I'm interested in buying my first owner-occupied rental property in 2016 using an FHA Plus loan as a way to house hack my way into real estate investing. For those who don't know, FHA Plus loans cover 94% of the home cost and a second mortgage covers the 5% down payment. Borrowers then pay 1% of the sales price at closing. This would allow me to use more of my own capital for renovations. I plan to live in the property with two roommates who help cover mortgage payments. Does this sound like a wise decision? I'm not sure I'm a fan of having a second mortgage on the home but I also want to use as much OPM (other people's money) as possible for my first purchase. Thoughts?
Run the numbers!!
Or for our benefit, bring the numbers here so we can play with them :)
The major item I don't see in your %-based equation is closing costs. Closing costs on a purchase can easily add up to 3000+ when banks are involved. You'll also need to come to the table with 1 year of taxes paid and 1 year of insurance paid, UP FRONT. Maybe the FHA plus program covers these or rolls them into the mortgage, but you need to ask about those.
I always like house hacking as a first step. The big question you need to ask is:
"Is this a good investment property AFTER I move out?" Your roommates need to cover a fair amount more than the mortgage to make that answer "yes."
Napkin Calculations for Post Move Out(monthly):
Sewer and Water: $100
Trash: covered by taxes, hopefully
Heat/Utilities: on a SFH rental, $0
Cap Ex and Ops (my personal minimum is $150/roof/month): $150
Mgmt Fee - as a % (general consensus here on BP is 10%. include it even if you think you are going to self manage): $180
Vacancy- as a %. (8% represents 1 vacant month/unit/year): $~140
Total Expenses: ~$1770
So your total rent is going to need to be at least $2000 to make this worth your investment.
In the example above let's say you take the master suite. The roommates get 1 bedroom each and split the 2nd full bath. If a room in your area will go for $700 you are going to be in good shape. Your share will only be $370 plus utilities.
Words for thought.
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