a bit difficult.
Ryan bought for 260k at a time where 100% of gross rents had to be higher than his 1880 monthly PITIA which that was easy since all of his units were 625 X 4 = 2500 per month no big deal right? This was a good enough deal that even with today's guidelines of 75% X 2500 = 1875 may still have worked too (a smidge off).
So while the post is all rosey and rah rah there are somethings to consider in today's environment when utilizing FHA 3.5% down to purchase a 4 plex.
I am looking to purchase a 3 or 4 multi family property with FHA.. Did you find your deal off the MLS or off market? When do you think you will be able to refinance out of the FHA loan?
Real Estate Investor · Medford, OR · Member since 2016 · 13 posts · 91 votes
9y
@Steve Bracero I found my deals off of MLS. I did negotiate for seller to pay closing costs and that was a great way to keep my money in my pocket. I could refinance out of my FHA loan right now. Getting the loan done would cost $3-4K though. Since it would only save me about $60 a month (interest rates are higher now then they were when I purchased) I have decided to keep the $3-4K and not refinance. I am currently saving for my next property. I probably won't get out of my FHA loan unless I someday do a cash out refinance to reinvest in another deal or unless interest rates go down quite a bit.
Real Estate Investor · Medford, OR · Member since 2016 · 13 posts · 91 votes
9y
@Steve Bracero I just looked at your profile and it looks like you will be buying soon. I thought that I had all my stuff in order when I purchased my first property but I didn't get the current renters deposits during the closing process. I did end up getting them but it was a hassle. Just something to look for when signing.
Rental Property Investor · WY · Member since 2016 · 243 posts · 221 votes
9y
I second this - I did this as well, and it's a fantastic use of FHA. I Put 9k into the deal (approx) and got 4 units that rent within days of coming open for 625/mo. it's not THE BEST deal in the world, but it was a good one, and has been a great way to learn.
Real Estate Investor · Medford, OR · Member since 2016 · 13 posts · 91 votes
9y
@Bill E. I purchased my four plex for $260K and my payment is $1880 which includes taxes, property insurance, mortgage insurance, principle, and interest. I also pay HOA fee of $180/month which covers garbage, landscaping, outside lighting, and parking lot maintenance. My water bill/city street fees are around $140/month. So my total outgoing is $2200 per month not including maintenance. I purchased a decent property and I have remodeled two units. Current rents are $850, $850, $700, and the unit I live in is very nice and would rent for $950. Total income is $2400 plus I live for free or a total value of $3350. $3350 - $2200 = $1150. The $1150 per month profit does not account for repairs but so far nothing too bad that wasn't planned.
Side note: When I purchased the building the rent was $625 for each unit. Which only cleared $300 per month.
Wholesaler · Roanoke, VA · Member since 2015 · 277 posts · 95 votes
9y
I will begin this process the first of the year. Been looking to see whats out there. I see a 4-plex for a very reasonable price just not sure I would want to live in that part of town. But should I just sacrifice for a year?
Real Estate Investor · Medford, OR · Member since 2016 · 13 posts · 91 votes
9y
I originally purchased my place and was dreading living in it. I was planning on only living in my unit for 1 year to fulfill my loan obligation but it has been over two years and I am still living here. I fixed it up nice and realized that it wasn't so bad. I am white and I am in an area that is mostly Hispanic. I am moving soon but I would definitely do it again. I don't know what the area is like so it is hard for me to say do it. I would just say that 12 months goes by really fast.
Glenview, IL · Member since 2016 · 5 posts · 0 votes
9y
I want to do this as well. I'm currently in a FHA loan for our SFH but would like to do an owner occupied multifamily soon. I think I can get out of our current FHA loan because of a growing family since we bought. We are also getting close to paying off 20% of the principle thus being able to refi out.
I'm really new to thinking about real estate as an investment. I'm thinking I could use the equity built in a multifamily to help find college for the kids one day, but can't see us "house hacking" for too long. How do you plan on paying for your next purchase?
Wholesaler · Roanoke, VA · Member since 2015 · 277 posts · 95 votes
9y
Ryan Hurd Thats why I'm thinking of making the sacrifice and the price is $125,000 and average area rents between $575-$625.
David Wayman it can be used 1-4 unit properties
Real Estate Investor · Medford, OR · Member since 2016 · 13 posts · 91 votes
9y
@Jesse Semeyn I plan to save bout $3K a month for my next down payment. If real estate goes up I can maybe cash out refinance my current place. I am not really wanting to take on investors for private financing. That is just my personal preference though.
Vancouver, WA · Member since 2016 · 19 posts · 13 votes
9y
Ryan Hurd
After much research and coming across your post, I have come to the conclusion that my very first purchase will be a quad using FHA. I am stuck on what exactly needs to happen after the purchase regarding all the rehab (if any) and how to use the 203k loan to your advantage. Also, do i find the property and deal before or after acquiring the loan?
Looking forward to your response and "Hello!" From Vancouver, Wa!
Zach
Great thoughts! We did this with a triplex on our first deal 4 years ago! It was totally worth it. We are now own 5 properties and under contract for 2 more. We have done 2 flips in the last few years. All these deals were done with no cash outa pocket. None of this would have been possible with out that first live in units.
I did the same thing with a duplex as i couldn't find a good deal on a four plex.
I just refinanced mine to conventional so I can use another FHA loan if I want to.
@Michael Swope, You can only have 1 FHA loan at a time so if you buy a house with FHA first you wouldn't be able to use it to buy a four plex unless you refinance like I just did.
Atlanta, GA · Member since 2015 · 40 posts · 4 votes
9y
@Shawn Crawley I've been curious about Roanoke. My cousin and her husband live there and I was thinking about coming up there to check out the real estate scene.
@Ryan Hurd im 38 but purchased my first house at 24, if I had a do over I would go this route but I just didn't know. What fha lender did you use. I'm looking to get me a 4 unit at the first of the year.
Investor · Detroit, MI · Member since 2014 · 360 posts · 354 votes
9y
These are great options for singles or younger couples that can "break the mold". Most likely, a duplex to 4plex isnt't in the sexiest part of town, because housing wants built that way post 1950. But the money saved is crazy. After 3-5 years you can move on with lots of dough and equity.
Real Estate Investor · Medford, OR · Member since 2016 · 13 posts · 91 votes
9y
@Michael Swope sorry that wasn't very clear. You can only have one FHA loan at a time unless certain circumstances exist (growing family, move for work). So if you use it on a single family you are in a position that you cannot use an FHA loan for a multi-family unless you refinance to conventional first on the single family. Conventional means you have 25% down for an investment property in equity.
Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
9y
I always highly recommend all my clients start with a four unit from a financial point of view however some people value lifestyle over their financial freedom so I find that often times families will pick SFR's or duplexes still over 3-4 units.
Additionally, 3-4 units have more stipulations now than they did when @Ryan Hurd bought his fourplex. Currently, FHA requires a self sufficiency rule that is much more conservative. Prior the SS rule requires that current rents on all units had to equal at a "min," be equal or greater than the total monthly PITIA (prin/interest/tax/insurance/assessments - includes monthly MI too). Today the rule requires that 75% of this gross monthly income must be equal or greater than to your entire monthly PITIA which makes this fourplex dream much more difficult especially in higher priced areas where the rent to price ratio (gross rents monthly of all units divided by sales price) is higher than .90%.
Some will ask, can I increase rents so that I have a better chance going into a FHA fourplex? The answer is yes but these rental increases are a double edged sword because if the seller realizes that rents could be this much higher there may be a chance he/she may want more money or may not want to sell any more so working with the seller to get the leases higher prior to entering into contract may be a bit difficult.
Ryan bought for 260k at a time where 100% of gross rents had to be higher than his 1880 monthly PITIA which that was easy since all of his units were 625 X 4 = 2500 per month no big deal right? This was a good enough deal that even with today's guidelines of 75% X 2500 = 1875 may still have worked too (a smidge off).
So while the post is all rosey and rah rah there are somethings to consider in today's environment when utilizing FHA 3.5% down to purchase a 4 plex.
Real Estate Agent · Inglewood, CA · Member since 2015 · 294 posts · 150 votes
9y
@Albert Bui I am aware of the self sufficiency rule but underwriters do not always apply it or they are not aware of it.
@Ryan Hurd very good post and thanks for clarifying that you can in fact have more than one FHA loan at a time. If you buy multifamily you can use the FHA loan on single Family a years after. I just closed a 4 unit for my client in West LA and with seller concessions and closing credit he paid about $40k total for down payment and closing to close a building with a $1,065,000 purchase price.
@Zachary M. Get approved and then find the property. Only use 203k fund to make properties finance-able that otherwise would not be. I advise not to use them for aesthetic repairs.
@Account Closed Definitely sacrifice for the year. FHA has a one year owner occupant requirement but if you look up the rule there a several grey areas that would allow you to vacate prior to the year. Also, if you don't default the chances of someone knocking on your door to do an occupancy check is slim.
Jeffersonville, IN · Member since 2016 · 8 posts · 15 votes
9y
FHA also has a Construction-to-Permanent loan program that will allow you to buy land and build your multi-unit (up to 4 units). In this case, you do not have to find one that is already built, as is the case in the more 'traditional' FHA loan. Unless something has changed in the last couple of years since I was researching this, the main keys to getting this done are:
1. You must qualify for this FHA loan program. You can find all of the the requirements on the web.
2. You have to find a lender that offers the FHA Construction-to-Permanent loan program. This can be difficult. I had to call many different banks, lenders, and builders and finally found a builder who uses a bank in my area that offers this program. I even had many real estate professionals tell me that FHA doesn't offer this! The fastest way to find someone who can do this is probably to call the builders in your area and ask if they're familiar with the program.
3. You can find unrestricted or commercial land to build on. I learned that many residential areas have deed restrictions forbidding multi-units. These restrictions are typically put in place by HOA's.
4. This has to be your primary residence for at least 1 year.