Newbie First Deal: FHA Loan Scenario

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Newbie First Deal: FHA Loan Scenario

Account Closed
Student · Boston, MA · Member since 2017 · 7 posts · 2 votes

Hi BP, 

I've been listening and looking at the forums for a while now and have decided that it is time to take action. Here's a bit of background for my situation. My wife and I are moving up to Boston for my Graduate school studies. I will be in school full time and she will be working full time. I would love to find a giant home in the Boston area that can be turned into a multifamily property as per the FHA loan rules. This seems like the best option for a first deal.

This would be my first deal so naturally I have some questions. 

1. Firstly, my wife and I do not have too much money saved up so even the 3.5% downpayment for the FHA loan in Boston would be a lot of money. What would be the ideal situation for partnering with investors look like? Do they get their initial investment back with interest? Do they get an ongoing portion of the cash flow? How does this work?

2. We have no connections currently in Boston so does anyone here have anyone that I could reach out to? 

3. And lastly I am, like everyone, looking for a mentor/investor. I read all the time about how I can add value to their business and that is the best way to get in contact with them. Does being able to say that if you invest with me I am willing to move and live in the FHA house for the loan requirement length? I'm just looking for creative ways to add value that tie up into my deal.

Thanks everyone!

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Melvin ListBusiness Member
Lender · Tampa, FL · Member since 2016 · 1k+ posts · 381 votes
9y

I would reach out to some local lenders to see who is offering the 1% down conventional.  It is actually a 3% down program but some lenders are giving 2 of the 3% as a gift.  Rates are the same as the regular 3% down program.

C2 Financial
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  • Jonathan Twombly
    Rental Property Investor · Brooklyn, NY · Member since 2014 · 722 posts · 1k+ votes
    9y

    @Account Closed,

    My brother is a top buyer's broker in Boston.   I am happy to set you up with him if you want.  You should be forewarned, however, that there is currently a feeding frenzy in Boston and Dave's biggest problem is that, if there are even properties available, his clients are constantly being outbid.  That being said, he is the best resource out there if you want to explore this possibility.

    On the investor side of things, it will be tough if you plan to live in one of the units, because you won't have the rent from that unit to pay the investors, unless you are going to pay your rent to the partnership so that it can pay the mortgage, etc., and perhaps have a little left over to pay the investors. 

    If you use the rent from the other units to pay the mortgage (unlikely in this market, unless you can find a triple-decker and rent out two units), you won't have anything left to pay the investors.  In that case, you are just asking them to make a bet on appreciation of the unit while you are waiting to sell.  And what happens if the inevitable property market downturn happens before then?  Now, you are likely buying near or at the top of the market.

    Your best bet might be to find another couple that is having trouble affording a house, buy it together, and then condo-ize it to split into a couple of units.  If it's a three-unit, you sell the third unit and split the profits.

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  • Melvin ListBusiness Member
    Lender · Tampa, FL · Member since 2016 · 1k+ posts · 381 votes
    9y

    I would reach out to some local lenders to see who is offering the 1% down conventional.  It is actually a 3% down program but some lenders are giving 2 of the 3% as a gift.  Rates are the same as the regular 3% down program.

    C2 Financial
    WebsiteView Page
    1Reply
  • Craig CurelopBusiness Member
    Real Estate Agent · Post Falls, ID · Member since 2016 · 1k+ posts · 1k+ votes
    9y
    Daniel Krenz - I recommend you talk to a few lenders to see what they can do for you. If you let them know your situation, some will get creative and work with you. Also - purchasing in Boston itself is going to be tough with not a lot of initial capital. Have you thought about a little bit outside the city? Maybe Quincy, Dorchester, or any of those areas? As for the mentor - I highly recommend you go to www.biggerpockets.com/meet and have coffee with a 4-5 investors each week. Talk to them and keep in touch. Over time they will become your mentor. It's tough to ask investors for money if you have no deal to show? I recommend trying friends/family who know and trust you. If that's not an option, save your pennies until you have enough for that down payment.
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  • David Cahill
    Real Estate Agent · Boston, MA · Member since 2016 · 65 posts · 32 votes
    9y

    I am a Boston agent and can echo what Jonathan said. If you are trying to buy FHA, you better just look at homes that have been on the market for a while and do not have any active bids on them since the one that just come on the market at are priced well have multiple offers on them very quickly and most have stronger financing (if any) than FHA. Also, with FHA, the downpayment can be a "gift" from a family member and you can finance your closing costs. You only have to live in it for a year. I did something very similar five years ago and have had great results!

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  • Account Closed
    OP
    Student · Boston, MA · Member since 2017 · 7 posts · 2 votes
    9y
    Fantastic advice! Sorry for the late reply (it's easy to get discouraged as a first timer). Taking some other advice I'll look around areas outside of the city directly plus I'm also considering options back home and managing from a distance. But thanks again!
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