Using FHA to buy a home and build ADU // need advice
Hello everybody,
My name is Michelle and this is my first time posting on Bigger Pockets forums. I'm hoping to tap into the wealth of information provided by you fine folks.
A little bit of background on me: My husband and I currently rent a 1 bed 1 bath ADU in the San Fernando Valley, we pay $1700/mo including all utilities. I am a project manager for a general contractor. I deal with building inspectors, subcontractors, suppliers, and laborers on a daily basis. My husband is a carpenter, welder and all-around handyman with golden hands who manages our fence/gate business. We live and breathe the home improvement industry! We have access to cost price, amazing professionals, and insider knowledge which will ultimately save us tons of money in any renovation, big or small.
Our goal for 2018 is two-fold: to become homeowners AND landlords. We will achieve this buy finding a home with a large lot, build a detached ADU (accessory dwelling unit) and rent it out ASAP.
Our financing strategy is to use FHA and put down 3.5% (we've saved 6% to include closing costs just in case) and then get a private construction loan to finance the building costs of the ADU, which will cost us around $40,000, since we will be doing most of the work ourselves (including framing). Estimated monthly mortage/insurance/tax + loan payment would hover around $3500, not including utilities.
Since we have lived in 3 ADU's in the past as tenants, we've accurately estimated that our proposed 1 bed 1 bath with fenced-off yard and pergola, ADU could rent for $1700/mo easily, with the tenant paying their own utilities.
Our budget is no more than $475K, including money earmarked to repair main house (because honestly, we won't be getting anything pretty in San Fernando Valley at this price range) and construction loan for the ADU.
Currently we have about half of the down payment and closing cost amount saved up.
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Here is a list of my main concerns/questions that I'm hoping you folks can help me with:
1.) Does it make sense to jump into such a project in such a costly area as a first-time endeavor?
2.) Would it make more sense to start small and buy a much cheaper property to flip? But then I couldn't get FHA because of the 1 year occupancy requirement, and then I'd have to wait till I saved 20% for a conventional mortgage and that takes more time, and time = money!!! Especially in this hot market.
3.) Can you buy a foreclosed property through FHA? Does it make sense financially/time wise?
4.) What can I do RIGHT NOW to save time and make it easier for us when the time comes to start building the ADU?
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Thanks for reading my post, any and all feedback is highly appreciated.
Michelle