Analyzying a multi family home with an FHA loan

[Sergio Castillo]

Hello, I am currently looking to purchase my first home. I want to take advantage of the FHA loan and house hack with a multi family home with my brother. We are both first time home buyers. We were thinking of looking into a fourplex in either Albuquerque or Rio Rancho, nm. We also only plan to live in one of the units for the 1 year required by fha. Our goal is to have a cash flowing property after we move out and at the least live rent-free for the year we live in one of the units.

What would be some good things to take into consideration when analyzing the property?

What would be some things to factor in when analyzing a property due to using an fha loan.

What other strategies would be suggested for my brother and I looking to start out with multi family homes? Would it be recommended we each use the fha loan for a duplex or triplex each? Or would it be best for both of us to go in together on a fourplex? 

if we both decided to use the fha benefit together on a fourplex, would that mean that we are both now unable to use the FHA loan benefits or would we be able to use it on two projects since it is two of us.

My brother and I are partnering up in Real estate and are going all in.

[Mark Hughes]

Yes that’s a possibility. With mortgage rates likely increasing 2-3 times in the next year it might be worth it to just keep the fha. Personally I did a FHA loan on my first home (townhouse in Denver) and I just did my best to pay it off quickly so that it was paid free and clear and then I did another loan for a new primary residence for myself and kept the townhouse as a rental unit and still have that property today. So for me, it took 3-4 years to pay it off but then it was almost 3 times as profitable as before and is my best cash flowing property in my whole portfolio. I have 10 other rental units all in abq now and am actually considering refinancing that original townhouse in co to be able to purchase another multi family property here. So there are tons of strategies and the good thing is if you buy for the right price that will have good cash flow you have options to tweak your strategy along the way to cater to your changing goals!! One thing I try to do is look back on values from past peak (ie from 2007) even in Zillow or something just to get a ballpark to see if you can see what the property or similar properties were selling for in peak versus now. For example a fourplex I purchased near central and Wyoming was listed at $160k but needed some work. I was able to find out the owners purchased it for around $195k in 2006-7 so I felt good about buying at this time and was able to negotiate down to 153k and renting each unit for about 515/mo. So it’s 1.3% on the 2% rule and also has some potential upside if I can continue to invest in the cap ex over the next few years to hopefully bring the value back up closer to $200.