An FHA-Financed Duplex is an Ideal First Investment Property: Here’s Why


The hardest part of getting into real estate investing is where to start. I’ve been there, and it’s stressful because it’s a big decision. I made a lot of rookie mistakes just like most new investors do.

So what’s the best way to start if you aren’t rich, want to generate income right away and want to be able to buy more properties over the next few years? I propose buying a duplex using an FHA owner occupied loan. Let’s learn why.

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What You Need to Know About Financing

Most people wanting to get into investing start by buying a house with an owner occupied loan (FHA, VA Conventional). Owner occupied loans are cheaper because they have lower interest rates and much lower down payments than investment loans. It’s also the most affordable way to go when you have little cash. Keep in mind, you have to occupy the home for at least a year with an owner occupied loan, or you’ll be committing fraud.

Related: Your First Investment: How to Use Future Rental Income to Qualify for a Duplex Loan

After a year of living in the home, you can legally move out and rent the property. There are no laws against doing this. However, unless you own 30% of the property at the time you rent it out, you will not be able to get another loan until you have two years of landlord experience with that home on your taxes. Going this route means you will have to wait 3 years to buy the second property. Most new investors don’t know this going in and find out too late.

There is a way to speed this process up, get rental income right away and avoid the biggest mistakes most new investors make.

Buy a Duplex With an FHA Loan

First things first, duplexes are almost always cheaper and bring in more rental income than single family homes of the same size. If you plan on investing, it’s a good idea to start with a duplex anyway.

FHA is the only owner occupied loan you can get for a duplex that will allow a low down payment (3.5% as of March 2015), that doesn’t require landlord experience and that will count the future rental income from the other half of the duplex to help you qualify for a loan. Yes, you will be able to buy more than you can afford because you can rent the other side. How awesome is that?

Not only will you be able to buy more going this route, you will also gain the 2 years landlord experience needed to buy the next property. The reason you need two years experience renting that house is because they need to see how much you get in rent to be able to use that as income when you want to buy another house. Less than two years experience, and they won’t count your rent as income, and you’ll have to qualify for both homes at the same time to buy the second property.

When you do decide to move out after two years, all you need to do is get a lease on the half you are moving out of and turn that in to the lender. You will then be able to use 75% of the total rental income to qualify for the next loan.

Example: Your mortgage is $1,500 a month and you receive $1,000 a month from the rented side of the duplex while living in the other side. After 2 years you move out and get a signed lease on the side you were living in for another $1,000 a month, bringing your total rental income $2,000 a month. The lender will credit you 75% of that as income (25% is estimated to go to vacancies and repair costs). In the lender’s eyes you are now have a $1,500/month mortgage debt and a $1,500/month rental credit. You break even.

If there were a surplus, the extra would be added to your income and help you buy the next property. If it’s a deficit, they will take that amount away from your total income and it would hurt you when buying the next property.

That brings us to the 25% rule. You want to try to make 25% more than the mortgage every month so the house doesn’t count against you when you when you get the next loan.

Lenders also require you have at least 6 months’ mortgage payment saved up as a safety net before you buy the next place. That’s a good idea anyway.

Related: How to Buy a Duplex: The Ultimate Step by Step Guide


If you buy a single family home, you won’t be able to count the rental income until you have lived there for a year (owner occupied requirement) and then rented the entire place for two more years to get the required experience as a landlord.

If you buy a duplex with an FHA loan, you can buy more houses, use rental income from the other side when you buy it and after two years of living there, you meet the owner occupied requirement and the two years’ experience. If the rental income after you move out is 25% more than the mortgage, you will be in a much better position for buying the next one.

“I did, then what I knew how to do. Now that I know better, I do better.” – Maya Angelou

What do you think about this strategy for buying your first investment property? What type of financing did you use when you were starting out?

Leave your comments below!

About Author

Brett Lee

Brett Lee is a licensed Real Estate Broker in Portland Oregon where he helps people achieve a better future so they can do the things that truly make them happy. Brett is also a buy-and-hold investor, property manager and investment advisor.


    • Brett Lee

      A 3-4 unit property Requires a little more money than a duplex and excludes most new investors. First, you have to have 3 months of mortgage payments saved in the bank after you pay for closing costs and down payments. This isn’t required on a duplex. Second, it has to bring in enough income to pay for the entire four-plex every month. This will be estimated by an appraiser. Third, you may have to get a jumbo loan to afford it which increases your interest rate and therefore requires that you can afford more. Fourth, you will also be paying mortgage insurance on a very large loan Because it’s FHA which increases your mortgage payment and decreases cash flow. Fifth, FHA will only credit you roughly 75% of the projected rental income to help you qualify for the loan so if the property would bring in the same as the mortgage every month, based on average rent for the area, you would have to qualify for your unit and 25% of each of the other units monthly rent.

      You also have to take into account finding a mortgage broker who will give you this loan without adding requirements to it. If you don’t have experience as a landlord or put very little down it will be tougher to get one. Mortgage brokers can add requirements to loans if they want to and a lot of them do to reduce risk.

      If you make enough to do this it’s a great idea. Most people can’t when they first start out. I’m glad you brought it up though.

      Thank you.

  1. Scott Trench

    This was a great article! Totally agree. In response to Logan’s comment, and as a first time investor, I’d say the Duplex was a nice choice because of it’s simplicity. That said, I don’t think most first time investors would go far wrong with a triplex or fourplex either. It’s the same strategy for the most part. Fourplexes tend to be more expensive, even with FHA financing, and require a lot more management with the additional tenants.

    It’s give and take. I chose to start small with a duplex.

    • Angel Rosado

      This is the article that I needed to confirm what I should do. Since hearing episode 113 of the podcast, I have been fixated with Jay Papasan’s only regret of not buying a duplex and living in one while renting the other.

      This is exactly the strategy that I am looking to do in order to get started. Now I have to learn and see if it’s practical and profitable in NYC.

  2. Methuselah Arnold

    Really enjoyed the article. I like that a duplex still looks and feels like a house where as a triplex/fourplex starts to look and feel more like an apartment. This is coming from a renters perspective. Have you noticed a difference like this when trying to rent out your units Scott and/or Brett?

  3. Casey Siela

    Hi Brett, excellent article!

    If I already have a loan (conventional) for my primary residence and want to rent it out and then also use the strategy you discussed above, what would be the best way to go about that?

    You mentioned, “unless you own 30% of the property at the time you rent it out, you will not be able to get another loan until you have two years of landlord experience with that home on your taxes”.

    In order to “bypass” not having two years of landlord experience would I be able to re-finance my current residence into an investor loan and then be eligible for the owner-occupied FHA loan?

    Any advice is appreciated.

    • Brett Lee

      You would be able to refinance into an investment loan. However, an investment loan requires you have at a minimum 15% equity. You will want to have 25% equity or the interest rates will be pretty high. Call a local lender and get them to run the numbers for you, it’s free and then you’ll know what to do.

  4. Cory Binsfield

    What can I say? Best strategy ever since this is how I got started. My second property was a FHA owner occupied duplex (first was a seller contract). If I had to do it all over again, I would have bought a 4 plex that I planned on holding for 30 years. Imagine 3.5% down for a 4 unit! Ditto if you can get a VA loan.

  5. Tommy DeSalvo

    In my market duplexes range from 20-120k and four-plexes range from 50-200k. What are the benefits of a duplex over a 4plex. I am currently trying to acquire a 4plex and it is because a single vacancy doesn’t hurt as much with a 4plex as compared to a duplex. Duplexes tend to have higher cash flow per unit per month, but it seems almost even with the 4plex cash flow and the risk is reduced as the economy of scale is increased. What are your thoughts?

  6. Ayodeji Kuponiyi

    great post Scott. I tell all my colleagues at work to find out what they’re approved of from a local bank and to purchase a multifamily and have a great tenant pay down the mortgage while they earn some left over cash. Financial intelligence is what is holding back people from investing in real estate and make smart risk.

  7. Niurvi Santos

    I loved the article! Thank you Brett! I am so looking forward to starting my real estate venture! I’ve had this idea in my mind for a couple of months and your article confirms what I need to do to start and take action! Thanks!

  8. Great post. I purchased a three-family home via short sale in December 2011 using a FHA loan. I lived in one unit, rented the other two and put some minor work along the way. Last Winter, I got an appraisal for the purpose of removing my PMI. I appraised for much than I anticipated and did a cash out refi. I used that money for a down payment on another property. I got very lucky with timing, but this works. Can’t think of a better way to get a start in real estate.

  9. Megan Williams

    I’m having a hard time deciding if my husband and I should start out our investing with a duplex or a 4 plex. I would like to use an FHA loan on whochever property I buy. The consensus with most commenters on this article seem to think that starting out with a four plex with an FHA loan would be ideal. However, Brett made a good point as my husband and I are just starting out and don’t have a lot of capital to start with. My question is, would it be better to buy a duplex sooner using an FHA loan and work up to a four plex with a different type of loan or would it be better to wait and save up for a while and get the lower interest rate locked in on the four plex with an FHA loan? Basically, is it better to start sooner with a duplex or wait a while for a four plex? I’m still looking into it and eould love to hear your thoughts on it. It’s a hypothetical situation for now as we’re not ready to purchase anything yet, just trying to learn as much as possible before we decide! Thanks

    • Tommy DeSalvo

      I think it depends on a variety of factors. 1. Your local market and the area you’re buying in. 2. The asking price vs. after market value. 3. Availability of each type of unit. In my market there are twice as many duplexes as fourplexes. The duplexes are either relatively cheap $80k for nicer ones. Four plexes can range from 50k (“handyman” special) up to 200k for a fully rented one in a nice area. So, it really depends on what deals you can find in your area. If there are limited fourplexes, or they don’t cash flow well, aim for a duplex. If the duplexes aren’t providing good deals, keep looking. Make a system for qualifying potential properties, I.E. the bigger pockets rental calculator, or making your own excel spreadsheet you can use for the initial vetting process. I made my own spreadsheet and it’s very useful for eliminating poor choices. Good luck!

  10. Christopher Lee

    I’m surprised that so many people have recommended this house hacking route for new investors yet I am just finding about the wait period before you can qualify for another loan.

    Also, just to make sure I’m understanding this. The reason a duplex/multifamily is better for acquiring a 2nd property than a single family home( when it comes to time) is because it will take you 3 years after the MFH is bought to qualify for another loan vs 4 years if you had bought a SFH?

    • Tommy DeSalvo

      I am not sure what the laws are in your state, but in Ohio you only need to live in your residence for 1 year before you can refinance it and then get another fha loan for the next property. You can only sell a property tax free once every 2 years. There really aren’t any long wait times.

    • Brett Lee

      3 years if your doing SHF and 2 years for a duplex. You can refinance after a year but you won’t be able to count the rental income from the first property to qualify for the next property if you don’t own 15-25% of the first house. This isn’t reasonable for most people so it will take two years experience after moving out to get the next home. The two years experience allows you to count the rental income from the first home to help qualify for the loan on the second home. If you don’t have the experience and can’t refinance you will have to qualify for both loans at the same time.

  11. Emil Ayoub

    What’s the reason for going FHA over a 5% down conventional loan? Even with a higher rate, the conventional total monthly pmt should be lower due to the lower mortgage insurance, and you’ll save the 1.75% upfront MIP.

    • Tommy DeSalvo

      I’m not 100% on this, but in general, it’s easier for people, especially first time buyers, to qualify for FHA loans. It requires a lower credit score, and a smaller down payment. I know the difference between 3.5% and 5% isn’t huge, but it can make a difference.

    • Thomas Landis

      Also, I just found out that conventional loans on a multi have to be at least 15% as of 7/13/15. My wife and I are in the process of doing this exact thing and one of the learners told us 15% for owner occupied multi and anther said 20%, both said this is new and were surprised by the change. So we are planning on moving forward with an FHA.

    • Brett Lee

      It depends on the property. Va loans have more requirements as far as condition is concerned and it costs the sellers more in closing costs for you to use a va loan. So it will be a little harder but you can do it and it would be cheaper. I didn’t mention va because it applies to very few people.

  12. Taylor Seals on


    This is the plan that I stored with as well and I am currently living in one side of my duplex. I have only owned the property for a month though. I don’t have the patience to wait one or two years to invest in another multiunit, so I’m using private investment banks and hand money lenders to purchase my next property and after a year has passed, refinance the property. What problems can you foresee with this plan of action? I could do one quad, or two duplexes.

    • Brett Lee

      Private banks and hard money lenders are going to charge you a lot more than getting another owner occupied loan therefore decreasing your cash flow and increasing your risk. It’s certainly possible though. If you have the money and lack the patience you would be better of to just throw down 15-25% and get an investment loan on the next place. You don’t have any time requirements when buying a house with an investment loan. The time requirements are for owner occupied investments only which are the cheapest route to go.

  13. Cody Wright

    Great article Brett. I am trying to get started and this article helped clarify a few things and pointed out a few things that I’ve never read so far in studying the business. Thanks for talking about what a lender is going to look at for the second loan.

    • Brett Lee

      Student loans payments will be deducted from your income. FHA will allow you to use about 29% of your income for housing and 36% towards housing and other long term debt like car payments and student loans. You can take your monthly income and multiply it by 0.36 to get 36% and then subtract all of your monthly long term debts (car payments, student loans etc.) from that 36% of your income. What you are left with is how much mortgage payment you can afford.

  14. Ross ellington

    Hey Brett, great article. I’m new so I gotta ask questions. What I wanted to do was the exact same thing but with the VA. And you said coming out of that first year I would have to wait two years of being a landlord to qualify for another loan if I paid down less than 30% of the loan. I’m def not saying your’e wrong, I’ve just never heard that before. It caught me off guard. Are there any other hidden things or little known facts about the VA loan. Thanks again for your article, some real good stuff as always.

    • Brett Lee

      I would live there for 2 years and then move out and you will be able to buy another owner occupied if you want and be able to use the rental income to help you qualify. If one of the homes is being turned into a rental they won’t give you another FHA loan unless it’s an investment loan with a high downpayment. You can refinance the first home into an investment loan but you will need 15-25% equity or downpayment to do so.

  15. Brian C.

    Great article. What would anyone recommend to someone who lives in the DC area that doesn’t have many duplex inventory? I’ve been looking for multi-family properties out of the are but unless I get a job offer from that region I won’t get approved for an FHA loan. Any suggestions?

    • Brett Lee

      There is only a time limit if you are going from one owner occupied property to another owner occupied property. If you have the down payment for an investment loan you can buy whenever you want because obtaining the loan is based on the downpayment and the estimated rent from the property. It is not based on your income anymore. You will also need 6 months mortgage payment saved up along with the downpayment to get the loan.

  16. This information is great! I’m looking to get started as an investor and it’s very helpful.

    I have a partner and will be forming a company. Are FHA loans still available for me? My fiance and I currently rent a house for a low monthly payment. It’s not a nice house but we very much love the location. I’d love to begin investing by purchasing a 2-4 unit property. Living there and renting the other units is one avenue I’m exploring.

  17. Jane Dunn

    This is exactly what I’ve been thinking of doing, so thanks for the article. What I wonder about, however, is the possibility of finding a duplex with a garage apartment. I don’t like the idea of using up one of my good rental units on myself since I need little space in which to live.
    I want to do an FHA loan, so, though my question may be obvious, it doen’t hurt to ask. Do you know if the smaller unit necessarily turns this into a 3 unit property? If I bought a single family with a garage apartment is that a 2 unit?

  18. Nick Tiedt

    Very interesting article! First time I have read about the time requirement, other than needing to live in the FHA or VA loan for a year.
    Does this 2-year period only cause problems for the FHA / VA loans?
    In about a year I will have graduated and have an accounting job for a salary, and look to invest for another stream of income. So I’m curious if an investor loan would be a better strategy since I hope to pick up 2-3 properties in the first couple of years.

    Any feedback is appreciated!
    Also, Thanks again for this article!

  19. Rusty Whitney

    “However, unless you own 30% of the property at the time you rent it out, you will not be able to get another loan until you have two years of landlord experience with that home on your taxes.”

    Did not know that, learn something new every day. Great article, very informative. Thanks Brett

  20. Greg Gibbons

    I just did this very thing! 2 weeks ago I closed on my first investment – an FHA financed duplex. I am living upstairs and renting the downstairs.
    My mortgage is $1200 and downstairs is rented for $750. Upstairs should rent for about $850 when it is time for me to move out. That gets me right at the 25% overage mentioned in the article.
    I first thought I was going to buy a 4-plex. Had the right one come along, I might have. But in my area -Louisville, Ky, I didn’t come across the right one. (duplexes are more prevelant here in areas of town that interest me)
    One of the factors with using FHA is that you have to live in the property – which means you want to buy a property that you personally like, in a neighborhood you feel comfortable in -at least for a while.
    It is true that the FHA has the downside of the PMI – but the rates are better. I got in at 3.5%.

    I’m not sure how deep I will go in real estate investing. Maybe I will acquire more properties after I get a taste of landlording. At least now I have a property to get me started. I plan to pay it off in 15 years and have an income producing property to help in my retirement.

  21. When you say,”However, unless you own 30% of the property at the time you rent it out, you will not be able to get another loan until you have two years of landlord experience with that home on your taxes”. Can you give more detail on “not be able to get another loan”?

  22. Peter S.

    Hi Brett,
    I keep seeing that you have to occupy 1 side of the property for at least a year in order to qualify for the FHA loan and avoid committing fraud. However, couldn’t you just not rent out the second side and continue to pay the mortgage for the property without it being fraud?

  23. sherwood sohmers

    I am thinking about making a FHA investment for my grandson. He will be going away to college in about 6 months. He can live in one of the units as a co-owner and the rent from the other unit or units will pay for his room and possibly his room and board expenses.
    If he works it will only be part time and his income will not qualify but as a co-owner with his parents or me, his grandfather, might qualify for a loan. Generally college towns plexes make a good investment.

    • Will Chamberlin

      I believe that the PMI on the FHA loans now are for the life of the loan so the only way to get rid of it is to refinance out. Once you have paid down 20% or appreciation gets you to 20% equity you should be able to refinance. Might need 25 – 30% depending on lender, not sure there.

  24. Diana Mitchell

    Thank you for your article. The points you make are clear and easy to comprehend even by a newbie like me! I plan to ramp up my search immediately because you have shown me that getting started investing this way is imminently doable.

  25. lee liberman

    It is my understanding that the income you generate at 75% goes to the denominator of the debt to income ratio rather than offsetting the numerator. In this case you would have to generate much more than 2000 (1500 qualifying) to be back to where you were prior to the purchase. Please tell me my fha broker contact is wrong!

  26. Vicky Hays

    Hi Brett,
    I know this is an older article, but I have a couple of questions. First, I currently own a home in which I am living in, and would like to continue. Second, I am interested in being a new investor with purchasing a Duplex with an FHA loan. I would like to know, can I purchase a Duplex as Owner Occupied and be considered as a second home while I still live in my primary home ? The reason being is that I want to purchase investment property in my hometown for future retirement purposes, and I need a home to go to on the weekends when I am in town visiting my parents. So, I would be living there on the weekends.
    Thank you,

  27. Vicky Hays

    Hi Brett,
    I know this is an older article, but I have a couple of questions. First, I currently own a home in which I am living in, and would like to continue. Second, I am interested in being a new investor with purchasing a Duplex with an FHA loan. I would like to know, can I purchase a Duplex as Owner Occupied and be considered as a second home while I still live in my primary home ? The reason being is that I want to purchase investment property in my hometown for future retirement purposes, and I need a home to go to on the weekends when I am in town visiting my parents. So, I would be living there on the weekends.
    Thank you,

    • Darnell Settles on

      If you have somewhere to live then you’re good, but if you want to refi something else they are going to give you a hard time. I like you had the same plan, but was shot down. Luckily I found this post so I now have a plan of action.

  28. Gregory Prosser

    Really great article with information that will really help me and my business partners out in our decision on which route to take for our first investment. We were already leaning toward doing something of this nature with small multifamily complexes, but this information solidifies that it’s likely the best route for us to take since we are young and do not have a ton of capital to work with. Thank you so much for sharing.

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