Will BRRRR Works With FHA Loan? If yes, How Does It Work?

[Apinya Patterson]

Hi everyone, I'm trying to buy my first rental and this will be my first home as well. I have no idea what I'm doing. I got pre-approved with FHA loan for 250k. I'm looking at a quadplex consists of 4 /2 beds 1.5 bath that seems to need a little bit of cosmetic work on the outside and it's newly renovated inside listed for tip top price for the area - in my opinion- at 249k. Current gross income is 2390/ month- average rent in the area is 850 for a 2 Bed room. I wonder if is this a good deal? Will BRRRR work with FHA loans? If yes, how and how long do I have to wait until I can refinance? If not, is there any other creative way to maximize the deal?

Thank you in advance

[Frank Wong]

Hi Apinya,

Haha, I love the honesty. So let's go to your first part of the question. Will BRRRR work here? No, it won't. BRRRR will require you to find a property that is currently under market price because the condition of it is not that great and will require rehabbing. You stated the 4plex is newly renovated so it takes out your upside on rehabbing.

This doesn't mean its a bad deal for you. Since you are FHA you won't be able to buy properties that fall into the BRRRR anyways. Why? FHA has special requirements for the condition of the home and if the quality doesn't meet the standards of FHA then it will not lend on it. No way around this. Honestly, you will have a hard time finding BRRRR properties with FHA nearly impossible to find and qualify and to win the offer over better cash offers.

Your best bet is to find a 4unit like the one you have in front of you buy with FHA, hold and rent out and over time build equity by natural appreciation then refinance into a conventional loan. I know it's not what you wanted to hear but its the truth and you just gotta play the hand that you are working with. Like I said its not a bad thing you got an opportunity right in front of you.