Home Mortgage for a Duplex, Triplex or Fourplex

18 Replies | Austin, Texas

Hello BP community! My wife and I want to acquire a multifamily property either a duplex, triplex or fourplex. We are considering finance it through an FHA Loan but we are open to any suggestions. Any recommendations regarding a good mortgage company in the Austin area?

@Ivan Huerta FHA is a great option but I'd recommend looking into a conventional loan for a duplex first. If you use a conventional loan first then you can go back and use the FHA loan a year later!

Two multi families for 8.5% down is much better than two for 18.5% down most of the time!

@Jordan Moorhead thanks for your replying. Well the reason why we would like to get it through an FHA is to be able to pay less upfront and refinance after in a year with a conventional loan. Then take the money and acquire a second property. Do you think that is something doable?

Thank you Jordan!

@Ivan Huerta refinance out with what equity? You'll only have 3.5% in the property.

I do not think it's doable, unless you find some way to add a lot of value. They won't refi unless you have at least 20-25% equity in the property.

The 5% down conventional and then doing an FHA 3.5% down a year later is a lot safer, easier and more predicable. Don't make things too complicated!

I also have a lender that refinanced my first property with only 5% equity in the property. He works in all 50 states so let me know if you're interested!

Hey All, 

New to this forum as well! My wife and I are in the same boat. 

We were under the impression that you needed 25% down for an investment property. Can anyone shed more light on the 5% conventional and how to obtain that or point me to some other material? Thanks!

Hey @Ivan Huerta Do you intend to live in the property? People use the FHA loan to purchase homes they intend to live in. It's very hard to qualify for the FHA loan if it's meant for an investment property. The exception to that rule is if the property (or part of the property) will be owner occupied for the first year. The same rule almost always applies to the 20% discussion. In most cases in order to reduce your down payment below 20% you will have to occupy the property. You can have a combination of up to 10 mortgage loans at any one time. And your wife can have 10 of her own. FHA, conventional, USDA, etc. and the 20% guidelines will apply to each of them. A common strategy is to purchase one a year with 3-5% down, live in the property for a year, then purchase another one and repeat the process.

One very important factor. On most deals, on market or off market, 3-5% down will not be enough to cashflow positively in the Austin area. The rents are behind the property values. If you intend to live in the property your bills will be reduced, no doubt. But 3-5% won't yield a low enough mortgage for you to be profitable on the vast majority of deals.

I would recommend South Star Bank in Steiner Ranch. They are very investor friendly and deal with all types of loans. They are a smaller sized bank so they are hungry and on the ball. Ask for Larry Weisinger.

Good luck!

Hi Zachry good morning, im in a very similar situation as Joe exept im in Houston area, could you further explain this prtion? And give an example I dont understand why he wont cash flow at 3% down 

One very important factor. On most deals, on market or off market, 3-5% down will not be enough to cashflow positively in the Austin area. The rents are behind the property values. If you intend to live in the property your bills will be reduced, no doubt. But 3-5% won't yield a low enough mortgage for you to be profitable on the vast majority of deals.

@Joe Malleck

If you owner-occupy an investment property, then you can qualify for lower down payment loans (e.g., an FHA loan with 3.5% down). Some lenders who do 15% down on a single-family investment property. However, unless you intend to live there, anything 2-4 units will usually require 25% down.

Hey @Eric Guerra  I’d be happy to explain. However, this is a rule of thumb for the Austin market. I am not familiar enough with the Houston market to say what kind of down payment will be required to achieve cash flow.

I’ll give an example property. 13357 Water Oak LN is on the market for 325K. It’s a duplex in Round Rock ISD (one of the best in the region) and is priced appropriately for our market as well as the neighborhood. There are 3, nearly identical, properties in the neighborhood that have rented units in the past year giving us an OK amount of rental data to run our analysis. They were all similarly priced and rented for an average of $1,270/month. So let’s run the numbers.....

Property Price = 325k = Monthly Mortgage Payment of $2,850; $2,800/month comes from the principle and interest on the note, taxes, insurance, and private mortgage insurance (required on all Fannie/Freddie loans that are funded with less than 20% down).

Monthly Rent = $2,540/both sides or $1,270/one side

So, if you intend to live in one half for the first year you will be coming out of pocket $1,530/month and if you move out while the teams of your loan remain the same. You will be negatively cash-flowing $300/month BEFORE you factor in the other parts of the rental property equation, vacancy (6% in Austin), capital expenses (water heater goes out, need a new roof, etc. usually 5%), repairs and maintenance (usually 5%), and for now we will assume you will self-manage....

Vacancy = $150/month, CapEx = $127/month, Repairs and Vacancies = $127/month + Monthly Mortgage of $2,850 give you a total overhead of $3,240/month. At that rate you will be losing around $700/monthly.

Just for fun, I ran the math to figure out your "break evendown payment" for this property and you would need to put down around 25% to not loose money (using the math above). It goes up from there if you want to hire a management company. PLEASE KNOW, some of my clients are perfectly fine putting 25% down. In the long run they know that the home will likely appreciate, someone else is paying for their equity, and they are getting tax benefits. But the house hack method of, putting down a small amount, living there for a year, then moving to another property and repeating the process, doesn’t work in this area with only 3% down.

There are some properties, some rare gems, that break the mold and offer great returns for less than 20% down but they are few and far between. And if you are willing to put in the elbow grease its possible to find a dump property and really boost the value to make the numbers work.  This example isn't every property, but it does represent the majority of 1-4 MF properties for sale (on and off market) in the Austin area. 

Also, don't not buy real estate because 3.5% doesn't give you the returns you expected, just know that its going to be a little harder to find the right property, and you may have to come to terms with making less off your deal. Real Estate is an incredible investment tool, you just want to be sure you know your numbers! 

P.S. I ran reports for both scenarios above. Anyone who wants a copy, feel free to PM me.