Buying 3 Family House as First Property

4 Replies

I am looking for advice on whether or not my plan is feasible or not. My brother and I plan on buying a 3 or 4 family house using an FHA loan and putting 3.5% down and living on the top floor. We will only do this if we can get at least a 20% discount on the property so we can have decent equity in the property. We plan on doing this so we can live for free and we can get free equity by finding the property at a discount. Basically this entire plan is based on us finding a property at least at a 20% discount so we can sell the house in a couple of years and then get another FHA loan and repeat the process until we can buy a commercial property. Does this seem like a dream or is it reasonable?

Thanks,

Cory Gardner

Cory,

I'm in the same boat as you with almost the same plan.  It's a great idea and somewhat a double edge sword: you not only get an asset, but you get to live in if for free, allowing you to save money for your next venture!

My only advising to your plan would be to refinance down the line with a conventional loan. With FHA loans you'll be stuck with PMI, which can take a toll on your cash flows.

You might want to look into some of Quicken loans programs, I believe they have a "PMI buster" loan program that let's you get in with 5% down and no PMI. Not sure where the trade-off is, but give it a look!

Good luck to you and your bro!

That's reasonable, although I would consider doing the same thing without selling the first place. As long as you stay there one year or more, you can take advantage of today's cheap money and your owner-occupant status on the first loan. Then, instead of selling, do a cash-out refi to purchase your next property. That way you keep the cash-flowing asset and your tenants pay that mortgage off for you, and you repeat on another house in a couple years. Look up the BRRR strategy in the forums. That's basically what you're doing if you refi instead of sell.

@Kevin Siedlecki

yeah I should have been more specific with my plan. My brother and his girlfriend are going to get an FHA loan on the first house and we are all going to live in that for a year, then me and my girlfriend will get an FHA loan for a 2nd property and we will all move in that one and let the first one cash flow for a couple of years. 3 family houses in CT where I live go for around 200k so a 20% discount would be a 40k discount and instant equity. If we did that twice we could sell both of those and make about 100k and then use that as a down payment for a commercial property.

@Matt Juels

Yeah I know the PMI can lessen the cash flow but I'm hoping to find a good enough deal where I can still live free even with the PMI and get good returns when I move out. I never heard of that 5% down without PMI and I will look into that. That seems like it could save me from refinancing in the future to get out of the PMI.

Thanks and good luck!!

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