FHA to House Hack in Greater Boston Area (South Shore)

Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes

@Edwin Aguilar Hi Edwin. It is very realistic to purchase a 3 family househack where two units will cover your PITI. Worcester is a great example of a market that has a great stock of multi's. Lowell and Providence are other local markets with a decent stock of multis. You'll more be looking at a price range of $500-700K unless you want a duplex nonetheless its very doable with a FHA. FHA also allows you to utilize your rent towards your gross income hence you will be able to be pre approved for more. I'm househacking one right now in Worcester and I recently helped two clients house hack a 3 fam and 2 fam where the rents are covering their mortgage.

[email protected]781-964-3200 Podcast Guest on Show 69 Doors from ONE Real Estate Deal Using Other People’s Money

3 Reply

Andrew Roussinos

Investor · Southborough, MA · Member since 2017 · 2 posts · 14 votes

4y

Using an FHA loan to finance your first house hack is a great way to enter the market. If you opt for an FHA with 5% down then you will likely have to pay PMI for a couple of years but in reality, in this real estate market, the value of your house may appreciate faster than you'd be able to save for the conventional loan of 20%. So it would be best to enter the market with 5% down, pay the PMI, build equity, and then refinance in a couple of years once the appreciation of your house plus equity qualifies you for a refinance to remove the PMI. This assumes the market continues to grow at the current rate. I would also look into banks who might offer a ARM loan with 5% down to hopefully get you into a lower mortgage rate percentage since you are looking to refinance again in the future, the ARM shouldn't be too much a problem and you might obtain a better mortgage rate.

Best of luck!!

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Nick Riccio

Lender · Boston, MA · Member since 2018 · 171 posts · 137 votes

4y

@Edwin Aguilar Congrats to you and your wife on getting started! My wife and I have been house hacking for the last several years in Boston.

As far as using FHA in this market, it's truly a numbers game. I recently had an offer accepted on a personal house hack using FHA, and we've had many clients get offers accepted using FHA from a lending standpoint. To be transparent, most times it takes several offers. With that said, I do believe you can always find a seller willing to accept an FHA offer, you just need to be committed.

As far as price-points, I would say the $400K seems low, but again, you might just need to adjust your target market.

3 Reply

Edwin Aguilar

OP

Boston, MA · Member since 2022 · 6 posts · 5 votes

4y

@Andrew Freed Thanks for the response! Regarding the FHA loan that's good to hear. Are some real estate agents just more "equipped" with finding a buyer that will take an FHA loan? Yeah, we've been primarily looking at duplexes and some triplexes. Unfortunately, as of right now Worcester is greater than the commute time that we're looking for. Do you have any knowledge/experience in the Attleboro, Ashland, East Boston, or Malden area?

1 Reply

Luan Oliveira

Rental Property Investor · Providence, RI · Member since 2018 · 76 posts · 64 votes

4y

Quote from @Edwin Aguilar:

@Andrew Freed Thanks for the response! Regarding the FHA loan that's good to hear. Are some real estate agents just more "equipped" with finding a buyer that will take an FHA loan? Yeah, we've been primarily looking at duplexes and some triplexes. Unfortunately, as of right now Worcester is greater than the commute time that we're looking for. Do you have any knowledge/experience in the Attleboro, Ashland, East Boston, or Malden area?

Malden and Eastie are probably out of the question. Decent three family home in those areas will be bordering a million dollars. If you are looking at attleboro, then I would look a little further into Providence county Rhode Island. Cities like pawtucket, Providence, Lincoln, and even Woonsocket. While there is strong competition, there are still plenty of opportunities left. One thing to note, is that with FHA you can afford to offer more than list as it will only increase your down payment proportionally. So an extra $40,000 on an offer is only an extra $1,200 in terms of down payment.

The key to making an FHA offer work is to be able to work with the seller. I offered on one house that had chipping paint on the garage, but offered to repair the chipping paint out of pocket in case the FHA appraiser wanted it fixed. While that may have scared off a lot of people, it was enough to get my offer accepted. In the end, they did not make any comments regarding the chipping paint. I was also able to get the house at asking price.

Lastly, don't let the low existing rents scare you. Find out what the going market rents are for the area and base your numbers off of those. Be ready to either raise rents, or tell the tenants to leave and place your own tenants. By doing this I was able to take rents from $900 to $1,900, making the house hack work really well. Feel free to reach out if you have any more specific questions.

4 Reply

Ty AshBusiness Member

Real Estate Agent · Milwaukee, WI · Member since 2018 · 201 posts · 132 votes

4y

Hey @Edwin Aguilar!

I just had some FHA house hackers close this month here in Milwaukee and a few more on the search! @Nick Riccio is spot on that you're more than likely going to lose out on a few opportunities before getting the accepted offer but it is possible! Here are my thoughts:

1) Try to find a "nicer" duplex that maybe just needs carpet and paint as sometimes sellers get nervous with accepting an FHA offer due to the Appraisal calling out safety items like peeling paint.

2) Since you're going to need more opportunities with how competitive the market is regardless of where you're looking, make sure you work with your agent to see how many homes have SOLD in your criteria in the past 3 months to give you a reasonable estimate of how many opportunities you will get in the next 3 months. Run your numbers off those sold comps.

Best of luck on your search! Stay positive and keep taking action throughout the process as it will be challenging at times!

[email protected]

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Andrew FreedBusiness Member

Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes

4y

@Edwin Aguilar - Absolutely, I mostly only work with house hackers / investors and it definitely takes more creativity to get a FHA offer accepted in this market. The markets you mentioned are definitely on the more expensive side besides Attleboro or Ashland. I do work for an investor focused brokerage and we have a ton of agents all over NH and Mass. I can definitely point you to an investor focused agent that serves those areas if that's helpful.

[email protected]781-964-3200 Podcast Guest on Show 69 Doors from ONE Real Estate Deal Using Other People’s Money

1 Reply

Edwin Aguilar

OP

Boston, MA · Member since 2022 · 6 posts · 5 votes

4y

@Nick Riccio Thanks for the input! I think that my wife and I will definitely be going down the FHA route. We've been talking about pushing the price-point up to $500k it looks like some of the areas we're looking for are out of the $400K price range.

0 Reply

Edwin Aguilar

OP

Boston, MA · Member since 2022 · 6 posts · 5 votes

4y

@Luan Oliveira We've considered East Providence, East Pawtucket and Cumberland. My wife and I aren't as familiar with Rhode Island. Would you be able to speak to the areas to avoid (in terms of crime rate)? Thanks for the insight regarding the proportional down payment and offering workable suggestions to sellers! That's good to know!

0 Reply

Tom Wagner

Real Estate Agent · Minneapolis · Member since 2019 · 338 posts · 219 votes

4y

Hi Edwin, may I ask why you are specifically limited to $400k? You will be able to use rental income to qualify for your mortgage, so you should be able to qualify for a bigger mortgage depending on the underlying property.

And to that point, let's take a quick look at two houses: H1 is $400k and rents for $3,000/m while H2 is $800k and rents for $6,000/m, the same 0.75% ratio as H1.

H1, year 1: Maybe $5k in cash flow, ~$6k principal paydown, $8k appreciation (at 2%/y). Total "return": ~$19k.

H2, year 1: Maybe $7k-8k in cash flow, ~$12k in principal paydown, $16k appreciation (also at 2%). Total "return": ~$35k.

Everyone's circumstances and risk tolerance are different, so there are definitely arguments to be made for the $400k house. But the median outcome/return on the $800k house over a 10+ year hold is much higher IMO.

1 Reply

Edwin Aguilar

OP

Boston, MA · Member since 2022 · 6 posts · 5 votes

4y

@Tom Wagner We're definitely more on the conservative end when it comes to our risk tolerance since we're just entering the real estate process. We discussed potentially pushing our mortgage loan limit to $500k but for us it really comes down to having enough to pay our mortgage in case of any potential tenant vacancy while still being mindful of our current student loan debt.

From my understanding, I know that there are strategies such as utilizing 10% of the gross rental income as one strategy to help cover vacancy costs but ultimately it comes down to our level of risk tolerance - which is more on the conservative end right now. I do appreciate the breakdown of potential ROI with the H1 and H2 example. I also appreciate bringing up the question of risk tolerance as it's a healthy question to wrestle with as an investor.

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Luan Oliveira

Rental Property Investor · Providence, RI · Member since 2018 · 76 posts · 64 votes

4y

Quote from @Edwin Aguilar:

@Luan Oliveira We've considered East Providence, East Pawtucket and Cumberland. My wife and I aren't as familiar with Rhode Island. Would you be able to speak to the areas to avoid (in terms of crime rate)? Thanks for the insight regarding the proportional down payment and offering workable suggestions to sellers! That's good to know!

Honestly, your best bet is to drive some of the areas and get a feel for them. Everyone's tolerance for crime is different. There definitely are some areas where you drive by and can get a sense that it's not the greatest neighborhood. Others are just working-class neighborhoods. At the end of the day, most crimes you'll see are targeted and not random, and they'll also happen in the best of areas. The areas with more crime are most likely going to be around Providence/Pawtucket. Areas like Federal Hill/West End/Mount Pleasant also have some really nice areas. Of course, there's the East Side of Providence too (not to be confused with East Providence), but that's a whole other world!

0 Reply

Marc Carlson

Real Estate Agent · Riverside, RI · Member since 2014 · 70 posts · 28 votes

4y

Quote from @Edwin Aguilar:

@Luan Oliveira We've considered East Providence, East Pawtucket and Cumberland. My wife and I aren't as familiar with Rhode Island. Would you be able to speak to the areas to avoid (in terms of crime rate)? Thanks for the insight regarding the proportional down payment and offering workable suggestions to sellers! That's good to know!

Hi Edwin, I grew up and currently live in East Providence, it is a great area with little crime. It is an up and coming area, the old rundown commercial building are starting to be renovated. We also just got a state of the art High School (they are still finishing the fields in front of the building). The Darlington sections of Pawtucket (bordering Attleboro) and Cumberland are good spots as well. Pawtucket may have more options for multifamily homes, but Cumberland is a quieter area with generally nicer homes.

I hope this helps, feel free to reach out if there is anything more I can do to help.

1 Reply

Bria Johnson

Specialist · Member since 2018 · 124 posts · 64 votes

4y

Quote from @Edwin Aguilar:

Hello all,

My wife and I are looking to invest in our first multifamily home. We're currently in the early stages of the process (i.e. haven't talked to a lender). We both have good credit scores but unfortunately due to our higher education, we also have debt. We've been in stable healthcare positions for >2 years now and are looking to utilize an FHA loan to purchase our first home. As of right now, we've been reading both "First-Time Home Buyers" and "Set For Life" by Scott Trench which has been incredibly helpful - to say the least. We've also been listening to a decent amount of podcasts regarding real estate and have talked to close friends that invest in the Worcester area.

That all being said, (1) my close friends that currently invest have told me that using an FHA loan to purchase a multi-family is unreasonable in this market - how true is this? Is conventional the only way? (2) We want to purchase a home where we'd be able to cover the mortgage costs (approximately $2,000-$2,300) in case we have tenant vacancies for an x amount of time. How realistic is purchasing a home in the South Shore for under $400,000 in this market? We've also considered Framingham, MA, and certain parts of Rhode Island too. Any advice or suggestions are welcomed!

Thank you!

If you are looking for your first home (as in you are currently paying rent). I would not say that using an FHA in this market (over conventional) is unreasonable. My 2 cents opinion is everything on the MLS is overpriced and not truly cash flowing (FHA OR conventional). However, the benefit of FHA is that you can get in with low money down. If you are a first-time homebuyer you might be able to buy a property with NO MONEY DOWN (in RI there are a ton of down payment assistance programs - and you can ask for the seller to cover the closing cost). I believe FHA is a great way to get into residential multifamily and at least start the journey. With FHA you have to live there for at least a year but if the market is truly at its peak (I am not a market timer but I am hearing this a lot), you can live there throughout the market downturn. You would be paying housing expenses somewhere else anyway, so why not put it into your multifamily. And it is great on-the-job training to get you started and hungry for more.

I live in Pawtucket in the Darlington area and love it! It is in a convenient area, and close to a park, restaurants, other amenities, highway, MA, and East Providence. We get awesome high rent for our 2 bedroom (it is a nice updated apt w/ granite countertops, stainless appliances etc).

Good luck and please keep us posted!

2 Reply

Zierry Eme Carl T. Tagbas

Realtor · Spokane, WA · Member since 2020 · 138 posts · 87 votes

4y

Quote from @Edwin Aguilar:

Hello all,

My wife and I are looking to invest in our first multifamily home. We're currently in the early stages of the process (i.e. haven't talked to a lender). We both have good credit scores but unfortunately due to our higher education, we also have debt. We've been in stable healthcare positions for >2 years now and are looking to utilize an FHA loan to purchase our first home. As of right now, we've been reading both "First-Time Home Buyers" and "Set For Life" by Scott Trench which has been incredibly helpful - to say the least. We've also been listening to a decent amount of podcasts regarding real estate and have talked to close friends that invest in the Worcester area.

That all being said, (1) my close friends that currently invest have told me that using an FHA loan to purchase a multi-family is unreasonable in this market - how true is this? Is conventional the only way? (2) We want to purchase a home where we'd be able to cover the mortgage costs (approximately $2,000-$2,300) in case we have tenant vacancies for an x amount of time. How realistic is purchasing a home in the South Shore for under $400,000 in this market? We've also considered Framingham, MA, and certain parts of Rhode Island too. Any advice or suggestions are welcomed!

Thank you!

Hello Edwin, I am not entirely sure about the market in Worcester area but I know FHA is a great program to utilize if you have limited funds. I am house hacking a duplex right now and I used the FHA program. Yes, you will have to pay extra 200 or so for mortgage insurance but it does allow you to put low down payment. If you are able to find triplex or fourplex then MI will most likely get covered. Although you have to live in the property for a year, it would be a great ideal to live there while you are trying to learn about the ins and outs of being a landlord, maybe do some renovations that can add value to your property and etc. You can then refinance later to get rid of that MI and move out of the property, then buy another property.

I recommend doing your analysis to make sure that the numbers make sense to you!

Good luck out there. Please feel free to connect with me if you have any questions

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FHA to House Hack in Greater Boston Area (South Shore)

FHA to House Hack in Greater Boston Area (South Shore)

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