Is it smart to house hacking with FHA Plus loan?

1 Reply

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?

@Gabrielle E.

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):

PITI: $1200

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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