House hacking criteria

[Amber Stout]

Hey BP Fam! 

I hope you're all having a wonderful Saturday! I am in the Tampa area and I am actively looking for a duplex or triplex. I'm planning on living in one side, renting out the other for the first year through an FHA loan. After 1+ year, plan on potentially refinancing, and duplicating. When I'm running through the numbers (I'm running them as though both units are rented out), the cash flow is typically negative or if it is positive, it's less than $100 a door. One of the main reasons being is that I'm planning on financing through FHA / 3.5% down. Is there alternative criteria I should be going by since I"m planning on living in it for a year and using FHA. What would the metrics be when analyzing an owner occupied deal? Any advice or links in the right direction would be greatly appreciated.

[John Warren]

@Amber Stout you are not alone in running into cash flow issues using low down payment loan options. Most of my clients here in the Chicago western suburbs are running into the same issues. I have several ideas that might help expand the way you look at these properties. Keep in mind that creativity allows one investor to see upside where all the others do not. 

-Can you use the 5% down conventional instead of the 3.5% down FHA? Often times the mortgage insurance is lower, and it allows you to buy a more beat up property that might actually be a "good deal".

-What happens if you can refinance out of the FHA in one year? Often times the FHA loan kills you on the PMI more than anything. I recently helped a client close a 3 flat in Broadview, IL, and the PMI was $189 per month. That is $63 per door on a small multi, and once they refinance that loan, they will be able to get all of that cash flow back!

-Do you ever see properties that have the potential for Air bnb? What about other "creative uses"? I recently sold a 3 unit in the Forest Park neighborhood here in Chicago where the buyer is going to Air bnb the attic unit. 

-Can you buy in a really solid area where you will want to hold that property or 30 plus years? Sometimes low cash flow is worth it if the area is really desirable and you will get paid on the appreciation.