All Forum Posts by: Joe W.

Hi Eric,

This would be my first property. The logic behind going w/ the 4plex out of the gate is that I can use FHA financing and only put 3.5% down. FHA requires owner occupancy for 1 year so I would be living there.

If I purchase a SFH first and then try to purchase a 4plex I've sort of shot myself in the foot unless I can find a seller to finance it. Traditional financing requires 25% down on a 4plex so if we're talking a $400k property that's $100k down vs. $14k (3.5% of $400k).

It's hard to sell a bank on the idea that I'm going to go occupy a 4plex if I've already purchased a SFH and I live in it. Obviously there are ways around that. I could rent the SFH and go live some place else to show the bank I'm not occupying the property but it's a bit more 'sketchy' going that route.

@Pete T.... thanks for the insight. I appreciate it.

I'm looking to purchase my first 4-unit property using FHA financing in the Phoenix area and I had a couple questions/comments that I would love some feedback on if anyone has any insight.

1) Is now a BAD time for me to buy? --- In my research (keep in mind I'm a novice) things seem to be cycling back around. I've seen a number of 4-unit properties come on the market that were purchased in say 2004/2005 when the prices were at the peak and it seems like prices have gotten back up to that point and some of these investors are just trying to get out and/or turn a small profit. Some of the comments I've read from the Phoenix area investors seem to support the idea that prices are crazy and that makes me wonder if we're headed for a decline.

2) The scary thing about real estate for someone like myself who is just getting started is that you're on the hook for hundreds of thousands of dollars when you buy a property and I'd hate to buy a property and then see the value drop by $50k-$100k or more. The saving grace (maybe?) is that in the multi-unit 'game' even if the property drops in value as long as it cash flows you're making money and eventually the value should come back.

3) The hardest part about buying a 4-plex using FHA financing is the "self-sufficiency" rule. This means that 75% of the rents (using 25% vacancy factor) need to cover 100% of the mortgage (PITI+MI+HOA (if applicable) payment. Is this a good criteria for me to adopt when evaluating 3-4 unit properties going forward? It's hard to find many properties in decent areas that can actually meet this criteria (at least in the research I've done).

4) I'm looking for a good book on multi-unit properties to read. Suggestions? 

Thanks, Joe

Hi,

Im looking for a solid property insurance guy for a fourplex I want to buy in the Phoenix area.

Any recommendations are appreciated. 

Hi Logan, 

Thanks for the response. When you were making offers were you having to find fourplexes with 1 unit vacant (so you could occupy it) or would your write offers with a contingency that the seller evict one of the renters? 

I'm looking to purchase my first property and I want to get a 4plex using FHA financing but it is becoming increasingly difficult as most of the properties I find that meet my criteria (not in the 'hood, exc) and FHA criteria seem to get multiple offers on them and mine is weak (only putting 3.5% down and is contingent on the owner kicking one of the tenants out if it is fully occupied so I can move in).

Couple questions:

1) I'd like to stay in the nicer (non-ghetto) areas when I purchase a property but I'm wondering if investors with experience in multifamily care about this. Is cash flow the bottom line and (within reason) you don't care where the property is located?

2) I've seen properties outside of my desired area that based on the listing (I know this needs to be verified) would cash flow but yet they sit on the market for extended periods of time. I could investigate these properties but I feel like even if everything checked out I must be missing something because why wouldn't a seasoned investor have bought the property already?

I feel like either I have to keep making offers on properties I like or start down the path of making an offer on a property that others seem to be avoiding. 

I know there are a few people here who have used FHA financing to buy 4plex's and I'm wondering if they encountered any of this during the process.

Thanks, Joe

@Jay Hinrichs... I completely understand not disturbing the tenants. My hope was I could find a Realtor who would take the time to do a few basic rental calculations as opposed to just sending me a bunch of 4 unit properties that I don't qualify for. 

If the MLS listing indicates the gross monthly rent is $2,000 (I understand I need to do my due diligence & not take these figures at face value) and the sales price is $500k it's pretty obvious that this is not even an option for me via FHA financing as my PITI payment is going to be at least $2,500-$3k per month & I would not meet the required FHA Self-Sufficiency rule.

The other issue that I'm noticing is that some listings don't even take the time to provide the monthly rents in their listings so I cannot even do a basic analysis. I'm not sure if this is a sales tactic by the agent listing the property to generate a call or if they're just lazy. 

Thanks again for your input!

Hi all... I appreciate the feedback. I really, really do. 

Especially @Jay Hinrichs... you're always straight forward and don't sugar coat anything and I really appreciate that. 

I think part of my frustration is that I work in the industry (I'm an underwriter) and I'm trying to find someone who will put in a little bit more effort on the real estate agent side as I work a minimum of 60 hours a week as an underwriter and then I have a side business that requires most of my hours beyond that. I guess I'm going to have to find a way to devote more time to it as investing is definitely one of my goals. 

I've done thousands of FHA loans as an underwriter but I've never underwritten a 3-4 unit property using FHA financing. I think the average person doesn't even understand they have the option to buy a 3-4 unit property using FHA.

FHA recently changed the criteria regarding 3-4 unit properties but the verbiage regrading self-sufficiency is a bit vague... I'm going to call them this coming week and see if I can get some clarification and I will report back my findings as it may be helpful to others.

I'm looking to get started in real estate by purchasing a 2-4 unit (ideally 4) through FHA financing.

I looked online and found a few properties that peaked my interest and I reached out to a Realtor who had a few multi-family homes listed. I left a voicemail and she called me back a few hours later but unfortunately she caught me at a bad time (it was Christmas Eve) and I asked her if she could call me back on Monday. I've never heard back from her and this makes me irate. I don't understand this at all. I'm talking about buying a $400k property in which she would likely make $12k-$24k (3% to 6%) and she can't call me back?!

After this experience I reached out to a family members friend who is a Realtor. The only thing she's done is send me emails with MLS listings.

FHA Financing on 3-4 unit properties is a bit tricky and I can't qualify for every property available as there are a number of 'catches' with it. The biggest catch (in a nutshell) is that the rents have to cover 100% of the mortgage payment after subtracting a 25% vacancy factor. I've explained this to the Realtor and she just continues to send me every friggin listing on the MLS... often times 5+ unit properties which I can't even qualify for or $600k properties that generate $2k a month in rental income (which would not even come close to covering the mortgage payment).

The MLS at least from what she is giving me access to is largely garbage in that it's largely the same information that is available on Realtor.com.

I'm looking for a Realtor who will do some of the leg work... filter the properties that I might actually qualify for. 

I don't believe this to be unreasonable when I'm going to put $10k+ in this persons pocket but maybe I'm off base and a Realtor is basically a guy or a gal who puts you on an autoresponder list that sends you garbage until you buy something.

Am I off base here or are there Realtors who actually give a damn?

Hi @Jay Hinrichs

Thanks for the reply. 

I'm somewhat confused by the foreclosures on the multi-plex's in Phoenix. Was this just a case of lazy or upset investors regarding the value of the property (say going from $300k to $100k)? I guess I don't understand why someone would let a property go even if the value of the property was down so long as it was cash-flowing.