Is a 403K FHA the best way to house-hack a 4-plex

Investor · Columbus ohio · Member since 2019 · 11 posts · 6 votes

Hi,

I want to buy my second rental property but I'm not sure the best way to go about the financing. I want a 4-unit building, rehab as many units as I can, live in one for a least a year and then move out and rent the fourth unit out. I know about BRRR and that's the strategy I want to follow as I add more properties. I hope to find a property in the 200k -300k range and can put up to 20 percent down but if I can put down less I would prefer that. What I'm unsure about is which loan I should get, a 403K with 3.5 percent or a conventional rehab loan but then I would have to put down a lot more. But I would have more equity for the next deal. I'd appreciate any advice you all can offer. Also, any good lenders you know please let me know. Thanks!

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Matthew PorcaroBusiness Member

Lender · Long Island, NY · Member since 2016 · 456 posts · 336 votes

@Scot K.

The 203k is great for a 4-unit because the down payment is 3.5% no matter how many units.

Homestyle renovation loan for example requires hire down payments for more units. Combined with the HomeReady Program, you’ll pay closer to 15-20% down depending on how they judge your first time homebuyer status.

Also, remember with something like a 4 unit, your lender is going to want to see a few months rent payment reserves in case you can’t rent it out immediately.

The 203k Way

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Paul Welden
Real Estate Agent · Tempe, AZ · Member since 2011 · 1k+ posts · 543 votes
5y
The FHA 203k only requires min 3.5% down payment and the conventional rehab loan, Homestyle, requires as low as 5% down payment.
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Matthew PorcaroBusiness Member
Lender · Long Island, NY · Member since 2016 · 456 posts · 336 votes
5y
@Scot K.
The 203k is great for a 4-unit because the down payment is 3.5% no matter how many units.
Homestyle renovation loan for example requires hire down payments for more units. Combined with the HomeReady Program, you’ll pay closer to 15-20% down depending on how they judge your first time homebuyer status.
Also, remember with something like a 4 unit, your lender is going to want to see a few months rent payment reserves in case you can’t rent it out immediately.
The 203k Way
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Scot K.
OP
Investor · Columbus ohio · Member since 2019 · 11 posts · 6 votes
5y
Originally posted by @Paul Welden:
The FHA 203k only requires min 3.5% down payment and the conventional rehab loan, Homestyle, requires as low as 5% down payment.

Got it, thanks @Paul Welden!

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Scot K.
OP
Investor · Columbus ohio · Member since 2019 · 11 posts · 6 votes
5y
Originally posted by @Matthew Porcaro:
@Scot K.
The 203k is great for a 4-unit because the down payment is 3.5% no matter how many units.
Homestyle renovation loan for example requires hire down payments for more units. Combined with the HomeReady Program, you’ll pay closer to 15-20% down depending on how they judge your first time homebuyer status.
Also, remember with something like a 4 unit, your lender is going to want to see a few months rent payment reserves in case you can’t rent it out immediately.

That's what I thought @Matthew Porcaro. The 403k would be a better route, allow me to keep more cash in my pocket. What's your experience being able to get in contract when financing with 403k? Do sellers shun it because it takes longer to close?

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Matthew PorcaroBusiness Member
Lender · Long Island, NY · Member since 2016 · 456 posts · 336 votes
5y
@Scot K.
It’s not your job to care what the sellers want. You place offers on deals that work for you. Theoretically you’re looking for properties that are beat up. They’re selling to either renovation loan buyers or cash buyers.
Cash buyers typically need big healthy margins for a flip to work. They are looking to pay no more than 60 cents on the dollar. You, having great interest rates and low out of pocket risk, don’t need as high of a margin. Therefore, your offers can sometimes be higher than cash, and maybe the seller is looking for top dollar, and isn’t in a pinch for time.
Only very recently because of the lack of foreclosure inventory are you starting to see amateur cash buyers overpaying for distressed deals on the MLS. But that won't last forever. Either way, keep placing offers and stay strict on your numbers.
The 203k Way
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Scot K.
OP
Investor · Columbus ohio · Member since 2019 · 11 posts · 6 votes
5y
Got it, will do. Thanks @Matthew Porcaro!

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