Question on the viability of a strategy I've been thinking about.

4 Replies

Hello everyone!  For those who don't know I am a new investor working on acquiring my first property before the year is out.  I don't have much capital to work with, although I'm saving as much as I can while working full time.

Initially, my plan was to use an fha loan to buy my first rental property and owner occupy.  Unfortunately most of the houses I have seen in my price range so far while inexpensive, have enough issues to make them un-rentable.  This got me thinking however...

I'm curious, how viable of a strategy would it be to buy a house that needs work and fix it up with the fha 203k loan instead, then take out a heloc for the value you've built up by doing the necessary work on the property and potentially using the money from the heloc for a down payment for a second rental property?

a couple things:

if you plan to owner occupy, you need to get a n-plex, so you can rent some part of it out.  Banks don't usually get excited about giving you a loan for an single-family owner occupied house if you turn around and rent it out.

The 203k is a good angle. Depending on the type of property, you may just need to refinance (some property types are hard to get a HELOC on as investment property.

Let me give you a tip for finding a property to rent/live in without the bank.  You traget is burnt out landlords.   You can find them in a couple of ways.

  First, go down to your local magistrate and see if they will give you a list of the landlords filing for eviction.

Second, you can buy a list, from a list source, that will give you multi-unit property owners who bought their property over 17 years ago. These guys are at the end of their depreciation cycle.

Lastly buy a news paper, wait one month, and buy another. Any for rent ad that is in both papers, is a property that the landlord cant seem to rent. Call all of these, ask if they are SFR or not, if not, ask if he would be willing to sell.

It will take some effort but when you find a multi-unit with any of these techniques, then you have a potential seller who is ripe for a creative financing offer.

To your succss


With a 203k you're already borrowing the money to do the renovations, in addition to the purchase price. It's unlikely your appraised value will be that much higher than your combined loan, and HELOC's usually only lend up to 80%. A 203k is a good program, but don't be expecting any magic value appreciation due to repairs.

Thank you everyone for the feedback!

@Wayne Brooks: What I'm getting from that is that the heloc part of what I was considering is not viable, I'll have to find another way to finance the second property then thank you for your insight!

@Josh Caldwell: Wow thank you so much for those tips!  I do think I'm still going to go the more traditional bank route for my first property, but I'm definitely making note of, and setting aside all of those strategies for my second!

@Jeremy Pace: I should have given a bit more detail in my initial post, I am looking for either a three or four unit property as per the rules of fha.  Thank you for the input!

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