Interested in investing in Multi-Family units

[George B.]

Hey Everyone, I'm new to real estate investing and need a little guidance. I've been reading forums and researching for some time now but I think it's time for action. Here are my particulars, I'm 28 with a 725 credit score, I make 45k, low expenses, and 10k of debt. I don't have much money saved for a down payment and I do qualify for a FHA loan. I'm interested in multi-family units, condos, or pretty much anything that I can afford to start generating some cash flow. Please offer any suggestions, I'm not sure where to start other than getting a preapproval. Thanks!

[Joshua Martin]

I would start with the BP guide to real estate investing and find out exactly what you want to do. If it's multi family, then learn how to run numbers on these properties to see if they make sense. Then, or simultaneously with the last, start searching for and running numbers on properties. If they make sense with the higher leverage of an FHA, go for it.

There will be snags. In the competitive marketplace we're in, FHA looks like more of a pain to a seller than a conventional option (because FHA appraisal standards are higher). Given that, in addition, if a property needs work it is not a great candidate for an FHA loan. There is another loan product offered by FHA, a 203k loan, where you can put the rehab and purchase price together on a note and still only put 3.5% down. This type of loan product looks even less appealing in our marketplace, and is pretty much perceived by lenders, sellers, and agents alike as a total pain in the rear. All that said, I just found an off market 4 family and did just that with one of these (it was a pain in the ***, but well worth it).

I would say your next thing is to identify some multi family properties in the residential sphere (four or less units), run numbers on them and see what's out there. Additionally, if you find some that you like even a little, run them past your lender and see what impact the rental income has on your pre-approval number. I bought a four family that is now valued at almost a four fold multiple of what I would've been able to afford solely on my debt to income ratio.

Anyways, cheers and good luck!

Best,

   JTM