First time House Hacking - FHA LOAN DUPLEX

Member since 2021 · 12 posts · 14 votes

Hey BiggerPockets, question!

Do you recommend purchasing a multi family property with an FHA loan. To keep it short, I'll be living with my girlfriend - rent is $1000/month; $500 each.

The goal would be to house hack" a duplex with a FHA LOAN (3.5-5% down). Rehab side A - Rent side B . Once rehab is completed - move tenant to side A - Rehab side B & after 6/8/12 months rent side B. Rinse and repeat. Possibly do a triplex, then quadplex. My mortgage loan officer says he only requires 5% down for 2-4 units

8 Reply

129 views

Most Popular Reply

Michael Dumler

Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes

@Dylan Smith this is one of the biggest investment strategies that BiggerPockets and investors alike advocate to newbies. However, easier said then done. With the current nature of today's market, most 2-4 unit properties (Atlanta, GA market specifically) are bought by all cash buyers that are willing to go way over asking. FHA insured loans have regulated lending guidelines, meaning the property has to meet certain requirements before underwriting is applicable. Usaully FHA lending terms are more favorable when the property is move in ready. Also, FHA requires the owner to occupy the property for the first year. Therefore, if one of the units is already tenant occupied and the other is in the process of rehab, then you're technically committing mortgage fraud. With that said, investors use this strategy all the time. Hope this helps!

6 Reply

See this reply in the discussion

32 Replies

Jump to latestLatest

Sort by

Michael Dumler
Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes
4y
@Dylan Smith this is one of the biggest investment strategies that BiggerPockets and investors alike advocate to newbies. However, easier said then done. With the current nature of today's market, most 2-4 unit properties (Atlanta, GA market specifically) are bought by all cash buyers that are willing to go way over asking. FHA insured loans have regulated lending guidelines, meaning the property has to meet certain requirements before underwriting is applicable. Usaully FHA lending terms are more favorable when the property is move in ready. Also, FHA requires the owner to occupy the property for the first year. Therefore, if one of the units is already tenant occupied and the other is in the process of rehab, then you're technically committing mortgage fraud. With that said, investors use this strategy all the time. Hope this helps!
6 Reply
Dylan Smith
OP
Member since 2021 · 12 posts · 14 votes
4y
@Michael Dumler Thank you for the information! Do your recommend for the market to settle down before house hacking with an FHA LOAN?
1 Reply
Michael Dumler
Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes
4y
@Dylan Smith not necessarily. From my two cents, the earlier you take action, the better off you'll be in the long run. Real estate investing is a time intensive battle in the beginning. I've heard folks say for years they'll start taking action when the market "cools" off. These are the same individuals that will make excuses time again as to why they never got into real estate. I would continue to search for properties that meet your criteria, and at the very least submit offers on a continuous basis until something lands. Curious, which market are you in?
6 Reply
Joey Gorombey
New to Real Estate · Member since 2021 · 58 posts · 26 votes
4y
My goal is to do what you're doing @Dylan Smith. I've been using Zillow/Redfin to look for full multifamily units!

@Michael Dumler -- What's your opinion on listings that have been up for a while (2+ months)? Does that mean there's something wrong with the property or the price is too high? I have enough cash on hand to support buying a full duplex at about 300k. I'm looking to live in Kansas City, Missouri -- not opposed to living in any of the surrounding areas (Liberty, Kearney, Platte City). I'm from KCMO, and know that anything north of the Missouri River is usually better. There are one or two full units north of the Missouri river for about 300k each, but they have been up for a while. is this a red flag?
1 Reply
Dylan Smith
OP
Member since 2021 · 12 posts · 14 votes
4y
@Michael Dumler - This is very true. I need to make sure that I’m finding the right deals! Do you know/have any resources that’ll help me analyze deals? I’ve seen excel spreadsheets that’ll help determine cash flow. I’m also looking for Duplexes in the West coast of Florida - Greater Tampa Area (St. Petersburg, Tampa, Clearwater, etc).

@Joey Gorombey - I'll continue to check Zillow/Redfin! I also have a licensed agent send me postings via MLS. I have him spam my inbox with listings in desired zip codes. You should give it a shot!

1 Reply
Michael Dumler
Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes
4y
@Joey Gorombey long duration of on market listings can potentially mean a number of things including, damage to the property, tenant occupied, process of probate, overpriced, etc... I'm unfamiliar with the Kansas City market so take everything I say with a grain of salt. However, I definitely encourage that you call the listing agent for each one of these properties to gather information. Simply ask if the seller has received any offers and if a seller disclosure can be provided. If the properties are of interest, I recommend working with a buyer's agent. Easiest way to determine if the properties are overpriced is to search for recent sold comparables. Hope this helps!
1 Reply
Michael Dumler
Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes
4y
@Dylan Smith when it comes to analyzing deals, the BiggerPockets calcs are fairly reliable and get the job done in my opinion. I would also note, be careful broadening your market search. It sounds counterintuitive, but searching and studying multiple markets can hurt your investment strategy in the long run. I can't speak for all investors, but I believe a majority of folks would agree it's more resourceful to pick one market and stick with it in the beginning. I feel a majority of analysis paralysis arises when individuals have multiple properties coming their way from multiple markets.
1 Reply
Nick Riccio
Lender · Boston, MA · Member since 2018 · 171 posts · 137 votes
4y
@Dylan Smith I definitely think this is a tremendous idea for you and your girlfriend. My wife and I have been house hacking for 4 years, and under contract on our third currently. We are also in a very "hot" and highly competitive market of Boston Ma. People will always tell you that it's impossible, or not the right time - but if it makes sense for you then go for it.
With properties that are in rough condition, you can always use the FHA 203K to make the needed renovations.
2 Reply
Thomas Geary
St. Petersburg, FL · Member since 2019 · 31 posts · 14 votes
4y
My advice would be to live in side A and only worrying about rehabbing side B first so you can charge top dollar rent before getting a tenant in there. And once you have it rented, then renovate the side you are living in… obviously it needs to be livable, but not quite updated… and yes, FHA loans are good tool but there are also other low down payment options as well! That's kinda my niche is helping new investors get their first house hack!
1 Reply
Dylan Smith
OP
Member since 2021 · 12 posts · 14 votes
4y
@Nick Riccio Thank you for the information! My MLO has given me similar advice

@Michael Dumler Thank you! Do you have any advice on where I can do market research? I’m looking for credible sources, courses, or even clubs.
- I can smell gentrification in multi parts of the Tampa area I just need to stick to one market as you suggested.
1 Reply
Dylan Smith
OP
Member since 2021 · 12 posts · 14 votes
4y
@Thomas Geary Sounds like a solid plan. Thanks for the advice! Let’s connect. I would like to hear other finance options as well as hear how you can help me as new investor!
1 Reply
Jonathan Soto
Lender · Newark, NJ · Member since 2016 · 695 posts · 252 votes
4y
if you cann go for 3 or 4 units as 2 units usually isnt enough to cash flow. especially once you move it.
1 Reply
Dylan Smith
OP
Member since 2021 · 12 posts · 14 votes
4y
@Jonathan Soto Good deal. However, I do plan on renting out the side I live in after a year. With that being said would you say 3-4 units would still be preferable. I find anything more than a duplex is hard to find.
1 Reply
Wale LawalBusiness Member
Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
4y
You have received great advice here already. What you have planned to do is something I would recommend to my new investor clients, along with @Thomas Geary post.

Good Luck

[email protected]832-776-9582 Podcast Guest on Show #469
NETWORTH BUILDERS5236 Reviews
Website View Page
1 Reply
Rebecca M.
Pacific North West, WA · Member since 2016 · 28 posts · 21 votes
4y
@Dylan Smith. I agree with @Michael Dumler. Waiting too long could bite you in the butt. David Greene had a great explanation with the current market in a recent podcast, #502 about 20 min in.

I'm going through this same situation right now actually. We are under contract on a quadplex that has been sitting on the MLS for over a month. It makes sense to us to buy it. Maybe I have a little FOMO going on too, because these properties are getting harder to come by in our area.

@Dylan Smith
1 Reply
Dylan Smith
OP
Member since 2021 · 12 posts · 14 votes
4y
@Rebecca M. Okay great! Are you guys doing an FHA loan on the quadplex? Do you mind sharing some information on the deal via inbox? I would love some insight!
0 Reply
Rebecca M.
Pacific North West, WA · Member since 2016 · 28 posts · 21 votes
4y
@Dylan Smith Yes I'll message you!
1 Reply
Bradley Dosch
Real Estate Agent · Seattle, WA · Member since 2019 · 301 posts · 188 votes
4y
All the advice in this thread is sound and I second it. Buying FHA to house hack multifamily is a super powerful strategy!
1 Reply
Ralph DiBugnara
Banker · New York, NY · Member since 2021 · 91 posts · 19 votes
4y
Hi @Dylan Smith, Have you considered renting any of the units on short-term rental sites? Where are you located?
1 Reply
Dylan Smith
OP
Member since 2021 · 12 posts · 14 votes
4y
@Ralph DiBugnara I have considered short-term rentals. However, I read that you can not AirBnb/VRBO or partake in any short-term rentals if you have a FHA loan.
1 Reply
Austin Haynes
Rental Property Investor · NJ · Member since 2020 · 18 posts · 13 votes
4y
@Thomas Geary
What other low down payment options are there opposed to fha?
1 Reply
Shawn McenteerBusiness Member
Realtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes
4y
Hi @Dylan Smith I recommend low money down conventional mortgages for house hacking. Tough to find right now for multi-family rentals but they exist. I have clients closing on properties with no PMI and no extra hoops to jump through.
973-975-3895
House Hacking New Jersey563 Reviews
Website View Page
1 Reply
Wale LawalBusiness Member
Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
4y
@Dylan Smith
FHA 3.5% is very difficult to get accepted contract in this highly competitive Red HOT Real Estate Market across the major metros in the country.
I will suggest you get a 5% Conventional Financing. It will give you some leg up.
As an Investor-Agent in the Houston, Texas market, most of the sellers are not accepting FHA Financing Offer.
I see this happening all the time.
Goodluck
[email protected]832-776-9582 Podcast Guest on Show #469
NETWORTH BUILDERS5236 Reviews
Website View Page
2 Reply
Dylan Smith
OP
Member since 2021 · 12 posts · 14 votes
4y
@Shawn Mcenteer Thanks for the information! How does one avoid PMI w/ 5% down? I thought exemption from PMI only exists when you put 20% down as an investment property.

@Wale Lawal - It's funny you mentioned that because my MLO said the same thing. 5% minimum to get into 2-4 units during these times of a hot market.
0 Reply
Shawn McenteerBusiness Member
Realtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes
4y
@Dylan Smith if your credit is strong and the lender feels there is no concern that you will default on loan PMI is not a must. If PMI is required for your conventional loan it does go away once 20% is hit.
973-975-3895
House Hacking New Jersey563 Reviews
Website View Page
1 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.