Very disappointed in BP RE: house hacking 3-4 unit

Roselle, IL · Member since 2016 · 131 posts · 31 votes

For the last few months, i've been VERY eager to start my vision of becoming financially free through the house hacking method. I've listed to MANY BP podcasts explaining how people buy a duplex or 3-4 unit property with an FHA loan, 3-5% down.... NOT ONCE have I heard them mention the "self sufficiency" rule!!!

The last few months i've been searching for a job in a specific area of my state to make sure i'm putting myself in the best potential area to make a house hack work on a 3-4 unit property. I found an excellent 4 unit... Cashflows $500 a month with me living in the 4th unit....still doesnt pass the self sufficient test per FHA rules....can't find much better around here. VERY frustrated i've never heard of this in all the hours of podcasts on house hacking i've listened to.

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Tchaka Owen

Real Estate Agent · Merritt Island, FL · Member since 2017 · 986 posts · 1k+ votes

@Steve Balinski - you mention that you (sic)listened to MANY BP podcasts.....what is possibly the most common theme with the various guests? It's the one thing every investor has encountered: failure.

How did you miss that lesson? The reason the guests are on there is because they did what all successful investors do after a failure: pick themselves up, dust off the dirt and go at it again. Just about everyone here who has done deals has failed at some point. Most of us have failed numerous times. So.....

You can blame BP, you can whine and quit, OR....you can pick yourself up and run at that 4-plex and find a way to make it happen. Hopefully you'll go with the last option.

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Shaun Weekes
Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes
6y
Originally posted by @Steve Balinski:
For the last few months, i've been VERY eager to start my vision of becoming financially free through the house hacking method. I've listed to MANY BP podcasts explaining how people buy a duplex or 3-4 unit property with an FHA loan, 3-5% down.... NOT ONCE have I heard them mention the "self sufficiency" rule!!!
The last few months i've been searching for a job in a specific area of my state to make sure i'm putting myself in the best potential area to make a house hack work on a 3-4 unit property. I found an excellent 4 unit... Cashflows $500 a month with me living in the 4th unit....still doesnt pass the self sufficient test per FHA rules....can't find much better around here. VERY frustrated i've never heard of this in all the hours of podcasts on house hacking i've listened to.

This is why it's so important to use a Loan Officer or Broker that knows what they're doing. It sounds like your loan person saved you a lot of money.
I'm curious if you're cash flowing can you give us all the numbers. We might be able to uncover something for you.
2 Reply
Tchaka Owen
Real Estate Agent · Merritt Island, FL · Member since 2017 · 986 posts · 1k+ votes
6y
@Steve Balinski - you mention that you (sic)listened to MANY BP podcasts.....what is possibly the most common theme with the various guests? It's the one thing every investor has encountered: failure.
How did you miss that lesson? The reason the guests are on there is because they did what all successful investors do after a failure: pick themselves up, dust off the dirt and go at it again. Just about everyone here who has done deals has failed at some point. Most of us have failed numerous times. So.....
You can blame BP, you can whine and quit, OR....you can pick yourself up and run at that 4-plex and find a way to make it happen. Hopefully you'll go with the last option.
6 Reply
Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
6y
Ive mentioned the FHA self sufficiency test at least 50-75 times in the forums.
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Arthur Schwartz
Investor · Baltimore, MD · Member since 2019 · 168 posts · 47 votes
6y
What is the FHA self sufficiency test?
0 Reply
Rebecca R.Pro Member
Real Estate Agent · MD · Member since 2016 · 107 posts · 27 votes
6y
It would be great and save us a lot of time if we could search the Forums by a very specific Subject or Topic since there are so many posts and Forums on BP. At times, it can be a little overwhelming when trying to search for the answer to a specific question (i.e. what is a FHA Self-Sufficiency test). That may be why some already asked questions are posted multiple times in the Forums in search of the answer. That way we wouldn't have to read through so many Forum Topics to find exactly what we're looking for.
What do you think? Any ideas we can suggest to BP on ways to streamline the Forums Subject, Topic search process? Thanks.
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Zack KarpPro Member
Lender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes
6y
@Steve Balinski a bit of tough love, but you're working with the wrong team. For sure the wrong LO, and probably the wrong Realtor. That simple. When I preapprove a buyer for a 2-4 unit FHA property, my preapproval email has an entire paragraph dedicated to the SST (self-sufficiency test). Also the Realtors that I work with that specialize working with investors and house hackers also know about the SST and will give their buyers a heads up when they want to see a property that wouldn't pass, and/or reach out to me to run numbers to confirm.
You need a better team that truly cares and is looking out for your best interests. It's that simple. They wasted your time. And who knows what other surprises they didn't warn you about.
Best of luck!
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Brian Kueck
Investor · DFW, TX · Member since 2019 · 8 posts · 9 votes
6y
Glad I came across this thread! I have never heard of the the sufficiency test before seeing it here, but I am also looking to buy my first house hack as the start to my REI journey. I'm trying to learn something new everyday and improve my network as well on BP. Will be learning more about the requirements for the FHA loans since that is most likely the financing option I will be using to get my first house hack. Thanks to all who have posted good information and advice.
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Steve Balinski
OP
Roselle, IL · Member since 2016 · 131 posts · 31 votes
6y
Originally posted by @Rebecca R.:
It would be great and save us a lot of time if we could search the Forums by a very specific Subject or Topic since there are so many posts and Forums on BP. At times, it can be a little overwhelming when trying to search for the answer to a specific question (i.e. what is a FHA Self-Sufficiency test). That may be why some already asked questions are posted multiple times in the Forums in search of the answer. That way we wouldn't have to read through so many Forum Topics to find exactly what we're looking for.
What do you think? Any ideas we can suggest to BP on ways to streamline the Forums Subject, Topic search process? Thanks.

It wasn't the forums, it was the podcasts. I was so motivated to get my first house hack, and 2nd 4-unit property (1st one was 25% down conventional)
I'm just disappointed that all the podcasts i've listened to, i've never heard them mention this self sufficiency rule... completely changes my plan, and reduces the income I was hoping for dramatically.
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Steve Balinski
OP
Roselle, IL · Member since 2016 · 131 posts · 31 votes
6y
Originally posted by @Shaun Weekes:
Originally posted by @Steve Balinski:
For the last few months, i've been VERY eager to start my vision of becoming financially free through the house hacking method. I've listed to MANY BP podcasts explaining how people buy a duplex or 3-4 unit property with an FHA loan, 3-5% down.... NOT ONCE have I heard them mention the "self sufficiency" rule!!!
The last few months i've been searching for a job in a specific area of my state to make sure i'm putting myself in the best potential area to make a house hack work on a 3-4 unit property. I found an excellent 4 unit... Cashflows $500 a month with me living in the 4th unit....still doesnt pass the self sufficient test per FHA rules....can't find much better around here. VERY frustrated i've never heard of this in all the hours of podcasts on house hacking i've listened to.

This is why it's so important to use a Loan Officer or Broker that knows what they're doing. It sounds like your loan person saved you a lot of money.
I'm curious if you're cash flowing can you give us all the numbers. We might be able to uncover something for you.

What do you mean they saved me a lot of money?
income is 2700/month. Mortgage would be about 2100-2200.
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Steve Balinski
OP
Roselle, IL · Member since 2016 · 131 posts · 31 votes
6y
Originally posted by @Arthur Schwartz:
What is the FHA self sufficiency test?

income of the property (this is only for 3-4 unit) x.75 must be higher than your mortgage with taxes and insurance included
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Cliff H.Pro Member
Rental Property Investor · Nashua, NH · Member since 2014 · 598 posts · 477 votes
6y
Blessing in disguise? If you are going to put up with the “luxury” of living on the other side of the wall from your tenants the least the property could do is pay for itself with you living there.
If not, keep looking. Plenty of investors that would argue the best investments are rarely the ones you live in.
1 Reply
Craig Jeppesen
Rental Property Investor · Chubbuck, ID · Member since 2018 · 532 posts · 466 votes
6y
Well I think it is obvious you have to be able to afford it. What if your tenants all move out or get the laid off like the current virus situation?
1 Reply
Steve Balinski
OP
Roselle, IL · Member since 2016 · 131 posts · 31 votes
6y
Originally posted by @Craig Jeppesen:
Well I think it is obvious you have to be able to afford it. What if your tenants all move out or get the laid off like the current virus situation?

in the hypothetical every unit was empty, many investors wouldn't be able to afford their properties. But with 3/4 units filled, i'd still cashflow
0 Reply
Steve Balinski
OP
Roselle, IL · Member since 2016 · 131 posts · 31 votes
6y
Originally posted by @Cliff H.:
Blessing in disguise? If you are going to put up with the “luxury” of living on the other side of the wall from your tenants the least the property could do is pay for itself with you living there.
If not, keep looking. Plenty of investors that would argue the best investments are rarely the ones you live in.

not sure what you mean, the property is +$500 with me living there
0 Reply
Shaun Weekes
Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes
6y
Originally posted by @Steve Balinski:
Originally posted by @Shaun Weekes:
Originally posted by @Steve Balinski:
For the last few months, i've been VERY eager to start my vision of becoming financially free through the house hacking method. I've listed to MANY BP podcasts explaining how people buy a duplex or 3-4 unit property with an FHA loan, 3-5% down.... NOT ONCE have I heard them mention the "self sufficiency" rule!!!
The last few months i've been searching for a job in a specific area of my state to make sure i'm putting myself in the best potential area to make a house hack work on a 3-4 unit property. I found an excellent 4 unit... Cashflows $500 a month with me living in the 4th unit....still doesnt pass the self sufficient test per FHA rules....can't find much better around here. VERY frustrated i've never heard of this in all the hours of podcasts on house hacking i've listened to.

This is why it's so important to use a Loan Officer or Broker that knows what they're doing. It sounds like your loan person saved you a lot of money.
I'm curious if you're cash flowing can you give us all the numbers. We might be able to uncover something for you.

What do you mean they saved me a lot of money?
income is 2700/month. Mortgage would be about 2100-2200.

Whoever told you about the S.S.R. saved you Earnest Money potentially.

Does that 2.2k include taxes, insurance and PMI? If it does you pass S.S.R. and shouldn't have a problem moving forward?
0 Reply
Martin NealPro Member
Rental Property Investor · Chicago, IL · Member since 2017 · 293 posts · 383 votes
6y
@Steve Balinski If it's a really good deal, then find a way, otherwise find a excuse. What's the percentage down with FHA 3%?? In Illinois especially, you can get a conventional loan for as low as 5% down. I've brought two primary residences with a 5% down loan and you can too!!! Call lenders and find out which one will do this for you. Then borrow, beg and hustle for the extra 2%! Good luck!!
0 Reply
Zack KarpPro Member
Lender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes
6y
@Martin Neal you can no longer buy a 2-4 unit with 5% down Conventional unless your annual income is under the Home Possible income limit, which for us in Chicagoland is $69,920. This INCLUDES rental income from the other unit(s) if you need that income to qualify. That kicks most people out now, especially in the burbs.
847-387-5513
1 Reply
Michael King
Rental Property Investor · Navarre, FL · Member since 2019 · 913 posts · 640 votes
6y
@Steve Balinski

I second what @Tchaka Owen when he said find a way to make it happen. And if not that deal, then there's the next one.

0 Reply
Cliff H.Pro Member
Rental Property Investor · Nashua, NH · Member since 2014 · 598 posts · 477 votes
6y
Originally posted by @Steve Balinski:
Originally posted by @Cliff H.:
Blessing in disguise? If you are going to put up with the “luxury” of living on the other side of the wall from your tenants the least the property could do is pay for itself with you living there.
If not, keep looking. Plenty of investors that would argue the best investments are rarely the ones you live in.

not sure what you mean, the property is +$500 with me living there

I’m saying that what others have already said: plenty of property fish in the sea. What seems like a lot of cashflow now may not feel that way a year or two after a few other investments. And having the freedom to invest anywhere allows a lot greater time and flexibility in finding the right deal than restricting yourself to a house in your town, that you’d live in.
1 Reply
Jonathan KlemmBusiness Member
Moderator
Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
6y
@Steve Balinski - Completely understand your frustration, but I want to emphasize that your first deal doesn't have to be perfect. I know for me looking for a 3-4 unit in Chicago using FHA was almost impossible so I just settled for a 2 unit on my first deal. Obviously, the numbers weren't as good, but I found a heavy value add property and still was able to BRRRR it.

Also, I see you titled the post disappointed in BP, which is also understandable, but didn't your lender or agent let you know of this rule? It should be common knowledge to anyone working with investors. If you arent working with a lender yet you might want to reach out to @Michael Facchini or @Michael Barbari, I know both of them work with investors.

@Sarita Scherpereel, @John Warren, & @Brie Schmidt -what do you guys tell your clients that can't find properties that meet the self-sufficiency rule?
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Jonathan KlemmBusiness Member
Moderator
Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
6y
Originally posted by @Jonathan Klemm:
@Steve Balinski - Completely understand your frustration, but I want to emphasize that your first deal doesn't have to be perfect. I know for me looking for a 3-4 unit in Chicago using FHA was almost impossible so I just settled for a 2 unit on my first deal. Obviously, the numbers weren't as good, but I found a heavy value add property and still was able to BRRRR it.

Also, I see you titled the post disappointed in BP, which is also understandable, but didn't your lender or agent let you know of this rule? It should be common knowledge to anyone working with investors. If you arent working with a lender yet you might want to reach out to @Michael Facchini or @Michael Barbari, I know both of them work with investors.

@Sarita Scherpereel, @John Warren, & @Brie Schmidt -what do you guys tell your clients that can't find properties that meet the self-sufficiency rule?

[email protected]
Quality Builders4.966 Reviews
Website View Page
0 Reply
Charlie S.
Chicago, IL · Member since 2019 · 17 posts · 2 votes
6y
@Steve Balinski I felt the same way. I learned that there was a 5% down conventional loan; no self sufficiency rule required, that is no longer available as of July 2019. Probably has something to do with why self sufficiency wasn't mentioned as much( ppl were able to use conventional instead of FHA)
0 Reply
Steve Balinski
OP
Roselle, IL · Member since 2016 · 131 posts · 31 votes
6y
Originally posted by @Jonathan Klemm:
@Steve Balinski - Completely understand your frustration, but I want to emphasize that your first deal doesn't have to be perfect. I know for me looking for a 3-4 unit in Chicago using FHA was almost impossible so I just settled for a 2 unit on my first deal. Obviously, the numbers weren't as good, but I found a heavy value add property and still was able to BRRRR it.

Also, I see you titled the post disappointed in BP, which is also understandable, but didn't your lender or agent let you know of this rule? It should be common knowledge to anyone working with investors. If you arent working with a lender yet you might want to reach out to @Michael Facchini or @Michael Barbari, I know both of them work with investors.

@Sarita Scherpereel, @John Warren, & @Brie Schmidt -what do you guys tell your clients that can't find properties that meet the self-sufficiency rule?

They did let me know of this rule, after I had finally found a 4-unit property I liked and sent them all the information needed to get a loan to get proof of funding and eventually put an offer on it.

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Brie SchmidtBusiness Member
Moderator
Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
6y
@Jonathan Klemm - For my clients, we pre-analyze deals for them on the north side of Chicago. Once we find a deal that we think is worth looking at we break down the numbers for 15% and 20% and 5% and 3.5% programs checking the program requirements and loan limits for each program before sending it to clients. So if I have 10 total options sometimes 3 will be eligible for 5% and 2 will be eligible for FHA 3.5%. We check the self sufficiency test before sending it out to clients as to not waste our time or theirs
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John Warren
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
6y
@Steve Balinski I typically run the numbers in the burbs before we go look at properties as well. Most of the stuff in the near west and southwest suburbs won't work for FHA right now, which is a shame. Obviously, you can do a 2 unit because you don't have to meet self sufficiency, but a lot of the 2 units don't really cash flow either. It is still possible to buy a 3 or 4 unit with FHA, but you have to be creative at times!
The other thing no one is talking about on podcasts is how much listing agents HATE fha loans. When you are bidding on a competitive property, your FHA offer is probably getting tossed right into the garbage.
At the end of the day, house hacking is just one strategy available to investors. I tried to house hack back in 2012 and again in 2014. I was forced into what BP podcasts would call "live in flips". These two fixer upper single family homes have given me the equity to buy 58 apartments in the Berwyn area. Stay focused on the goal, and you will find a way to get there!
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