FHA allows you to purchase properties with up to four units with a minimum 3.5% down payment. But to do this, you must be an owner-occupant. This is a great opportunity to buy rental property without having to make a large cash investment. It might allow you to fast track rental property. You can use the rent you collect on three units to help make the payment, and your cost would be quite a bit less.
The unit you owner-occupy is your principal residence. The other three units are treated as rental property and eligible for cost recovery, a non-cash deduction, plus all the normal business expenses. The rental income of the three remaining units is calculated as income and assists you in qualifying.
Fast Track Rental Property
You can buy a four-unit property and live in it for several years. Then you can hold on to it when you are ready to move on to a different home. This could help you get into the real estate market, build equity, and start a rental portfolio as part of your savings or retirement plan.
As the equity increases in your property, due to appreciation and amortization, you may be able to take money out by refinancing to purchase additional income properties. Or you might want to pay the mortgage off as soon as possible. To do this, you could put any cash flow after tax directly to the principal.
In the San Diego-Carlsbad area, FHA has a mortgage limit for a four-unit property of $1,249,550. There are also loan programs for two and three-unit properties with limits of $831,800 and $1,005,450 in our area.
The low mortgage rate and minimal down payments for owner-occupied FHA mortgages makes this strategy attractive. It gives investors an opportunity to highly leverage their investment. Most non-owner-occupied (investor) mortgages require 20-25% down payment. They also have a slightly higher interest rate when compared to mortgages for an owner-occupant.
This is a good option if you need to keep your cash investment low. But, even with our currently high rents, buying with only 3.5% down and paying the required mortgage insurance will most likely not allow your rents to pay all of your monthly costs.
To learn more about this opportunity, call 760-822-9510 and I can give you information on specifics in a variety of areas.