Looking to start in Real Estate with a duplex and house hack it

[Luis Bencomo]

Hi, 

I'm new to BP and Real Estate in general. I've been reading and learning a lot and decided to get started in this by buying a duplex and living in one unit while renting out the other. This would be in the Houston TX area or surrounding areas like The Woodlands, Spring, Katy... 

However, I don't have a lot for a down payment so I would probably be buying with another partner. And, I wanted to get some recommendations for:

1) Best place to find duplex under market value

2) Can I use FHA for these types of properties?

3) Would it be better to buy something off-market and fix whatever is needed or buying new construction? 

Also, if anybody here has deals that they want to share and see if we can work together, I would be more than glad to link up. 

I would really appreciate any recommendations here. 

[Jason Wray]

Luis,

FHA can be a great tool to help you buy a home with less down 3.5% but it does come with certain guide lines. FHA is good for low income, lower credit and offers higher DTI ratios to accommodate. FHA is tough on a few things like "Chipped paint" any signs of chipped paint will stop financing and need to be addressed (Painted), Loose or missing hand railings, Water damage, Mold, Termites, Outdated electrical or any wiring that is exposed.

FHA will also stop you dead in your tracks if the appraisal shows anything that is considered a "hazard or safety issue" and must be fixed. You will also have an issue with floors not completed, holes or missing drywall, missing toilets, sinks, etc...

Most of it can be fixed but it does cost money if you allow the appraiser to go out to inspect and if any of the above is missing or damaged. The appraiser will mark the report "Subject to" and you will have to fix it and have the appraiser come back out to finish report which is called a "Trip charge" or cost more money.

Unless of course you decide to go FHA 203K but those can be a nightmare of wasted time and stressful. Most sellers do not want to deal with FHA 203K due to the timeline it takes to close but in a slow market its possible. You can use a co-borrower just make sure they have good credit and a (2) year work history of W2 income.

Try and avoid self employed co-borrowers because their tax returns typically do not show income and are full of deductions. Most self employed people think they make a ton of money which may be true but they "Never" show it on their Net profits because of all of the deductions and write offs.

Duplex or any 2-4 unit property is what you want to target since it offers you the ability to use 75% of the other units rents. Just make sure you have a rental agreement or lease in your name because you are required by FHA to have a housing expense in order to use the 75% of rents on an upcoming purchase. You cannot be living rent free or you cannot use the rents of the subject property to qualify.