FHA Loan First Time Duplex

10 Replies

Hello, newbie here, instantly loving this process of research, analysis and deal hunting :) I'm looking to make my 1st REI!

It would seem that with the higher payment associated with an FHA loan, it is likely to have to accept a lower profit margin when purchasing your first REI.

How low in profit would you go on rental income vs mortgage payment?

Would you only consider appraised home value vs purchase cost or would you also take into account expected appreciation of a new upscale subdivision since the intent is buy and hold anyway?

I'm buying my first duplex and I'll have to live in the house for a year, so I'm leaning towards getting a nicer, newer place that I'll enjoy as my first REI and landlord learning experience.

Would really appreciate hearing everyone's experience on their FHA loans starting out. Thanks in advance!


@Brandon Kingcaid I'm slightly confused by your statement "it would seem that with the higher payment associated with an FHA loan...", it sounds like you're referring to the downpayment and FHA has one of (if not the) lowest downpayments you can get at 3.5%, the downside being that you're stuck with MIP for the life of the loan. Overall FHA can be a good way to start (I used it myself to purchase a duplex), however I've heard of several banks doing 5% down loans with only PMI, which you can get removed after you have 20% equity in the home. If it were me, I'd look into if your local banks do something similar. The other downside to FHA is that they have stricter rules on the conditions of the house, so some sellers don't like to work with buyers using FHA loans (although it sounds like you're looking at newer properties so might not be an issue).

As to nicer/newer duplexes, well just run the numbers. You're most likely paying a higher price for something nicer/newer and may not be able to make up the difference in rent, so you're potentially getting less profit but also potentially have less fixes/headaches to deal with. Good luck with your search!

@Kevin S.

I was referring to a higher mortgage payment, because you are only putting down 3.5%. This lowers your profit each month when you go to rent both duplex units. And yes, less headaches with a newer home since it's my first REI.

@Brandon Kingcaid

That is how I got started, purchasing a duplex. We fixed it up over a couple of years and then refinanced with conventional once we met the 80% LTV.

As long as the property isn't totally trashed or in disrepair you should be able to get FHA on it. I did a conventional loan for 5% down on mine. If the numbers work for you and it cash flows a reasonable amount I say go for it. You can always refinance later on down the road.

@Brent Paul

I'm thinking about building my own, so it can be a bit smaller but still have all the upgrades. I see I can use an FHA one time close mortgage to finance home construction.

@Kevin S.

FHA loans generally have slightly higher interest rates and significantly higher costs to the private mortgage insurance. Also the pmi won't drop off after 20 or 25% equity (depends on hold time) and holds with the life of the loan or until refinance into a conventional loan. For a buy/hold or principle residence, those costs certainly add up