House Hacking in Phoenix

[Adam Regos]

Hi BP!

I am looking to relocate to phoenix in the next 6 months and do a house hack.

My understanding for conventional financing for a duplex the minimum is 15% down and triplex/4plex is 20% down.

A lender told me FHA only applies to duplexes or can it be used on triplex or 4plex?

I believe there is a self sufficiency rule where my agent said the #'s do not work right now in phx/tempe for tri pr quad.

Does anyone have further insight on the phoenix/tempe market and have suggestions on what the best financial option would be?

Do most of these duplex house hacks cash flow or at least cover your mortgage?

Thank you!

[Paul Welden]

FHA can be used for a residential property with 1-4 units (SFR, Condo, TH, duplex, triplex, 4-plex) as long as the primary borrower will reside in 1 of the units as their primary residence for a min of 1 year. Down payment is only 3.5%, including using an FHA 203k.

Phoenix real estate market is the strongest seller's market I've seen in 16 years! 

The only negotiating that appears to happen is negotiating up ... to pay more and more and more and maybe even the buyers paying the seller's closing costs! 

Most MF in Phoenix market are not in great areas and the few that are .... super expensive and I don't see them positive cash flowing. 

We need 25k-30k actively listed properties on a continuous basis to be a normal market, but today there are only 4,608 actively listed properties in the MLS.

[Reed Meyer]

Hi Adam. FHA applies for all 2-4 unit properties. However, the Self-Sufficiency Test (SST) only applies for 3 and 4 units (not 2) so this can kill a lot of 3 and 4 unit FHA deals. The SST requires 75% of in-place rents (or market rents for units that are vacant or month to month) to be greater than your monthly PITI payment (principal, interest, PMI, Tax, and insurance). For relatively expensive markets, like Phoenix, this can be difficult to pass as the rent to price ratios of many properties are very low. This makes it hard to find a property with rents high enough to cover the PITI.

However, since 2 unit properties do not require the SST they can oftentimes be far easier. Just make sure you know the counties FHA loan limits on a 2-unit property.

I just looked up Phoenix loan limits and they are: 1-unit = $368k, 2-unit = $471.1k, 3-unit = $569.5k, and 4-unit = $707.7k.

So if you want to put exactly 3.5% down on a 2-unit property you would need to find a property for $488.19k or less. However, you can always just bring a little more money down and still qualify for the low-money down loan product.

Once again, I do not know the PHX market very well but in more expensive areas like the one you are looking in, you oftentimes need to adjust your goals to be more "House Hacking for the purpose of paying lower rent" as opposed to "House Hacking to pay no rent or even cash flow". At the end of the day, if you're house hacking and paying $500 per month as opposed to renting for $1,000 you're still saving a lot of money and also building ton's of equity in loan amortization and hopefully appreciation as well.

[Lindsey Keller]

Consider a house with a guest house or garage that you can convert to a casita. I see casitas renting for 1000k plus!