Just starting out - FHA loan

[Account Closed]

Hello all, 

I am not at the point where I am ready to pull any triggers but I am actively analyzing houses around my area. I decided I want to use an FHA loan and possibly house hack a duplex with it. My question is do most people use owner occupied FHA exclusively for duplexes or can you use it for single family properties (for investing purposes)? I am looking to get good cash flow because I am just starting out and need the cash flow to invest more in the future. Most say duplexes cash flow better, can anyone defend single families?

Thanks! 

[James Klafehn]

I had a heck of time getting started and then climbing out of debt because of issues that came up.

The seller and I came to terms in January 2004.

I had great income and great credit but I had a really hard time getting a loan because I was so young (22). Months went by and the sellers were getting antsy. They wanted to pull out but my agent and I were able to get the mortgage broker to write us a letter guaranteeing that I was going to get a loan. It really is unheard of! Brokers and lenders never do this. Im glad I got the letter because at the end they tried to back out and we said nope, not happening. Make the deal or were going to sue you. The threat worked and I finally closed April 2nd. 

Unfortunately the loan was for 9% and I had PMI but I didnt really care because I knew the house was going to make me money. I just needed to get my name on the deed and start collecting those rents. I dont remember how much I put down but I think it was close to 0. It was an FHA loan and I wasnt required to put much down if anything.

Then comes the bad part. 3 months after buying it there was a basement flood. It was the wettest year for decades and the water just backed up into the basement. Half of the basement was a 2 bedroom apartment. The carpet was ruined. I had just signed a lease but the tenant hadnt moved in yet. Luckily she was very cool about it because she wasnt planning on moving in until later in the month. She gave me the time I needed to have new carpet installed ($4000) and I dont think I even needed to prorate any rent to her. Unfortunately I had spent all of my money buying the house and had to put the $4000 onto a credit card. I also had to add a sump pump which cost me thousands because I didnt know how to do it myself at the time. I hired a plumber who ended up taking me to the cleaners because I was green and didnt know better. Come to find out later, he had a coke problem which didnt help the situation.

Then, about 3 months after that I discover that the septic system went bad and needed to be replaced. That was another $12,000 and went onto another credit card.

It took me about 3-4 years to dig myself out of that hole and refinance the house. It sucked but I learned a ton in that time.

4 years later I found my second house which is a 4 unit downtown. It was under rented and because of the location I knew I could increase rents and make a lot of money on it. 

4 months after buying in I discover the main waste lines were completely rusted through and all of the waste from the entire 4 unit house was sitting under the floor of the basement apartment. It didnt stink because the area below the floor was evidently sealed off from years of paint and layers on top of layers of flooring. I only found it because I was taking the floor out in the bathroom because it was soft. I just thought I would pull the floor up and replace it. I was royaly ****ed!!! The whole apartment needed to be gutted, **** shoveled out, and plumbing repaired. Again, I had no money because I spent everything I had to buy the house. I was so screwed! 

I started contacting contractors for estimates and no one would touch the job. It was too ****ed up and literally no one wanted to deal with it. One person finally said they would do it but to fix it and rebuild was going to cost me $75,000!!!

I sued the previous owner because it turns out she knew about the problem but I didnt have enough proof that she knew about it and I lost.

I had no choice but to gut the whole place myself, pay a plumber to fix the waste lines and then I had to let the apartment sit for about 6 months while I got my finances a little more under control. I remember thinking that I just need to think of the house as a 3 unit for a while because I had no way of getting money together to fix the place.

Then over the course of the next year I hired an architect to get a plan for the unit, poured a new concrete floor, and rebuilt the entire apartment myself. It was a slow process because I had a full time job at the time and I was living paycheck to paycheck buying supplies each week and just getting it done in my time off. It took a long time and it was a TON of work but I learned so much!!! It took me another 4 years to climb out of that hole.

The story continues but thats how I got started. (sorry for the long post)