Analyzing a deal: Conventional vs FHA

[Denis Moreira]

Hi BP Members,

I have two loan routes I can go with : Conventional or FHA.

How many people have gone ahead and bought a property that cash flowed negative/break-even when analyzed using 50% rule under FHA terms (upfront & monthly PMI charges eat up a big chunk of expenses)? Did it turn out to be a good long term investment? In my calculations I assume all units are rented out, non-owner occupied.

But, I can also afford a conventional 20% down payment and some properties cash flow nicely (10-12% cash on cash ROI) when using 50% rule. Of course the downside is I'd have used most of my funds and could not take advantage to buy in the case of a future recession.

When presented with both options, which would you choose? 

[Brent Coombs]

@Denis Moreira, you haven't mentioned your CURRENT accommodation costs? Are they cheaper than what your portion of a bought four-plex would cost you by living in one of those units?

The answer to your question is largely about where YOU are prepared to live (for at least a year).

ie. If you're ONLY interested in it as an investment, and NOT in disrupting your current living arrangements, then you ONLY have the conventional route option, not FHA.

And if you "assume all units are rented out, non-owner occupied", and it STILL "cash flowed negative/break-even when analyzed using 50% rule", then will it be a good investment after you move out, anyway? (And how will you be able to move out, if you've only got 3.5% equity in it at the time of purchase - which THEN answers your question? ie. eventual conventional refi anyway?)