A Combined BRRRR, FHA 3.5% Down Payment on a Quadruplex

[Sam Giberti]

I think a lot, especially when reading, listening to youtube/podcasts, or even just laying in my bed before I go to sleep.

For anyone that wants to, please step in and tell me where the flaws are in this plan. I'm not guaranteed to do this, but when thinking about ways to get in the game, what does everyone think about this.

Heres the scenario (Not real yet, but this is what I see happening):

I've just found a property a bank inherited from a non-paying owner, AKA a foreclosure. I know not necessarily so common right now, but a recession will come sooner or later. Sure would be ideal if I start in a market that just got punched in the throat. Anyway I buy this house from the bank with an FHA Loan (I have read that this is allowed). With 3.5% Down, and a fixed 4.5% interest rate. As is the home is worth 190k, the bank just ants to break even after dealing with the last guy, and accepts my offer at 150k + 3k for Closing costs. The current rent I could get is at $500 per unit (x4 = $2000/monthly cashflow) and could be rented as it. However with about $25k worth of work I could get those rents upward toward $750 a unit. Good Neighborhood/area, and past landlord didn't do the best job keeping up with the property.

Anyway I put down the FHA loan, totaling out to $5250 + $3000 in Closing Costs, ($8250). Now I choose to do those repairs and reach out to friends/family, explain the deal to them and offer them a 10% return on their money in order to fund the $25k in construction costs. There is no collateral, however they both trust me, and agree to the contract which states they also would get a 20% equity share in the property if I f something up and am unable to pay them back. (They have the security they need, and we continue to move forward).

During the rehab time I find prospective tenants and share with them what the property will look like when finished, price, etc. Begin prescreening them as this process is happening. 

Now say it is a success and I do successfully rehab the home, now making it worth $225k based on comps.

Now with this FHA Loan, this is where it could get tricky. I would then attempt to streamline refinance the home, being now worth $225k. I have about $80k of equity into it. Would the bank let me pull out 70% of that 80k, to refi and go put in a deal elsewhere, considering I would have barely had any equity in it to begin with starting with a FHA Loan. Or would banks typically not allow that.

That could give me over $50k which I made from the sweat equity in the home, to go pay back my construction lender in incredible time, and leave me with another $25k in profit to invest elsewhere.

Thats it... Note these numbers are based on a property I found on the MLS, not thru a Bank Foreclosure website so this is not all to part. *I would have to pay all cash to get a discount from a seller typically, where as the bank may allow otherwise. I thought this was an interesting play and theres all kinds of different types of creative financing, so someone more experienced out there, please let me know if you know. Always open to learn!!

Good Night BP, thanks as always for serving as educational powerhouse,

Sam Giberti