Getting FHA + $100+/unit Realistic in DMV?

Question

Running some numbers for properties in DC and Baltimore, but hard to find a gem. I'm curious if people have found properties that can cash flow $100+/unit after direct expenses (prop tax, mortgage, homeowners insurance, etc) & indirect expenses (vacancy, capex, prop Mgmt, etc) in this area. Considering how large the mortgage payment will be, it's hard to envision finding a deal that really fits the criteria with FHA. Most of the properties I'm seeing are pretty heavily negative CF.

Primarily looking at 3/4 units to househack year 1, and then rent out all units after.

Russell Brazil · Answer

Longer you wait the more prices will rise. I know people who keep trying to save more to get what they want, they save, prices rise, they sace more, prices rise, its a vicious cycle. Just think if you were trying to buy in Petworth in 2010, when prices were $400k and the property was renting for $2,000. But you decided to wait and save more for that larger down payment...by 2015 prices were $600k and renting for $3,000, today they are $850k and renting for $4,000.

Nothing beats buying a high quality asset in a high quality location as soon as possible.  If you are using an FHA loan, it means you are going to live in the property today. You have to live some place, might as well build your own wealth instead of your landlords.  The rents will catch up to where you need them to be eventually, just be realistic that if you are 95% leveraged today, you wont cash flow today. But in the future you will.

Cassidy Burns · Answer

Hi @Bhavik Doshi due to FHA Self Sufficiency rule it's very hard to find a 3/4 unit in the DMV that works for financing.  Also, just a reminder that you are financing 96.5% of the purchase price, so it's going to be very very hard and almost impossible to have "Actual cash flow" (this is when you calculate in vacancy, cap ex, maintenance/reapirs) in your numbers.

My advice, use the FHA loan to purchase a property in a great location, that will always have high tenant demand.  Live in it for 1-2 years, turn it into a rental, and repeat.  I like DC or Alexandria best for these strategies.

Good luck!

Russell Brazil · Answer

The problem isnt the property, its that if you are using FHA, thus a low down payment, you are too highly leveraged.  Nothing wrong with that, but you need to set realistic expectations that if you are taking on a huge debt load, the payments going to be higher.  All my properties with the standard 20% down cash flow just fine.

Cassidy Burns · Answer

HI @Bhavik Doshi you will not find that kind of cash flow in Washington DC with the FHA loan, ESPECIALLY since you are calculating in vacancy, Capex, property management.  You have to remember you are leveraging 96.5% through the bank.  In this market you are using the low money down strategy to get into hopefully a break even property, where you can start building large sums of "forced savings" while you are living there for cheaper than the average rents in the area, and then forced savings once you move out with the tenants putting that "forced savings" deposit into your property every month.

My advice is to act sooner rather than later, as prices continue to increase.  With the new 2022 conforming loan limits increasing too, this means MORE buyers will be able to buy these assets , creating more demand , therefore pushing prices up higher.  The individuals that have been buying / bought in the past are seeing huge gains due to their best asset.

TIME.

I still believe it's the best strategy in real estate investing, you just have to be realistic with the type of financing you are using.

Best of luck!

Bhavik Doshi · Answer

@Cassidy Burns 100%! I would definitely price myself out of DC. Most of the quality multi families seems to be 700k+, but I think I can still find a property in a good neighborhood of Baltimore that fits the bill sub 450k

Cassidy Burns · Answer

@Bhavik Doshi I actually would suggest against that strategy as well.  In the DMV, lower price points don't mean "better value" actually quite the opposite.  Cheaper price = worse location = more vacancy an turnover.  = lesser long term return.

Ozzy Sirimsi · Answer

Your problem is looking at 3-4 units, not many available and if available they are over priced with multiple investors looking at them.

You should be able to get 2 units around 200K price point and it should be okay.

However, many owners stay away from FHA especially these days, there are ton of buyers out there. You need to act faster once you see one

Cassidy Burns · Answer

@Bhavik Doshi I'm not as familiar with Baltimore , so I will defer to a market expert on that one.  I still believe there is tons of value to be bought in DC, just have to get creative with how you finance it, and then of course hold for the long term.

Good luck with your investing journey

Bhavik Doshi · Answer

@Russell Brazil gotcha, thanks for the insight! Do you think similar logic applies for a 10% down payment instead of 3.5%? Or would you recommend saving up until I’m closer to 20% down payment, and then pull the trigger to get some positive CF?

Bhavik Doshi · Answer

@Cassidy Burns this makes perfect sense. Thank you for the confirmation and recommendation! I am definitely looking for cash flow as soon as possible, so maybe I can lower my price range and instead of financing 96.5% I’ll finance 90%

Getting FHA + $100+/unit Realistic in DMV?

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