Is $100/unit CF achievable on a 3.5% FHA loan in the right area?

Question

I've spent the last couple hours looking through old threads and it seems like this is a heavily debated topic that I wasn't able to determine an answer to. I live in the midwest suburbs near Kansas City where prices are higher than the rest of Kansas but are nowhere near the levels of intensely high markets like in California. I am looking to house hack with a 3.5% down FHA loan and there are duplexes for sale in at least ok areas in the range of ~180-250k asking prices. Essentially my question boils down to: Can and should you attempt to use the same minimum requirements for a deal as you would for someone using conventional financing? Do you base your figures for determining the deal's viability around a future refinancing or around the numbers with your current PMI? I'm referring to figures I commonly see like $100 minimum cash flow/unit and 12% COCROI (both of these for after you have moved out and rent both sides). I simply want to know if that is reasonably achievable or not. If it is possible but requires more hustle and more rejected offers then that is fine with me. I just want to know if I would be wasting my time sending a ton of low offers to make the numbers work. AKA: Would my time be better spent waiting a few more months and saving up more money? OR can it still work but will just take longer to get a deal accepted? Should I adjust my expectations but still proceed?

Sorry for the wall of text. This has really been giving me some analysis paralysis so I would greatly appreciate any input to help me direct my efforts. Thanks!

Lee Ripma · Answer

I don't know if there is always a black and white answer to a question like this. Do you currently rent? How much are you paying in rent? Are you buying in a area that is up and coming or already really nice? What is your time horizon for determining your ROI? One year, 5 years, 30 years? Are you willing to do work yourself or do you want to buy something that is already renovated? All of these things will have a major impact on your ROI. I really think that you have to focus in on the metric that YOU care about. I'm an investor so I look at my cash on cash returns in year 1. That is the metric I have chosen to focus in on and make decisions around. You can chose anything you want but don't try to get every metric to hit all at once. Figure out what matters to you and go with that!

The recent podcast guest talked about getting his first duplex and how his out of pocket monthly went from 850 to 600. That was a good deal for him! That was the metric that he cared about. How much did it cash flow per month if he moved out? What was his cash on cash ROI? Who cares?!? He achieved the metric that he cared about!

What do you want, what are your goals? Can RE help you achieve those goals? How? I think these are the questions you should be asking when you look at that duplex. It will also help you to actually look at an example deal for sale on the MLS and project what would happen if you lived in it for 2 years or 4 years or whatever amount of time you think you want to live there. It will make it concrete and you can see some actual projected returns.

Jennifer Delmore · Answer

Figure your numbers assuming both sides are rented. If it makes sense, make the offers. you will be competing with investors who will be putting 25% down, so it will probably take more legwork or being willing to buy a beater property and put some sweat into it to find your deal though.

Is $100/unit CF achievable on a 3.5% FHA loan in the right area?

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