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Live for free with a 2, 3, or 4 unit property

by Gina Pogol
October 19th, 2010

You can finance multi-family homes with FHA loans, letting you buy both a home and an investment with only 3.5% down! Tight financing guidelines, making it harder for people to buy homes, combined with an unprecedented number of families turned out of their homes by foreclosure has rents increasing in many parts of the country. This makes being a landlord a lot more attractive than it used to be. You can finance up to 96.5% of your duplex, triplex, or fourplex as long as you live in one of the units.

The rental income of the property will be determined either by current rents (if it’s rented already) or a schedule of rents from an appraiser, who examines income property in the area and makes a determination of what the subject property units should rent for. Underwriters allow you to count 75% of that income in your qualifying ratios. So, if you were to buy a four-plex that rents for $800 per month per unit, you’d get credit for 75% of the income for three units, or $1,800. I had one client who was retired and her entire income came from Social Security. It amounted to less than $1,000 a month. Yet her qualifying ratios were actually negative, because the property’s income more than offset her monthly payment!

Find a good real estate agent and tell him or her what you need — a multi-unit property with very good cash flow that will pass muster with FHA. Remember, too, that FHA loan limits get considerably higher for multi-unit properties. Good luck — you could find your next home and make a solid investment as well.

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