Yes the FHA PMI is for life. However we are evaluating an FHA mortgage on a Primary multi-family vs an investment mortgage on a multi-family.
Right now if you bought a multi-family with FHA 3.5% down as a primary, you could get 3.375% as a base interest rate and the monthly PMI is 85bps. Assuming $250K purchase price. you'd be looking at roughly $1,085 on the mortgage and $170 on the PMI total of $1,255. If you do the math backwards, with the PMI that is about a 4.73% interest rate with NO PMI.
The current rate for an investment multi-family loan is about 4.75%. So your cost of credit is essentially the same and the FHA allows a significantly lower downpayment.
Now YES, you are taking on a significant amount more leverage, so the risk is higher, but your % return on invested capital is also much higher.
The original question was about making a smaller downpayment on your primary so you could make a bigger DP on the investment. I personally prefer the opposite. Make a bigger downpayment on your primary. If I'm going to have leverage, I'd much rather prefer it on my investment properties as opposed to my primary.