Failed FHA multifamily option that cash flows 2,000+

[Ben Burnap]

Looking for some advice here - I am in a bit of a time crunch so just looking for some fast advice. Any help is greatly appreciated!

Ill try to make this as brief as possible. I found a 3 family in my area in hopes of house hacking it. I settled on a FHA 203k loan for multiple reasons, the main being that I don't have enough money for a down payment on a conventional loan and to build equity in the renovation.

My numbers were as follows with a FHA loan with 3.5% down and a rate of 4.99

Total rent - apprised at 5100 (low due to lack of comps in the area) - Actual would be 5400-5600

Monthly payment (everything included) - 4200 (420 PMI)

Would have built ~50k worth of equity in the rehab. 

I went through the whole FHA 203k process and then right before closing ran into the self sufficiency rule about (payment can't be above 75% of total rent). I went back and took 50k off the rehab and put 10k more into so it would lower my payment enough to meet these guidelines, and although this would have passed I realized I didn't have enough cash to close. After discussing other options with several mortgage brokers (I don't qualify for a conventional loan and an FHA loan wouldn't work either) I realized this deal is going to fall through. I don't think any sort of financing with just me is going to work.

I still have the house under contract and with some basic math I know this house will cash flow 2,000+ a month if you do the necessary renovations and put down anything even close to 20%. I also have it under contract for an amount that I believe is less than what it could sell for. The first thing that came to my mind was wholesaling (which I know very little about, and have no experience with), and also going into the deal with a partner (which I have never done and know very little about.) If anyone has any other suggestions for me I am open to anything, thanks!

[Chris Mason]

Unless you are a blogger in Colorado and the year is 2011 and you're trying to get a website like floggerblackets.com going with some content, nothing 3-4 unit and priced to be on the MLS is going to pass the FHA self-sufficiency test... complete waste of time in the SF Bay Area including Oakland and SoCal, and I'm pretty sure most of the country. Stacking 203k on top of that is completely crazy. There are lots of viable options, but this ain't one of them.

EDIT: Of course, the MLS isn't the only place to buy real estate. What's your monthly time and/or money marketing budget?