FHA Loan and House Hacking

[Bao-Chau Tran]

Hello,

My name is Bao. I would considered myself a new investor or aspiring to be a real estate investor. I am seriously considering this deal on a 3-plex investment property in downtown Sedro Wolley. It has two long term tenants occupying the upper units and converted garage. It has been legal with the city of Sedro Wolley (I called to confirm) and it status is legal non-conforming (since it was built before the new zoning changes). The main unit (bigger) is currently occupied by the owner, and he may or may not rent back the place (not sure if it is a good idea?). 

Anyway, there are two options I am thinking of going to close the deal, one is to do FHA financing, which I have to house hack the main unit. Does anyone know if I could rent the room in the unit I am house hacking? Essentially, I would have a roommate in one of the unit. Otherwise, it wouldn't cash flow positive with just renting out two of the units. I like the FHA route because I wouldn't have to put much down payment down, because we don't have that much cash for down payment right now.

My analysis based on 2 unit rented out plus one of the room in the main unit is $530 cash flow and 44.85% ROI based on FHA 3.5 percent down and 5% interest rate. The seller asking price is $140k, but I am going to offer $120k initially. Is this a good investment?

Second option is to go for conventional loan, which I have to put down 30% down payment, which is too much for us. This route would cash flow nearly $1000 per month but more money down payment up front. 

What do you guys think? Any suggestions?

Bao

Total Cash Needed By Borrower:

$14,200.00

Monthly Income: $1,635.00	Monthly Expenses: $1,104.31	Monthly Cashflow: $530.69	Pro Forma Cap Rate: 7.68%
NOI: $13,828.00	Total Cash Needed: $14,200.00	Cash on Cash ROI: 44.85%	Purchase Cap Rate: 11.52%