Am I making a mistake...

5 Replies

So I just put a SFR under contract. It's not the worlds best deal, but it should trickle in some cash flow, and the neighborhood it is in is going through some very big transitions, so appreciation is almost a given (yes, I know, don't gamble on appreciation). When I look at the numbers, it's almost a better flip than it is a buy and hold deal. So here lies the rub: this is actually my first deal. I did house hack my living situation - my girlfriend and I bought a cheapo house under her name around the corner from this home and turned it into a nice place for not much money to get our cost of living down.

As this is my first personal purchase, I'm planning to use an FHA rehab loan to get this property up to the neighborhoods new standards, but I'm already second guessing myself.

Is it a waste of the FHA loan to get a SFR at a low cost, when I could buy much, much more property and value with this one chance to use a government backed low interest loan to cover purchase (3.5% down) and rehab costs. Should I instead be buying something bigger like a 4-plex.

When I compare the two options this is what I see:

Option 1. SFR under contract. Gets me in the game now. Easily meets 70% ARV rule for rehab/flip purposes. Gets me a 1.25% value to rent for rental purposes. In a few months I can extract some equity (I expect around 50-60k) to cover costs of getting into my next deal by refinancing with a conventional loan. Removing PMI will also help.

Option 2. Keep looking for a good 4-plex. Delays my entry to the game, but could get me something that is of much greater value. Equity from improving and refinancing the 4-plex will also likely be greater, enabling me to get into another property much more quickly after this one.

Has anyone else struggled to decide between a small multi and a single family? If so, is either one a better choice?

Thanks for help. Taking he plunge is both fun and daunting.

You have the inclination and the funds to do a deal now.  Do it.  If you talk yourself out of this one you may find it much easier to talk yourself out of the next one.  There will always be better deals but there will also be competition for those deals.  You may search a long time for that 4-plex and if you find it you may not be able to lock it up.  Unicorns are elusive.

Certainly agree with Jeff. Also, I'd say you have a misconception about a 4 plex having more advantages as to borrowing against them, appreciation or forcing appreciation by repairs, generally, you're better off with a SFD in a decent area. A 4 plex can be hard to finance due to the lack of sales comps. Appreciation will be tied more to rents than market influences, a SFD has the best of both worlds. :)

@Alex M.  

I have struggled with this too. I have been looking for a 4 unit multi-family property that would suit my needs for the better part of six months with nothing to show for it. I am wasting valuable time getting involved with my real estate investments. I am beginning to look into duplexes and maybe even huge value add SFRs.

Glad to see that someone else out there is struggling with me. It is hauntingly frustrating at times.

@Jeff Rabinowitz, @Evan Manship ,@Joe Villeneuve , @Bill G. 

Thanks!

I have been slow to respond to these comments, for one reason: I listened.

I (temporarily) stopped checking out MF properties in the area, and plunged on in with this purchase. I've had 5 separate contractors come by to check it out and provide me with quotes, and had a home inspection. The place is a nice 2-bed row home that will easily rent based on location, layout, yard, and my anticipate rental price, and there don't appear to be any big surprises.

I've run into another hiccup, though. The seller is very inflexible, and my FHA financing is going to take longer than anticipated. When I asked for a 2 week extension, the seller said no. It looks like their REALTOR has kept the property on the market and a number of other cash buyers may have submitted competing offers and are now waiting for this to not go through to drop their bids in officially - the seller had two properties on the market next door to each other at the exact same price and the other one sold and went to closing in 2 weeks. I'm about to post another thread on this, as I have been exploring options, but it looks like I may be shifting to private money on this one to keep it on schedule.