How much time to cash flow house hacking w/ an FHA?

Question

Hi all. I want to make sure my expectations are where they should be. Looking to buy our first property - a multi family purchased with a low percentage down - either FHA or conventional depending on the property. We have in mind that we want to get $100 per door when we move out in a year or less, so we're running all our numbers with this in mind. With the small down payment combined with mortgage insurance, getting to this ideal seems very difficult. Should we be expecting this right upon us moving out, or should we be giving ourselves more leeway? I'm calculating how much we can pay for a property to get that magic number of $100/door, then thinking to offer across the board this number for multiple properties and hope someone bites...does that sound like a good way to do things? Thanks so much.

Michael Doherty · Answer

@Susan Franke when I house hacked my first duplex I ran the numbers as if I wasn't living there and I think that's the best way to think about it. Will this property cash flow when I move out? To put that in perspective, I purchased my duplex for $185k with 3.5% down. My PITI is $1490 (including PMI Insurance) and I was getting $1300 from the other side. So essentially while I wasn't cash flowing $100 per door while living there- my 'rent' or the difference was only $200.

Now after moving out I have rented my unit for $950 and I am cash flowing $750 before repairs ect....  which to me is good. Hope this helps when you think about running your numbers.

Russell Brazil · Answer

Investors looking for cash flow are doing so typically with 20-25% down. Putting 3.5% down is going to severely hamper that. Adjust expectations to meet your  very low down payment situation.

Charles Baldi · Answer

@Susan Franke

I am currently closing on a duplex using an FHA loan and I will cash flow just over $100/unit when I move out (after taking into account capex/repairs/vacancy/paying property manager). It is absolutely possible and a great approach since 3.5% down is a low barrier to entry. Near me (Montgomery County, PA) not every area and most properties would not cash flow, so you may have to be willing to learn more about the best place to look near you. I personally just set up a search on realtor, Zillow, and MLS with my realtor and would run numbers on every 2-5 unit that popped up and offer on the ones which worked or were not too far below asking. In the end we made 5 offers, had two accepted with one falling through and are closing on a duplex July 12th. We did it by buying on the outskirts of a C+ neighborhood within two blocks of a B neighborhood so the area was nice but the cost was low. Hope this helps, fee free to reach out!

Travis Wylie · Answer

@Susan Franke you need to be more specific what market you are talking about.  As you're seeing the folks from California are telling you it's not possible, while folks in PA have cash flowed using FHA as a house hack.  I too have cash flowed while house hacking but that was mainly because of my market and not because I found some cheap deal.

I would second what @Michael Doherty said and analyze the property as if it was an investment property and not a house hack.  Also, I would suggest focusing only on 4 units on your house hack if your market allows it because that is generally you're best shot at potentially cash flowing on a house hack.  Sure there are outliers, but most duplex house hacks that I've heard of often allows owner to live 'more cheap' or possibly 'free' but seldom often creates positive cash flow.

Theresa Harris · Answer

As  Michael said, run the numbers as if you weren't living there.  I believe for FHA you need to live there for at least 1 year.  If it doesn't cash flow at the start, don't buy it.  Yes rents will increase, but so will property taxes.  I wouldn't do a bunch of offers at the same time unless you are serious about buying more than one.  If there are that many deals, there is no reason to do multiple offers.

Frank Wong · Answer

Hi Susan,

It is very hard to cash flow with an FHA loan. At the current price level and loan terms, it's nearly impossible. Unless you found an absolute steal of a deal it won't happen, and waiting to find this steal is also a very low probability play and you will wait forever.

What you are trading in cash flow is the opportunity to buy into a property with 3.5% down.  Think about it. you are essentially leveraging 96.5% LTV. Would a lender ever lend on an apartment deal at 96.5%?  You have to decide if you want to sit out and continue to save so you have the proper financing align to purchase for cash flow or you buy now at 3.5% accept the current opportunity to get yourself into a deal.

How much time to cash flow house hacking w/ an FHA?

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