This crazy situation will let us have multiple FHA loans, should I do it?

Question

Hey friends!

Long time lurker, even though I post infrequently. My wife and I own a cashflowing quad-plex in Chicago that was a 3.5% FHA loan. We are in a fairly unique position because I work fully remote in a very secure/high-paying job and my wife is about to start her career as an Audiologist which also will be secure/high-paying. She has to do residency in St. Louis for a year and then residency again in some other state for another year. We are considering buying in the St. Louis market at the moment with a 3.5% down loan because it's just so cheap. Something that many people don't realize about FHA loans is that you actually can have more than one under a few special circumstances (https://fhalenders.com/fha-100...). One of those circumstances is moving for job related reasons more than 100 miles away from your current FHA loan. My wife and I will be doing this once a year for the next 2-3 years at least so there is potential to get an FHA loan with every move.

With that said, we've been looking in St. Louis for about a month for a house hack and there isn't really a ton of multi-family inventory so we were considering just buying a single family home and getting the nicest home in the nicest area we can (we have great credit/reserves so we can buy something really nice). We'd love to try long-distance mid-term renting it, since we are confident in our abilities to self-manage and build a team in the area. If we live in the house for a year, we can rent it out but as a long-term rental any house will almost certainly not cashflow since rent hasn't caught up to the rising price of homes in St. Louis. As a midterm rental, it can potentially cashflow. Here's the question.

Should we buy a place that does not work for LTR cashflow just because we can use an FHA loan and can comfortably afford the negative cashflow in our budget? I feel like it's a waste of a year to go there and rent when we can own a $400,000 house with just a $14,000 downpayment + 12 months rent + ~$150/month to offset the negative cashflow (if we have to LTR because MTR'ing doesn't work out). As a long term buy-and-hold, I feel like it's pretty hard not to win here even if we are negative for a while because rent rates will almost certainly rise over time.

What would you do if you were me? Thanks! :)

Michael Mroczka · Answer

Thanks for all the help everyone! I ended up finding a great triplex in Holly Hills which is a gorgeous area. Under contract now! :)@Jonathan Klemm my 4 unit is in Bridgeport. It's a great up-and-coming area. Two new starbucks nearby, awesome local restaurants, and the biggest crime threat is bike theft. Really great neighborhood.

Jake Handler · Answer

In my opinion, you seem young and smart enough to go for it. I'm assuming you have a full time job and will have a full time job for the foreseeable future. So what's +/- $150 a month to you right now? You probably will not live differently if you were -$150 or +$150.

Now, I'm not suggesting to buy a "bad deal" but because you believe there will be appreciation in both value and rental income, and you described the down payment as "comfortable," it feels like a nice long term play to me. Again, if you were retiring or did not have regular income besides rental properties, I may have a different mindset.

Account Closed · Answer

You can't beat the rates of an FHA loan. By putting a really low down payment, it does get harder to cash flow though, so beware of that. Maybe try and find a market you suspect is due for serious appreciation.

Michael Mroczka · Answer

Why a lower price point? Isn't the whole benefit to moving out and having another person pay the mortgage that they pay for an asset? I'm assuming I'd want them to pay for the most expensive asset I can get and still have close to cash flowing. Am I thinking about that wrong somehow?

Jonathan Klemm · Answer

Congrats on the property brother!

Totally agree on Bridgeport @Michael Mroczka!  I love that Chicago neighborhood and definitely up and coming.

I am 100% with you @Nicole Heasley, my first property was also a single-family house and I used the "live-in-flip" model.  Get started any way you can is my advice to anyone else reading this!

Nicole Heasley Beitenman · Answer

I'd do it. One, you should be buying something that needs fixed up. So you'll have some forced appreciation. Two, you have to factor in the amount of money you're saving by house hacking. Three, you and your tenant will be paying down the mortgage for a while, giving you a smidge more equity. Four, between STRs, MTRs, rent-by-the-room, and other creative ideas, there's probably a way to get your cashflow to where you need it after you leave. Like DG is always saying on the podcasts, deals today are more often made than found. Five, rents will go up over time. Six, there's the tax benefits to consider. And last, you also always have the exit strategy of selling and taking that equity you created to another venture if worse came to worst.

Crystal Smith · Answer

if you are going to purchase a property that won't cash flow then I recommend targeting areas that have a greater chance of appreciating.  In St. Louis, that means Ladue, Clarkson Valley, Town & Country, Des Peres, Frontenac, Wildwood, or Chesterfield.  These are towns in St. Louis County.

If your job requires you to live in the city then target homes around Washington University.

The areas above are great for AirBnB or VrBO.

Jonathan Klemm · Answer

Hey @Michael Mroczka - I'd always say buy, however, only if you can find a property in a location that makes sense for the longer term and that you plan on holding on to.  If you are just going to buy and then sell with a short horizon much riskier.

I'd lean hard into finding a multifamily even if there isn't a lot of inventory in St. Louis....and not go down the single-family route unless it's for your own personal preference.

Just curious, what area of Chicago is your 4 unit in?

This crazy situation will let us have multiple FHA loans, should I do it?

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