Ethan On A Tangent

Rethinking Real Estate: Why I’m Considering an FHA Loan for a Multifamily Property

Ethan Tang -

For the longest time, I thought real estate wasn’t for me. Renting felt simple, flexible, and—let’s be real—financially smarter. Especially in dense urban areas, where home prices and rent-to-own ratios often don’t make sense, I figured I’d rent forever. After all, the math seemed to agree: historical data shows residential real estate returns around 2–4% annually, while the S&P 500 averages approximately 10% per year, including dividends.

But recently, my perspective has shifted. And the reason isn’t just real estate’s returns—it’s leverage, tax benefits, and a new goal: buying a 2-4 unit multifamily property. Let’s talk about why FHA loans are starting to make sense for someone like me.

Why FHA Loans Are a Game-Changer for Multifamily Homes

Here’s what makes FHA loans stand out: They allow you to buy a home with as little as 3.5% down, even for multifamily properties (up to 4 units). That’s huge because it opens the door to leveraging your purchase while keeping upfront costs low.

For example:

  • On a $700,000 duplex, 3.5% down means you’d only need $24,500 upfront—plus closing costs—compared to the $140,000 needed for a traditional 20% down payment.
  • With a multifamily property, you can live in one unit and rent out the others, offsetting your mortgage payments with rental income.

This combination of low upfront costs and rental income potential is a major draw for someone like me, who wants to start building equity while generating passive income.

The Benefits of Real Estate: Beyond Returns

Real estate isn’t just about appreciation. It comes with additional perks, including:

  1. Leverage
    With real estate, you control a large asset with relatively little money down. A 3.5% investment gives you exposure to 100% of the asset, magnifying your returns (or losses).
  2. Rental Income
    By purchasing a multifamily property, you can house-hack: living in one unit while renting out the others. The rental income can help cover your mortgage, making real estate more financially sustainable.
  3. Tax Advantages
    Real estate also comes with substantial tax benefits. You can deduct mortgage interest and property taxes and, for rental properties, claim depreciation deductions to reduce taxable income. These advantages are a significant incentive that stocks don’t offer.

The Challenges of FHA Loans

Of course, there’s no free lunch. FHA loans come with their own complications and risks:

  1. Mortgage Insurance Premiums (MIP)
    FHA loans require both upfront and annual mortgage insurance premiums, which add to your monthly costs and reduce overall returns.
  2. Owner-Occupancy Requirement
    FHA loans are designed for primary residences. You’ll need to live in one of the units for at least 12 months to meet the loan’s requirements.
  3. Overleveraging Risks
    While leverage can magnify returns, it also amplifies risk. If property values drop or rental income doesn’t cover your mortgage, you could find yourself in financial trouble. Multifamily homes also come with higher maintenance costs, which should be factored into your budget.

Why I’m Considering a Multifamily Play

Despite these challenges, I’m starting to warm up to the idea of buying a multifamily property. Here’s why:

  • Income Potential: The ability to generate rental income from other units is a game-changer for cash flow. With careful planning, I could live in one unit essentially rent-free.
  • Equity Building: Instead of paying rent, I’d be building equity in a property, which could appreciate over time.
  • Tax Advantages: The ability to write off certain expenses makes real estate even more appealing as an investment.

The low down payment requirement of FHA loans makes this play feel achievable, even for someone wary of tying up too much capital in real estate.

Final Thoughts

I’m not entirely sold on homeownership yet—I’ll always weigh the economics of renting vs. owning. But a multifamily property with an FHA loan feels like an opportunity worth exploring. Between the potential for leverage, rental income, and tax advantages, it’s starting to look like a smarter way to dip a toe into real estate.

For now, I’ll keep crunching numbers, but this might just be the beginning of my real estate journey. Stay tuned—I’ll dive deeper into the tax benefits of real estate in a future post.