Two 1st Time Homebuyers looking at a Multi-Family exploring FHA

[Christopher Kolasa]

Hello, 

Background: I'm looking to buy my first multi-family rental property, a spacious two family home caught my eye in Rhode Island for about $180,000-$190,000, which should be able to get $3000 in rent a month, it needs a bit of work but is in a great location with upside. I'm looking to invest with my friend/colleague who does not have too much cash, but is a tremendous worker, dependable, and previously a contractor; he would bring lots of value in turning the property around and wants to live in the home while we fix it up and thereafter. 

Anyway, if the home qualifies, together we would apply for an FHA loan (minimize initial investment) with 5% down, this would be BOTH of our first time buying a home and in turn disqualify BOTH of us from being able to use an FHA loan individually.

Is there a way we can structure this deal so I don't have to get roped into the FHA loan with him and thereby allowing myself to use an FHA loan in the future on a separate property? It appears my options going forward are as follows:

(a) Get the FHA loan in my partner's name, structure some sort of arrangement / agreement (legally preferably), get the deal done, split ownership down the line after I use an FHA loan myself on a separate property. This would thereby allow us to work together as partners, and allow both of us to have access to an FHA loan individually, and in the future retain split ownership of this investment property. Ultimately, is this option feasible, I'm afraid it might get complicated, I am also unaware how the loans are structured in the first place and what sort of impact a partnership may have on a loan already in place with the installment of a 'future' partnership (likely we'd have to refinance?);

(b) Get the FHA loan in my partner's name, get the deal done, fix the house up, we figure out fair compensation for myself, he retains ownership and I move on;

(c) Buckle down, form an LLC, get the FHA loan in both of our names, make this property habitable and attractive, and push forward, find the next multi-family property using other financing strategies until we meet our goals.

Thoughts? Any opinions or incite on the matter would be much appreciated. Of course all this hinges on getting our offer accepted in the first place!

Thanks, Chris