First deal on the way, torn with financing

5 Replies

Hello everyone - I am currently working on my first deal and I'm torn (mostly fear and financing). I have several duplexes that I am considering all are currently occupied & cash flowing with 'long-time' tenants and rent raise potential. I will not be able to live in either unit. 

I also have a few SFHs 2+ bd/ 2+ ba. 

If I purchase a SFH, I will live in the home and keep as a long-term rental and to use the equity to purchase more properties.

Financing, I'm torn between an FHA w/ 203K and R&D financing with down payment assistance.

The R&D financing is limited to 1st time home buyers. 

What are your thoughts? 

Thank you in advance

Antuan, We would need more information: What is your holding period? What is the difference in rate on the down payment assistance Program financing vs the FHA w/203K? What are the requirements? A lot of programs require you live in a part of the home. This would be an excellent conversation with a great Local Lender in your area. I'd be happy to refer you to someone amazing in your area. If your lender cannot answer basic amortization scale questions, it would behoove you to find a new one. It's important you know what your long term goal is so the calculations for the term you plan to hold can be taken into affect.

Originally posted by @Antuan Bell :

Hello everyone - I am currently working on my first deal and I'm torn (mostly fear and financing). I have several duplexes that I am considering all are currently occupied & cash flowing with 'long-time' tenants and rent raise potential. I will not be able to live in either unit. 

I also have a few SFHs 2+ bd/ 2+ ba. 

If I purchase a SFH, I will live in the home and keep as a long-term rental and to use the equity to purchase more properties.

Financing, I'm torn between an FHA w/ 203K and R&D financing with down payment assistance.

The R&D financing is limited to 1st time home buyers. 

What are your thoughts? 

Thank you in advance

 Hey Antuan

Congratulations on taking the leap.

On your first deal, go units and house hack. Don't even consider the single family properties; they will have limited cash flow and when your tenant decides to not pay, you're stuck with two mortgages. Besides, you can pick one of those up later once you decide on your "forever" home. You could even use the FHA 203K to use the lender's money to fix up the property and then live in it for at least a year. That way you can get in with just 3% down.

Once the property has at least 20% equity, refinance it and get rid of the mortgage insurance.

Then go get another, and another and another.  

Best of luck

Stephanie

Thank you both for replying. 

@Virginia Marphis  - Yesterday I went with my agent to review the properties, and discovered my market is hot. Properties are on the market for at least 2-3 days and then they are gone. 

I had a conversation with my credit union and the 'finance guy,' and he told me that an FHA or RD financing will not work with a multi-family and that I would have to go the conventional investment route, with higher rates and more money down. So renting one unit and living in the other would not make much of a difference.

I am kind of bummed. 

@Stephanie P. - I'm thinking house hacking a SFH will be the best option for me at the moment based on the information my 'finance guy' presented yesterday. Not to mention the Duplex will be a total overhaul of both units.

I definitely would like to go units, but in my area multi-family is hard to find unless I go commercial 8+ units. 

Interestingly, I've had two financing guys balk at the FHA 203K idea.

So right now I'm playing with the idea of buying a SFH, planting roots (single father of two), and ... or investing in units outside of my state.

Originally posted by @Antuan Bell :

Thank you both for replying. 

@Virginia Marphis  - Yesterday I went with my agent to review the properties, and discovered my market is hot. Properties are on the market for at least 2-3 days and then they are gone. 

I had a conversation with my credit union and the 'finance guy,' and he told me that an FHA or RD financing will not work with a multi-family and that I would have to go the conventional investment route, with higher rates and more money down. So renting one unit and living in the other would not make much of a difference.

I am kind of bummed. 

@Stephanie Potter - I'm thinking house hacking a SFH will be the best option for me at the moment based on the information my 'finance guy' presented yesterday. Not to mention the Duplex will be a total overhaul of both units.

I definitely would like to go units, but in my area multi-family is hard to find unless I go commercial 8+ units. 

Interestingly, I've had two financing guys balk at the FHA 203K idea.

So right now I'm playing with the idea of buying a SFH, planting roots (single father of two), and ... or investing in units outside of my state.

The financing guy with the credit union is WRONG. No way to sugar coat that one. Their bank obviously has an overlay that doesn't allow THEM to do the loan (or he's new or he doesn't know what he's doing), but his overlays or newness or ignorance shouldn't preclude you from getting the financing that suits your situation. Bottom line, find a better lender. The truth is you can go units with an FHA loan; up to 4. You can also go units up to 4, with a 203K. We don't do them at US Commercial, but I can refer you to an FHA guy or a renovation guy that does them all day long and twice on Sunday. I've attached a link below for your review.

http://www.fha-home-loans.com/4_unit_fha_loan.htm

Here's why units makes sense on your first property.  

  1. If you want to really be a landlord, then house hacking affords you the opportunity to not only have someone else pay your mortgage, but will give you a taste of the down and dirty of what it means to own property.  In my opinion, it's easier if you live there.  
  2. The tenants respect the property more.  Tenants are more reluctant to tear up your property if they know the owner is there and if you are on-site when they're doing something stupid, you can tell them no before they do too much damage.
  3. FHA is not long term cheap because of the upfront MI as well as the monthly MI that doesn't go away until you refinance, but when used appropriately (like in your case) it's affords a significantly low barrier to entry, allows you to start your business comfortably and (like I said and what I think is the best part) allows you to have other people pay for your mortgage.

Let me know if I can help further.

Stay the course, you're on the right track.  Best of luck

Stephanie