BRRR House Hack - Multi-Unit Style

[Jesse Byrer]

Over the years I've worked with clients ranging from first time home buyers to sophisticated investors. My favorite investing strategy is the BRRR technique and one of the most affordable ways to purchase is the House Hack on 3-4 unit multi-unit properties. So lets discuss combining the two strategies! What I want to talk about is using FHA's 203K Program on Multi-Units Properties. I've seen posts on this topic, but I want to highlight the group of buyers that can take advantage of it as well as break down the numbers.

What is the FHA 203(K) Rehabilitation Loan?
FHA 203(b) is the regular FHA loan that allow low interest rates for homebuyers with low down payments and less that perfect credit. One perk with FHA is that it allow as little as 3.5% down on multi-unit properties which is extremely low as it compares to conventional loans. Conventional loans require 25% down for 3-4 units! The FHA 203(k) follows the same 3.5% down payment requirement, but it allows some other major benefits. It's common knowledge that a FHA Appraisal is more stringent than a conventional appraisal. But not with the 203K! You are able to rolling all the improvement costs into the loan making this loan as close to a cash offer as possible when it comes to financing a home purchase.

FHA 203(K) terms

When it comes it investing there a few key components to focus on. Condition of the property, terms of your financing, and property management. The FHA 203(K) checks off 2 of the boxes... after you renovate the property is should be in excellent condition for years to come. When you review the terms of this loan the rate is much lower than anything an investor could get and the loan is amortized over 30 years. I've been providing FHA 203(k) loans for over 10 years now and I never imagined I would be issuing renovation loans lower that 3%. All of this means low carrying cost and high cash flow! Or in the eye of the House Hack, it means you could be living mortgage free.

What are the main benefits of Housing Hacking using the BRRRR Technique on a 3-4 unit property?

Low Down Payment | Low FXD Mtg. Amortized over 30YRs | Instant Equity | Max Cash Flow/Mortgage Fee 

Sample Scenario

4 unit property, purchase price $600,000, Rents per unit $2,500, $120,000 rehab, credit 720, ARV $760,000|6% allowable seller credit | all or a portion of Down Payment can be "gift funds"

Total Cost (est.): $720,000

Down Payment:  $25,200

Loan Amount: $706,959

Rate: 2.875%

P&I: $2,933.12/mo.

Property Taxes (2.5%): $1,250/mo.

Mortgage Insurance: $500.76

Home Insurance: $250/mo.

4 units (renting 3 units): $7,500

Carrying Cost: $8,367.76

Owner's portion of mtg. payment: $867.76

Instant Equity (est.): $40,000

** I realize there are other costs to consider i.e. vacancy percentage, utilities, etc., but wanted to give an example to foster conversation. This strategy may not require a refinance since rates are so low, but, if you want to continue this strategy at some point you'd want to refi into a conventional loan so you could buy the next property using the FHA 203(k) again. Guideline allows 1 FHA loan at at time unless exceptional hardship **