P&I with F.H.A. Brand new at analyzing deals

9 Replies

I keep trying to use the rental calculator with duplex/triplex in Phoenix area while using the F.H.A loan, but the P&I keeps making every deal seem terrible. Is this a deciding factor when buying a rental home with an F.H.A, or is it something to not pay attention to.

@Colton Wiggs P&I Is what it is, it doesn’t matter what kind of loan it is.  You can’t expect to break even living in one unit of a duplex (50% automatic minimum vacancy rate) or a triplex (33% vacancy minimum).  You might come close with a four plex (25% minimum vacancy) with self managing.

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75% doesn't sound too far fetched, remember you are financing 96.5% of the deal, so you are highly leveraged in addition to paying an addition fee in the way of PMI. This means that your monthly payments are going to be much higher than if you did a traditional 20% down payment with no PMI.

@Colton Wiggs

Inventory of small multifamily in Phoenix metro is limited right now. I have found that with 2-4 units in order to get a deal to make a solid return, especially purchasing with FHA loan, you have to find a property with deferred maintenance or poor management, or a combination of both. Look for a property that has rents well below market value and find ways to add value and boost rents.

Most of what you find in the Phoenix market today will not be a great deal with it’s current rental rates.

I would be more than happy to share some examples of small multifamily deals that I have been making work. If you are interested just send me a message.

@Colton Wiggs the response you got from @Wayne Brooks is spot on. With FHA, you're essentially living in a property that the bank owns the vast majority of. It's a pipe dream to think you can live in one unit for "free" and still cash flow from the other unit(s) income.

I've helped quite a few BP members purchase small 2-4 unit multi family with FHA loans. A few years ago, some of them were actually living rent free and generating a small amount of cash flow on the side. As the markets shifts, so too must our expectations as buyers/investors. With that point of view in mind, then the example screenshot you posted doesn't look so bad. Assuming your numbers are correct, then you're basically living in an apartment for ~$100/month out of pocket, while three other tenants pay the majority of your housing expenses. As the owner, you get the additional tax benefits of writing off mortgage interest, property taxes, 3/4 of property expenses (assuming its a 4 unit), and depreciation. 

@Colton Wiggs 5-6% cap is pretty standard for decent multi units in Phoenix metro right now. 

Remember you're buying 1/4 primary residence and 3/4 investment property using very little of your own money, so trying to find some huge ROI is like trying to extract blood from a stone.