Is my "Owner Occupied" status worth anything to a partner?

Question

*Disclaimer: this is not an advertisement to try to find someone to partner up with*

So I had an idea....As a newbie I don't have much for a down payment so I'm brainstorming options on how to break into the Denver real estate market. One major thing I think I could bring to the table is the fact that I'm trying to HOUSE HACK. Most experienced investors are analyzing properties based on their ROI so they could greatly benefit from a lower down payment. Would a FHA 3.5% loan allow me to accept a "gift" for a down payment from a RE partner to purchase a property as an owner occupier. I would be mostly interested in living for free so if the numbers worked to still cashflow with me occupying a room, and working as a property manager, would an experienced investor be interested. I've also considered the idea of rehabbing the place while I lived there so that increases my partnership value.

Theoretically would anyone find value in this trade off to get a lower down payment and have an unlicensed "contractor" with skin in the game and a personal desire to do a good job rehabbing?

Looking for tips on how this process would work and the legality of partnering with someone that wouldn't live there while utilizing the lower down payment.

Patricia Steiner · Answer

It's mortgage fraud.Justin, I'm concerned that you're trying to create a perception of value - instead of earning your own way as a real estate investor. Your goal of partnering with a successful investor is simply one-sided. The successful investor doesn't need to partner.I appreciate that you're ambitious and ready to get started. I strongly recommend that you increase your knowledge of real estate so you gain credibility in presenting ideas. (I also recommend that you delete this post immediately - if doing so is possible). Also, please consider volunteering with Habitat for Humanity - and learning some construction/rehab skills and knowledge. It would also provide you the opportunity to meet "real, licensed" contractors and other professionals. (The unlicensed "contractor," as you referenced, would be insulting to many rehab professionals...). Do the work and be the real deal, Justin. "All hat, no cattle" won't get you what you want in this business.

Terre B. · Answer

I have not used CHFA. My daughter used it, and yes, it comes with a higher % interest. Each different program comes with a variety of conditionals."Would a FHA 3.5% loan allow me to accept a "gift" for a down payment from a RE partner to purchase a property as an owner occupier." This comment was confusing. If you want the partner to do the 20% down, then it's not a FHA 3.5%. If it's FHA 3.5% you are going to have to live with PMI. From someone who has beat the bushes here, there are several things you might explore.Bank of America has a 3% no PMI program. They also told me recently when I was exploring purchasing a cashflowing MF that while they didn't have a product that fit what I needed at that time, they would by mid March. NASA FCU has a program. There is a program called NACA. I attended one of their seminars and was seriously underimpressed with their presenter who didn't know their product, but the program may well be solid.There are ways. Mortgage fraud will get you a room, but you have no choice about the roommate.

Matt M. · Answer

I wouldn't be interested in the mortgage fraud part, but that's me.

Matt M. · Answer

But is it really a gift when the partner has a piece of the deal? Also, I think the "gifter" has to sign something stating that it is a gift and not anything else. I wouldn't be comfortable with that. I'd work on getting the 3.5% saved and buying your own place. We are talking around $10-$15k. If you can't save that, then owning might not be the best idea right now. Owning a home costs a lot.

Justin O'Malley · Answer

@Terre B. I haven't used any of these low down programs so feel free to correct me: CHFA, 203k, FHA and all other low down payment programs generally come with higher rates and/or PMI (someone correct me if that's wrong) so in Denver's market I have trouble getting my numbers to come close to working with these programs or conventional financing. That's what has driven me to try become more creative to find lower monthly payments since the $350K and lower market is flooded with buyers. Finding some way to put 20% down cash on a property could make some properties deals but that's tough to save up for. Have you used CHFA and if so how'd it go for you?

Terre B. · Answer

why would you not take advantage of CHAFA or the other down payment assistance programs?

Justin O'Malley · Answer

So I'm getting the feel that this is not the right route and is taking advantage of owner occupier perks that the government has for people trying to their first home. I appreciate the replies and won't look further into this strategy, thanks!

Justin O'Malley · Answer

@Patricia Steiner Thanks for the reply! To clear a few things up I've done a lot of small rehab projects (flooring, plumbing, electrical) on my parents house and I run a small custom wood furniture business in my free time so that's why I'm drawn to doing my own rehab. I'm friends with and have worked with many contractors and I have the upmost respect for what they do and I wouldn't hesitate to hiring out projects that are over my head. Also I'm just trying to problem solve because I'm fresh out of school and don't have huge reserves saved up yet so I'm just trying to speed things along by creativity.Also I've worked with Habitat a few times and that's a great program to learn building systems but I'm actually an architectural engineer so I have a good feel for construction, codes, etc. but I for sure recommend it to people starting out! Not to mention it's full of great people and a lot of fun!I for sure could've phrased a few things better but this was simply me thinking out loud and looking for advice. I don't plan on deleting his post since I was just asking a question. I appreciate your advice and recommendations to keep things above board because there are too many people in this industry trying to get rich quick without doing their research!

Justin O'Malley · Answer

@Matt M.Good points, working on the saving part right now, thanks!

Justin O'Malley · Answer

@Matt M. Is that mortgage fraud? That's what I'm curious about because several loan packages allow gifts for down payment so if my name was the only one on the title then it wouldn't really concern the lender, right?