House Hack or 4plex as My First Purchase

[Sarah Stevens]

Hey everyone!

I had originally planned to purchase a 4plex and owner occupy so I can use an FHA loan and only put 3.5% down, but since I've been analyzing properties (thank you BP!) the ones in the 400-700k range don't seem to cover their own costs, let alone cash flow. I live in Phoenix and it's a really expensive growing market so my goal was more to have a place to live, fix up the property and refinance as I grow equity, as opposed to cash flowing each month. Right now I'm paying $850 for a room in a house for myself.
My original strategy just hasn't seemed possible, so I'm wondering if changing up my strategy and buying a single family home with a casita, or a way to build one or section off part of the home as a second living area and renting out the rest would be a better way of at least getting in and getting started with something. 

If I buy a single family home with a conventional mortgage and 5% down, I'll have enough left over to eventually buy another property if owner occupy it and use an FHA loan. Is house hacking a single family home a good way to go? In anyone's experience, would it ruin my debt to income ratio making it harder to get another loan?

I appreciate your help!

[Ryan Swan]

@Sarah Stevens a few years a go I was helping BP clients buy a handful of fourplexes every year using FHA financing. Now, it's almost impossible to make the numbers work. Another point you need to be aware of is the FHA self sufficiency rule that applies to any 3-4 unit building (but not to duplexes). For a 4-plex the basic calculation is that your total housing payment (P+I+T+I+HOA+MI) must be greater than 75% of the gross rent. Even if you found a property where the numbers worked, you'd be competing with lots of cash offers, 1031 exchanges, and 25%+ down conventional financing....unfortunately FHA and VA offers usually go on the bottom of the stack.

Pivoting to a house + casita strategy, or just a SFH home that you can "hack" up and rent by the room, is a better way to invest your time and money right now. As you mentioned, this also opens up the option of using a low down conventional loan product vs FHA. I have quite a few clients that are doing very well with both strategies. In fact, we just closed another SFH for a BP client that is renting by the room and has already bought his 3rd property in under 2 years. All of them are cash flowing very well.