The FHA is very well known for its mortgage insurance
programs. Homebuyers can buy homes with far more lenient terms
than other banks would dare offer. But the FHA's programs
don't stop there.
For starters, a savvy real estate investor can use the FHA's
programs to buy rental property for as little as 3.5% down.
One for you, three for rent
All FHA loans are required to be used for the purchase of
owner-occupied housing. There's a nuance to that requirement
though -- the rules do not preclude a potential buyer from using
an FHA loan to purchase a duplex, triplex, or fourplex. The buyer
only needs to live in one of the units. The other units are fair
game to be rented.
For the entrepreneuring real estate investor, this option is
four birds with one stone. One loan nets a place to live and
three rental units. The devil is, of course, in the details, and
that's particularly true with a government-backed mortgage
As mentioned previously, one of the units must be owner occupied.
Further, the borrower must qualify for the loan under the FHA's
established criteria. That means the borrower must demonstrate
adequate cash flow, credit history, and net worth to be approved.
That said, the rental income from the proposed rental units
counts toward the borrower's income.
The FHA doesn't limit the maximum sales price of the property,
but there is a maximum loan amount. The FHA distinguishes between
a "basic" mortgage limit and a "high-cost area"; this accounts
for certain areas around the country with demonstrably higher
housing costs than the nationwide average. These limits are
outlined in the table below.
||High Cost Area Limit
To find the exact loan limit in your area, you can use the
More resources to help
Buying rental real estate can be a very lucrative investment
class if done correctly. Investment real estate is considerably
different than simply purchasing your own home; owning and
operating rental property is a business, plain and simple.
For example, when considering your monthly cash flow, a rental
property must also consider vacancy, maintenance, and a whole
host of other expenses. It is, for better or worse, a lot of work
to actively manage a successful rental property.
For some help on learning just what it takes to start building
your own rental property empire, check out these short reads:
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How to Buy Rental Property With Only a 3.5% Down
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