All Forum Posts by: Mark Douglas

@Account Closed Correct, unless one of those 4 cases applies. Usually, you can only have one active FHA loan at a time, so the following properties would have to be financed through other methods. (Conventional, hard money, private money, HELOC, etc)

@Account Closed  For me, the pros and cons are:

Pros:

- 3.5% down payment 

- Up to 4 units (The more the better! I got an FHA loan for a duplex that I'm living in/renting, and I should've gone with a 4plex I was looking at!)

- You don't lose the FHA loan when you move out (You mentioned living there for 3 years; most lenders only require 1 year, but it may be a particular requirement of the lender you're working with?) and it's fixed for 30yrs

               - Some people will mention that the private mortgage insurance is prohibitive to getting the loan, but I just look at it as being part of the total monthly mortgage payment, so it wasn't a deal-breaker for me.

Cons:

- 3.5% down payment (lol....) You can obviously put down more if you'd like, but going with this 3.5% will significantly reduce how much equity you've got built in, from day one, which means it'll take longer to cash out refi or take out a HELOC down the road. One caveat to this, would be if you bought the property at a steep enough discount that would leave some equity built in due to the relatively high market value. Also, it'll take longer to pay off, which may not matter much, since the tenants will be the ones paying down the principal, but it's still accruing interest, which is money lost until the note is paid in full...

- Another less obvious downside to going with an FHA loan is that once you have an active FA trade line reporting to the credit bureaus, you're not able to open up another (buy another property) with FHA until the first is paid off (by refinancing, or paying the balance off with cash) There are 4 exceptions to having multiple FHA loans at once --->

https://portal.hud.gov/hudportal/documents/huddoc?id=4155-1_4_secB.pdf (pages 7-8) but they don't apply very often. If you're able to and comfortable putting the standard 20-25% down on an investment property (some lenders may let you go with less, since you're owner occupying, but they may want to see at least ~15%) you may be better off doing that, and keeping the FHA loan in your toolbox, to use when you find a really good deal...? Just a personal preference though.

Overall, it's working out for me, and I really don't see any glaring downsides, but you'll want to consider all of your options and see what will work best for you.

(Try and talk to a few CPAs and real estate attorneys about the benefits of forming an LLC or other such entity for your property...there are sooo many opinions about this lol)

Hope this helps !

Mark

@Bianca Harrison  If the market supports the investment, and the numbers work I'd go for it.  Partnering will depend on your level of comfort with the partner (would it just be a money partner, or money and management?) and preferred level of involvement for both parties.  If you feel you should partner, I'd be sure and draft everything in writing to make sure everyone is on the same page about what their role is before buying something.

Best !

Mark

@Justin Fox  gotcha..makes sense !

@Jason A. "I assume that simply vacating the property and bringing in a tenant would NOT require the satisfaction of any of these four conditions (providing one is NOT pursuing another FHA insured mortgage)."  - Correct. The way I interpret this, is that you should be alright if you lived in an fha insured property ("supposed" to be for 1 yr...lol) and you move out to place a tenant in there.  

But yea, it seems that they (FHA) wants one of those four deals to be met, otherwise they won't allow multiple active fha mortgages. And I'm assuming it's up to the lender to do their due dilligence. I guess when they pull credit, they'd see the fha trade line, and I imagine that's when they'd ask if you have one of those 4 situations...?

@Jason A.  @Grey Haubert

The four exceptions are: Relocation, Increase in Family Size, Vacating a Jointly-owned house, Non-occupying co-borrower.  I don't think these cases come up very often, but in case it does apply...

https://portal.hud.gov/hudportal/documents/huddoc?id=4155-1_4_secB.pdf

If not, I think the refi would allow for another fha closing. 

Hope this helps !

What affect do increasing interest rates have on investors?  I image there are quite a few investors that have low interest loans in their portfolios.  I've heard a few people say something like, "Banks may start reviewing their portfolio and looking at the ones with the lowest interest rates." 

Does that mean they (the banks) could ask investors to refi out of the low interest loans?  I thought the whole point of a fixed rate loan was that it was.. "fixed" lol

Any thoughts? 

@Jason A. The only thing about FHA is unless a person meets 1 of 4 "acceptable situations", to my understanding, one would have to refi out of the FHA before being able to close on another. But yes, @Grey Haubert  you should be able to rinse and repeat as often as you're able to refinance. 

Most lenders will need a substantial amount of equity (at least 20-25%) before refinancing, but some of the smaller local banks may be more flexible if you have less than that. The cool thing about buying properties at a discount and rehabbing/renting before the refinance (BRRRR) is that there should be a good amount of equity built in, or forced rather, during the rehab stage. It should appraise for an amount hopefully high enough to give you that 20-25%, which you can then pull out, and use as a down payment on the next property.

At some point, you do want to let the properties build up some equity so you aren't over-leveraged with borrowed money, but it's a pretty cool strategy to get going.

@Tony Clark I'm not married, so I can't speak to that aspect, but as I'm sure most investors on BP will attest, REI is one of the more powerful, sustainable ways to create and maintain wealth. I'm just getting started (one duplex in Nashville) but already I can see how it can be an effective tool to save more, invest more, and become financially healthy. Brandon Turner's article --> https://www.entrepreneur.com/article/270023 goes over the 4 ways owning rental real estate can help grow your net worth and wealth. 

Hope this helps !

@Grey Haubert  2nd @Account Closed's post. I'm house hacking a duplex now with an FHA loan. The rent on one half is $800 and the mortgage is $735. Looking back, I would've done a 4plex instead of 2 units. One year is a typical live-in requirement, which actually goes by quicker than it would seem.