The Truth About Buying a 4 Plex Using FHA Loans and What You Need to Know!

There's been a lot of talk about buying multiplex units. Fannie Mae recently came out with some guidance that now you can put as little as 5% down in order to buy a fourplex or any multi-unit property. A lot of folks have been talking about this lately. I think it's a great idea, but I think for a lot of you that are thinking about buying your first home and buying a fourplex, you really need to understand what you're getting into and make sure you run the numbers. I see way too many real estate agents out there pushing this product with FHA financing saying that this is the best way to go about it. Even guys like Grant Cardone are talking about buy a fourplex live for free. So I kind of wanted to do this video just to show you a fourplex that I found. It's something I think you need to take a look at because you can't get suckered in to doing these fourplexes or doing what all these social media guys are telling you to do when they're setting you up for failure. So let's take a look at this property that I found on Zillow and we're going to break down the numbers. And is this something that actually makes sense to be able to purchase and live for free as a lot of these social media guys are telling you to do. So this property is here in Las Vegas. It is $628,992 and you can take a look at this place. It's actually pretty decent for a fourplex out here. A lot of the fourplexes in Las Vegas, in my opinion, they're not the greatest, especially not in the greatest parts of town. So the fact that this one looks like it's been freshly renovated, this one looks pretty cool. To be honest. Let's break down these numbers. And this is where it took me a little bit to kind of find a fourplex where I could see the rent rolls and all that stuff. This one here says that it averages anywhere from 1275 to 1350. I'm going to use 1275 for my numbers in order to see, does this fourplex work as an FHA loan in order to you buy it and for it to make sense? Here's the one thing I want to point out first and foremost on this property is that there is an HOA. And for those of you that don't know what an HOA is, it's a homeowner's association fee. And a lot of times HOAs, you know, we think of them on single family homes, but a lot of these HOAs do apply to fourplexes or multi-unit properties as well. And on this home, there is an $800 a month HOA fee on this property. So you got to make sure that when you're running your numbers or when you're getting pre-approved and you're talking to a lender, they are taking into account all of these figures. And this is why it's always misleading when I hear and see so many real estate agents and a lot of other folks talking about going with FHA and you can live in your home and you know, your tenants are paying your house off for you. The fact that FHA increased their loan limits and yes, that's a good thing, but also it's a bad thing because you're only putting three and a half percent down. That's an expensive loan. If you're borrowing $700,000 and putting three and a half percent down just to get into this property. So to me, it's one of those things, you really got to understand the mechanics of the loan for it to make any sort of sense. Now, what I've done is I've broken down this scenario. So you can see for yourself on this fourplex, does this even make sense? Now this first column here, let's just say we purchased this home at list price with three and a half percent down FHA financing. This is based off of a 740 credit score. And again, we're only doing three and a half percent. So prime client, obviously your interest rates will be dependent upon your credit score. And again, if you put more money down or anything else, but we're doing the bare minimum because that's what everyone's talking about right now. It's three and a half percent down our interest rate today. Again, ballparking it around 6.625%. This gives us a monthly payment of 5696.90 a month. Okay. That is a total payment that you have to qualify for in order to purchase this property. You do get to utilize some of the rents to offset the payment. However, you still have to qualify for this total amount. So if you're making only call it three grand a month, you're not going to qualify for this mortgage. You don't have enough income in order to do this deal. So you still have to make a fairly substantial amount of money when you're looking at buying these properties that are in the six $700,000 range. Now let's really dive into this payment for a second here. So we're paying the list price scenario. You have your principal and interest payment, which is a little over $4,200 a month. You have your property taxes, which I ballpark this at one 50. You have your hazard insurance or your homeowner's insurance for 150 bucks a month. Again, that's an estimate. You also have your mortgage insurance for $302 a month. Yes. Mortgage insurance. If you're using FHA financing, you will have mortgage insurance on your loan forever until you refinance and get that thing off. So make sure you're factoring that in to your numbers. Total monthly payment, 4898, including your HOA of $800 will then take us to 56, almost 56, $5,700 a month in payment just for this fourplex. Not looking so hot in my eyes. Now everyone keeps talking about living for free in a fourplex. So let's just see if we're going to live for free. How do we make this work on this deal? If we're taking the same interest rate of today, 6.625%, you would have to purchase this home for $400,000 would have three and a half percent down payment in order to get your monthly payment, almost $3,800 a month. Again, I'm using the numbers from the estimate here, here in the listing where they're saying the current rents are from 1,275 to 1,350. I'm going to take the worst case scenario and we're just going to use 1,275. So if you did just the basic math, 1,275 times three, that that's going to get us right around 3,825. And at that point, your mortgage payment would be right around break even. So for three and a half percent on a $400,000 house, $14,000 that could make sense. You could live in this home. Essentially your three tenants are paying the mortgage for you and you are technically living for free, but the house would have to sell at $400,000. This thing is almost $300,000 higher than what it should be in order to do this deal. What so many people talk about. So now let's just say you're buying the house again at market price today. And let's say it is worth the 682 993 in order to live for free and keep your payment around 3,800 a month. Your interest rate in today's world, today's world would have to be 1.75% in order to get your payment down to about $3,800 a month. And I think we all would say that payments or interest rates are not going to go down to 1.75% today. So the question is, is doing an FHA loan the best thing to do on a fourplex in some instances? I think the answer is yes, but not in every market. I don't think it's going to make sense in every market because even if you were to buy this fourplex and you weren't able to manage the payment less the rent, you're still looking at almost a $2,000 payment. And that's the hardest thing I'm seeing a lot of folks today is they're going to have to qualify for that full $5,700 a month payment. That's going to be hard for a lot of people. You've got to be making pretty substantial money, especially in Las Vegas to afford this fourplex. Now the other scenarios show, you know, you need a pretty massive price drop in order for that to make sense. Probably closer to like 30% or interest rates drop substantially. And the other two scenarios pretty hard to come by these days. So when you see these people online that are talking about buying multi-units and I love a multi-unit, but it's got to make sense. And the only way it makes sense is you have to get pre-approved and talk to a lender because a lot of these agents that I've seen, and I've seen multiple people talk about this exact strategy that call me today. I can get you into a fourplex and you can live for free. That's just bad math all the way around. So make sure that the person you're talking to actually knows how to crunch the numbers because there's little things like this that it's going to eat into the overall scenario of you qualifying. And it's just not going to make sense. And to be honest, if you're buying a fourplex and all you can afford to do is put three and a half percent down, that's a lot of maintenance that could potentially come up on the property. You've got three units you need to maintain. If anything goes wrong or there's repairs, you have to be able to fix that. So I don't necessarily think that's always the smartest thing to do simply because you have to have a lot of money on the side in case repairs come up. It could be an expensive purchase and maintenance. Yes, the cashflow is amazing, but the cashflow is amazing at the right price. I don't necessarily think that a fourplex works in every scenario. In theory, it is a smart way to go about purchasing investment property and building your portfolio. But more than anything else, you have to be able to crunch the numbers to figure out, does this really work for you? In my opinion, I wouldn't necessarily do this deal. The cashflow just isn't there to support the debt. I would rather find something where if I'm buying my first home, that I would have more security in the cashflow of itself. Whether I buy a single family home and maybe I house hack it with maybe a few of my friends, people I can trust that I know will pay me the rent. And they're not going to damage my property. That might be a better way to offset your mortgage payment and the costs that go along with maintaining just one house versus now I've got to maintain four properties. And if the tenant moves out, they beat it up. That could cost you another five, $7,000 potentially, depending on how bad it is. Turnover just to get another tenant in there. And again, you've got three of those to worry about now. So unless you've got some money saved to the side, I don't necessarily think three and a half percent down is going to be the best idea. This property I would pass on unless I had more cash to come to the table with or I could beat the seller up, get them to drop the price in order to increase more of the cashflow to make the deal work a little better. So if you have any questions on running scenarios on deals that maybe you're looking at and you need to get pre-approved to make an offer, my team and I are happy to take a look at that for you and help you get into your new home or help you build your real estate portfolio. So shoot me a message. I'd be happy to talk with you, share this with one of your investor buddies that might be thinking about buying, and I'll see you on the next one.