Don't buy a house, just buy a four-plex

[Ryan Hurd]

For anyone looking to buy their first piece of real estate, STOP (unless it is a four-plex with an FHA loan). I did this 2 years ago and it was the best financial move I have ever made. If you start buying other properties you can say goodbye to this opportunity. Use the FHA loan and buy a four-plex with only 3.5% down. It is so much better than putting 25% down (typical for multi-unit buildings). It is the boost that every first time home buyer should take advantage of while starting their real estate portfolio. I purchased mine in 2014 and just helped my girlfriend purchase one this year (2016). If you have questions or input regarding FHA loans for multi-unit buildings for first time buyers post them here.

[Albert Bui]

I always highly recommend all my clients start with a four unit from a financial point of view however some people value lifestyle over their financial freedom so I find that often times families will pick SFR's or duplexes still over 3-4 units.

Additionally, 3-4 units have more stipulations now than they did when @Ryan Hurd bought his fourplex. Currently, FHA requires a self sufficiency rule that is much more conservative. Prior the SS rule requires that current rents on all units had to equal at a "min," be equal or greater than the total monthly PITIA (prin/interest/tax/insurance/assessments - includes monthly MI too). Today the rule requires that 75% of this gross monthly income must be equal or greater than to your entire monthly PITIA which makes this fourplex dream much more difficult especially in higher priced areas where the rent to price ratio (gross rents monthly of all units divided by sales price) is higher than .90%.

Some will ask, can I increase rents so that I have a better chance going into a FHA fourplex? The answer is yes but these rental increases are a double edged sword because if the seller realizes that rents could be this much higher there may be a chance he/she may want more money or may not want to sell any more so working with the seller to get the leases higher prior to entering into contract may be a bit difficult.

Ryan bought for 260k at a time where 100% of gross rents had to be higher than his 1880 monthly PITIA which that was easy since all of his units were 625 X 4 = 2500 per month no big deal right? This was a good enough deal that even with today's guidelines of 75% X 2500 = 1875 may still have worked too (a smidge off).

So while the post is all rosey and rah rah there are somethings to consider in today's environment when utilizing FHA 3.5% down to purchase a 4 plex.