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

St. Louis, Missouri
Medium-Term Rentals
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This crazy situation will let us have multiple FHA loans, should I do it?

Michael Mroczka
Member since 2018 · 7 posts · 11 votes

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! :)

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Jake Handler
Real Estate Agent · Morristown, NJ · Member since 2020 · 206 posts · 128 votes
3y

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.

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  • Eudith VacioPro Member
    Real Estate Agent · Chicago & NWI · Member since 2015 · 860 posts · 521 votes
    3y

    Hey @Michael Mroczka - I would definitely purchase a home - but I would try to purchase a home at a lower price point if possible, or maybe lean towards a townhome with no HOA fees? It sounds do-able. Definitely not a fan of a property not cash flowing so I would try to focus on another strategy so you do cashflow!

    0Reply
  • Michael Mroczka
    OP
    Member since 2018 · 7 posts · 11 votes
    3y

    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?

    1Reply
  • Evan Kline
    Real Estate Agent · Winston Salem, NC · Member since 2016 · 83 posts · 122 votes
    3y

    @Michael Mroczka

    Hi Michael! One thought is to purchase a lower price point house as others suggested, but specifically find a property that has conversion potential - a basement that can be a separate unit, or a larger lot that you can build an ADU. Your cash on cash return can still look really good if you build a small 1/1 adu, furnish it and rent it out as an MTR.

    0Reply
  • Jake Handler
    Real Estate Agent · Morristown, NJ · Member since 2020 · 206 posts · 128 votes
    3y

    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.

    3Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    3y

    With an FHA and only 5% down, you are unlikely to find a place that will cash flow. There are other ways that rentals earn you money-tenant paying down your mortgage and appreciation though you can't count on the latter.

    When buying, a home in a nice area is always a good investment; but usually you don't want to buy the nicest home in the nicest area-you want one of the worst homes in the best area.  Then fix it up so that is it not the worst house in the area.  That will also get you more when you do sell down the road.  Worst can mean different things-dated or fixer upper.

    You'd probably pay more than $14K in rent to live there for a year, so I say go for it. Make sure you know the area you are buying in and good luck.

    0Reply
  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    3y
    Quote from @Michael Mroczka:

    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! :)


     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. 

    312-681-7487
    1Reply
  • Michael Mroczka
    OP
    Member since 2018 · 7 posts · 11 votes
    3y
    Quote from @Theresa Harris:

    With an FHA and only 5% down, you are unlikely to find a place that will cash flow. There are other ways that rentals earn you money-tenant paying down your mortgage and appreciation though you can't count on the latter.

    When buying, a home in a nice area is always a good investment; but usually you don't want to buy the nicest home in the nicest area-you want one of the worst homes in the best area.  Then fix it up so that is it not the worst house in the area.  That will also get you more when you do sell down the road.  Worst can mean different things-dated or fixer upper.

    You'd probably pay more than $14K in rent to live there for a year, so I say go for it. Make sure you know the area you are buying in and good luck.

    I feel like this misses the point of house hacking though. I thought you wanted to spend as little money yourself as possible and let your tenants pay for the asset. Sure, it makes sense to buy something that I can force appreciation with some renovations and if there is something that just needs cosmetic updates then I'm game for that, but if I buy something that needs a kitchen remodel or a bathroom overhaul then I'm spending 5-10k more than I would have if I had just rented. This makes sense if I can dramatically up the rental rates, but since rental rates are suppressed in St. Louis right now I didn't think it made sense to buy something that needed work put into it. Am I thinking about this wrong?
    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    3y
    Quote from @Michael Mroczka:
    Quote from @Theresa Harris:

    With an FHA and only 5% down, you are unlikely to find a place that will cash flow. There are other ways that rentals earn you money-tenant paying down your mortgage and appreciation though you can't count on the latter.

    When buying, a home in a nice area is always a good investment; but usually you don't want to buy the nicest home in the nicest area-you want one of the worst homes in the best area.  Then fix it up so that is it not the worst house in the area.  That will also get you more when you do sell down the road.  Worst can mean different things-dated or fixer upper.

    You'd probably pay more than $14K in rent to live there for a year, so I say go for it. Make sure you know the area you are buying in and good luck.

    I feel like this misses the point of house hacking though. I thought you wanted to spend as little money yourself as possible and let your tenants pay for the asset. Sure, it makes sense to buy something that I can force appreciation with some renovations and if there is something that just needs cosmetic updates then I'm game for that, but if I buy something that needs a kitchen remodel or a bathroom overhaul then I'm spending 5-10k more than I would have if I had just rented. This makes sense if I can dramatically up the rental rates, but since rental rates are suppressed in St. Louis right now I didn't think it made sense to buy something that needed work put into it. Am I thinking about this wrong?

     With house hacking it lets you get into the market and decrease your housing costs.  You do want to put as little down as possible, but doing so you are less likely to find a place that cash flows.  In some areas, you can find places that cash flow when you put 20% down; but take those same homes and put 5% down and most of them won't cash flow.  If you are living in the home it is a very different story than if you are using it solely as a rental.

    Most of the places I've bought, didn't need a lot of work.  Two needed nothing done, one needed paint and a bit of trim work, another paint and new flooring and the other well it was a mess and we ended up doing way more than planned (new bathroom, we'd planned for the kitchen and some flooring).

    0Reply
  • Thomas NordbergPro Member
    Realtor · Tucson, AZ · Member since 2019 · 29 posts · 17 votes
    3y

    I have been in a similar situation with VA loans (which with 0% down have those low equity issues for cashflow). With that being said, buying decent single family homes in nice areas everywhere we go has been very successful long term.

    The most recent investment property I sold was a primary residence for about a year, then neutral cashflow to -100 a month or so for about 5 years. The subsequent 5 years had about +400 monthly on cashflow, and selling after 10 years netted around 80k. Every deal is different, obviously, but over a decade I got far more out of it than I put into it. As long as you are building  significant equity, and expect to hold long term, I would accept neutral cashflow. That being said, if you are not going to find a deal to rehab and force equity, I would aim for a newer property that does not have major improvements or repairs on the horizon... one new roof or AC throws that math out the window.

    0Reply
  • Nicole Heasley Beitenman
    Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
    3y

    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. 

    1Reply
  • Jonathan KlemmBusiness Member
    Moderator
    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    3y

    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?

    [email protected]
    Quality Builders4.966 Reviews
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  • Michael Mroczka
    OP
    Member since 2018 · 7 posts · 11 votes
    3y

    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. 

    3Reply
  • Nicole Heasley Beitenman
    Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
    3y
    Quote from @Jonathan Klemm:

    Hey @Michael Mroczka

    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.  

    I agree with you, but only because the OP is already an established investor. I just want to put it out there in case any newbies are reading this--you can absolutely house hack a SFH. I did it for 3 years, and it's way better to go the SF route than not get into the game at all. Once you have a property, I do recommend pursuing the "stack" preached by BT. 
    1Reply
  • Jonathan KlemmBusiness Member
    Moderator
    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    3y

    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 Beitenman, 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!

    [email protected]
    Quality Builders4.966 Reviews
    WebsiteView Page
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  • Nicole Heasley Beitenman
    Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
    3y
    Drives me nuts when people say, "I can't house hack because I can't find a MF." Oh yes you can!
    0Reply
  • Account Closed
    Columbus, OH · Member since 2023 · 427 posts · 254 votes
    3y

    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.

    1Reply
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