All Forum Posts by: Phil Sabella

A wide search, that's a good sign if you're willing to go where the deal will take you. Well, I already have MLS searches in place for all new Multis that come on the market in Montco & Bucks. If something pops up that I think might be of interest to you, I'll pass it along. Good huntin

Hi Phil,

Pleasure to meet you. That's exactly what I plan on doing as well. To Pyramid up, yes you can only do it with the 1031 exchange.

Buy this book for yourself if you haven't already: "Investing in Duplexes, Triplexes, & Quads: The Fastest and Safest Way to Real Estate Wealth" by Larry B. Loftis.

Let me know if you have any further questions.

Best,

Dom

@Phil Sabella, Good luck on your search.  Sounds like a well thought through plan.

The 1031 exchange is a process you'll use when selling investment real estate that allows you to defer paying tax on the gain (fed only in PA unfortunately) and instead using those tax dollars to purchase additional investment real estate. In essence it is a long term loan from the IRS acting almost exactly like an IRA but outside your IRA. You get to use the tax money as long as you play by the rules.

You're searching for a property that you can mix the use on - part primary residence and part investment.  If you live in part of it for two out the previous 5 year period  you will be able to take out the gain from the allocation of the portion you lived in (up to 250K if single or 500K if married) tax free!.  And you will be able to defer the tax on the portion you use as investment with a 1031 exchange.  An excellent way to get the free use of govt money to ratchet your portfolio up.

@Phil Sabella, one thing to keep in mind when looking for an FHA owner-occupied triplex or fourplex is that 85% of the market rents on all four units need to cover your monthly payment (principal, interest, taxes, insurance, and mortgage insurance). This is known as the self-sufficiency rule. It only applies to 3- and 4-unit properties (not SFRs or duplex) bought using FHA financing. I put together a spreadsheet here to help potential house hackers quickly analyze whether or not a property qualifies. There are other FHA requirements concerning which you should contact your local lender, but determining whether or not a triplex or fourplex meets the self-sufficiency rule is a good place to start as this rule will immediately eliminate many properties from your search, especially in expensive markets like mine.

The fact that the self-sufficiency rule only applies to triplexes and fourplexes in no way means that you cannot purchase a single-family home or duplex using FHA financing. It just means there's an additional requirement that 3- and 4-unit properties must meet because as these are typically larger, more expensive properties with bigger mortgages and bigger monthly payments and hence pose a greater insurance risk to the FHA, which, by the way, is a mortgage insurer, not a mortgage lender. As FHA's credit and income requirements are not as strenuous as they are for conventional mortgages, it seeks to mitigate its risk of insuring a 96.5% loan-to-value mortgage on a larger property by making sure that the rental income is high enough in relation to the mortgage.

Hi @Phil Sabella, that's a great plan. Since you'll be living in one unit, what are your parameters for location based off work/family/friends?

Thanks Jacob! Appreciate the response. This does indeed seem like the way to go. I will definitely be contacting you in the future. Good luck! 

Phil 

@Phil Sabella

I am in a similar position as you. I'm 24 and looking to buy my first investment property. House hacking, in my opinion, is the way to go. You can use an FHA or 203K loan and only have a 3.5% down payment for a 30 year loan. This drastically increases your return on investment. This strategy only works up to four units, but you should be able to make deals cash flow. You can live in one unit and rent the rest to cover your expenses. After thirty years (when we are 54) you will own the house outright, and your cash flow will drastically increase, and even without appreciation you will have the value of the house as an asset. If done correctly, all of this should come from your 3.5% down payment and a little sweat equity, and you could be collecting cash money every month if you are smart with the purchase (you make your money when you buy the property). You can even refinance after a couple of years and pull out your down payment to then have no money in the deal, and cash for the next purchase.

One requirement is that you do have to live in the property for at least one year to be considered an owner occupant in order to receive the FHA or 203K.

The 203k loan is ultimately a FHA loan, but you are able to include rehab costs into your borrowed money. This allows you to buy a deal that needs some work and not have to come up with rehab cash out of pocket. I am currently looking for my first property, but have put some time into researching the strategy so feel free to contact me if you have any questions abut the process.

@Phil Sabella, look into house hacking.

Hello and welcome to BP!  Be careful with things you do that are more than a 2 hour drive. Anything that is long distance requires more work usually.  Always do the numbers.  Feel good about any project before you make an offer.  If you do not feel good just walk away and go on to the next one.  The more diversified the better.  The closer to the City the better it will usually be.  Trust your gut.  Be patient and be consistent.  I am 59 years old and I have been in the construction business since I was 17.  I got a college degree in business with emphasis in Real Estate.  I also got a broker license in 1980.  My dad has been in Real Estate for 40 years or so.  He has taught me a little and I have done several deals.  I found BP about 6 months ago and I am still trying to decide on what to do.  If you think that I might help you please contact me at any time.  Good luck to you!  I like what you are thinking about doing.  I am not too cozy with going out of state.  Just make them a good location.