Advice on First-Time Owner Occupied FHA/203k Property

[Derek Mei]

Hey BP Community,

I'm looking to put down an offer on my first potential property, which is a 3 unit, which will be delivered vacant. It'd be considered a house hack as I'd be living in one of the units and will be renting out the other two units.

The condition of the property is pretty good overall, but will definitely require some improvements to get it in a rentable condition.

I'll be looking to buy this property for 240k, and using a FHA/203k loan to fix it up. I'd most likely stay under the 35k limit on the 203k loan and using more money out of pocket to try to make additional repairs myself. This makes my total loan amount around $280k.

At minimum, the property will require ~70k to get it in a rentable condition, which means 35k will have to come out of pocket for repairs. I could make additional repairs up to a total of 120k, which means 85k would have to come out of pocket. However, this would most likely bring up total rent only around $150-300 a unit.

Based on market rents for the two vacant units once these repairs are made, I'd collect around $2400 in rent each month. I could also get a roommate to split rent with me for the third unit, but that would increase total rent to $3000.

After calculating expenses, my mortgage payment, PMI, and the cost of lost rents during the first two rents, I'd be breaking even for the first year.

Does it still make sense to pursue a property like this if I'm breaking even the first year while I'm living there? I know after repairs, I'd be building equity, and only putting down 50k out of pocket, but I certainly would not be cash flowing.

Another strategy is that I could sell the property after I live there for a year, at which point the property would most likely appraise/sell for 330 or more, based on current market conditions for that area.

Of course, it's hard to say what the market will be like in a year, so is it too much risk to purchase this property now? It would also be my first time doing some type of rehab/reno project, so although I've made my numbers fairly conservative, there's a chance that everything just falls apart.

Also, any thoughts on refinancing out of the loan a few months down the line? 

Any help would be greatly appreciated!