My girlfriend and I are looking to purchase our first property together. We know that turning a profit in California is near impossible, but we want to live in California AND we want to be strategic with our first home by thinking of it as an investment strategy.
I was told that a duplex would be the best way to go. But, I’m not sure what cities to be looking in. We qualify for up to $875,000. We are currently looking in Elk Grove but I would prefer to be in SoCal if possible. Even if that means moving to somewhere further inland like Rancho Cucamonga/Fontana/Riverside.
But, I’m completely stuck. I don’t know how to determine which market would be the smartest move. And I’m struggling to see what options going with this strategy would provide us in the future.
I'd love to connect with anyone who is investing in California and focusing on MFU and even SFH. At this point, I'm wondering if buying a fixer upper SFH and treating it as a "long term" flip (1-2 years, would be the best option. Open to learning.
For more context, we'd be using an FHAloan and putting down 3.5%.
My girlfriend and I are looking to purchase our first property together. We know that turning a profit in California is near impossible, but we want to live in California AND we want to be strategic with our first home by thinking of it as an investment strategy.
I was told that a duplex would be the best way to go. But, I’m not sure what cities to be looking in. We qualify for up to $875,000. We are currently looking in Elk Grove but I would prefer to be in SoCal if possible. Even if that means moving to somewhere further inland like Rancho Cucamonga/Fontana/Riverside.
But, I’m completely stuck. I don’t know how to determine which market would be the smartest move. And I’m struggling to see what options going with this strategy would provide us in the future.
I'd love to connect with anyone who is investing in California and focusing on MFU and even SFH. At this point, I'm wondering if buying a fixer upper SFH and treating it as a "long term" flip (1-2 years, would be the best option. Open to learning.
For more context, we'd be using an FHAloan and putting down 3.5%.
Cheers,
Kevin
TLDR: YouTube, Jobs, Down Payment Assistance
Investing is not a sure thing, that's why there is always risk associated with it. But you can educate yourself on those risks, and do your best to mitigate them.
But sincerely, I just typed "How to Analyze Real Estate Markets" into google and multiple videos and blogs are written on the subject.
But in a nutshell, I'd recommend finding a place that has access to good, middle class jobs nearby. Maybe it's a factory, maybe it's a university, or maybe it's a government location like a military base or some other gov't department. Ensure those jobs are stable and have a future. There will be other supplementary businesses around that major job creator (restaurants, raw material providers, etc) that prop up that industry.
From there, see what you can afford with your FHA loan. However, instead of using your cash for the 3.5% down payment, I recommend you save that money and use a down payment assistance program instead where all you have to pay is closing costs. Save your cash, buy a place that needs some updating, and put your cash toward that.
Down payment assistance programs don't come without strings though. Some have slightly higher rates, some have a "shared equity" plan where you pay back what they lent you + some more, and some have either income or DTI limits that are strict.
I like the forgivable down payment assistance programs where you have a higher rate, but you don't have to pay the down payment back ever. The thing is: you can just refinance OUT of that after you've made 6 payments on the house, which will put you into a more palatable interest rate and a lower monthly payment.
My girlfriend and I are looking to purchase our first property together. We know that turning a profit in California is near impossible, but we want to live in California AND we want to be strategic with our first home by thinking of it as an investment strategy.
I was told that a duplex would be the best way to go. But, I’m not sure what cities to be looking in. We qualify for up to $875,000. We are currently looking in Elk Grove but I would prefer to be in SoCal if possible. Even if that means moving to somewhere further inland like Rancho Cucamonga/Fontana/Riverside.
But, I’m completely stuck. I don’t know how to determine which market would be the smartest move. And I’m struggling to see what options going with this strategy would provide us in the future.
I'd love to connect with anyone who is investing in California and focusing on MFU and even SFH. At this point, I'm wondering if buying a fixer upper SFH and treating it as a "long term" flip (1-2 years, would be the best option. Open to learning.
For more context, we'd be using an FHAloan and putting down 3.5%.
Cheers,
Kevin
TLDR: YouTube, Jobs, Down Payment Assistance
Investing is not a sure thing, that's why there is always risk associated with it. But you can educate yourself on those risks, and do your best to mitigate them.
But sincerely, I just typed "How to Analyze Real Estate Markets" into google and multiple videos and blogs are written on the subject.
But in a nutshell, I'd recommend finding a place that has access to good, middle class jobs nearby. Maybe it's a factory, maybe it's a university, or maybe it's a government location like a military base or some other gov't department. Ensure those jobs are stable and have a future. There will be other supplementary businesses around that major job creator (restaurants, raw material providers, etc) that prop up that industry.
From there, see what you can afford with your FHA loan. However, instead of using your cash for the 3.5% down payment, I recommend you save that money and use a down payment assistance program instead where all you have to pay is closing costs. Save your cash, buy a place that needs some updating, and put your cash toward that.
Down payment assistance programs don't come without strings though. Some have slightly higher rates, some have a "shared equity" plan where you pay back what they lent you + some more, and some have either income or DTI limits that are strict.
I like the forgivable down payment assistance programs where you have a higher rate, but you don't have to pay the down payment back ever. The thing is: you can just refinance OUT of that after you've made 6 payments on the house, which will put you into a more palatable interest rate and a lower monthly payment.
Investor · San Diego, CA · Member since 2016 · 1k+ posts · 975 votes
3y
@Kevin Thomas Welcome to bigger pockets! @Erik Browning gave you some fantastic advice and some good things to think about as you plan for this big financial decision.
I have some additional thoughts:
1. I don't recommend buying a property WITh your girlfriend. You're just asking for problems down the road if the relationship doesn't work out.
2. Be very clear on your criteria. Its good that you know you want to be in SoCal and you're willing to live inland to make it a more affordable purchase. Start thinking more critically and add more criteria, for example maybe you want to be 60 minutes or less to a major airport, or you want to be walking distance to shops/restaurants, or you want to make sure your monthly payment is no more than a certain dollar amount.
3. Don't buy a property you can't afford!! This ties in with number 2, but be very clear on the monthly payment you can afford (which is very different from what you qualify for). You need to break down your monthly income and expenses in order to figure out this number. Ideally it would be no more than 25% of your monthly income.
4. Find a rock star lender and agent that understands your situation and will help you find that right property. Erik is great, and I'm happy to connect you with the lender I used for my house hack as well. I also know lots of great agents throughout SoCal (I'm not an agent myself though).
Keep us updated and don't hesitate to reach out if I can help!
I think you need to ask yourself what your goals are - personal, professional, financial, etc... Maybe that will help you figure out where you want to live for the next few years. Its great you're being strategic and I agree buying a duplex is a great strategy.
You can still find a duplex for $875K in some cities that are closer to the coast, but unsure if you want to live more inland like you mentioned. I'm personally closer to the coast in the south bay, and would be happy to connect and chat more about investing and what your options are.
@Erik Browning - I hear you on using Youtube/Google etc. I am extremely burnt out and overwhelmed from doing this. It seems like there are all kinds of different ways to do anything in real estate, including how to analyze RE markets (especially in a state like CA where everything seems to have sky rocketed). I appreciate your suggestions about access to good, middle class jobs nearby. And, I was not aware of this down payment assistance program. THANK YOU for the tip.
@Doug Spence - My girlfriend and I have been together for 8 years now and I'm planning to propose later this year. We've lived together for 3.5 years now and are going into this investment equally. Worst case scenario it doesn't work out, wouldn't we just sell the home and split the money?
I appreciate your note on being clear on criteria. This criteria is dependent on our investing strategy (which is what I'm racking my brain on). If this becomes somewhere we'll be for the next 5-10 years, we want to be ideally within 30 to an international airport (up to 45 min max). We'd love to be within 10 minutes walking to a walking trail, within 3 miles to a freeway, have large closet space, double sink in master bedroom, within 1 mile from a grocery store, in the suburbs but ideally within 20 min to a downtown/nightlife scene if we wanted to go out. THAT BEING SAID, if it was a smarter investment decision to move into a fixer upper for 1-2 years, rehab it, and then sell it as our first move so that we could accumulate more of a down payment for our next move, then I'd be happy to do that in whatever area would be best suited. How I determine what that area is though is what's confusing to me. Ultimately I'm just wondering, is one strategy better than the other?
Our take-home monthly income (after taxes) comes out to about $10k. We are currently saving $5k/month. Our current rent is $1300/month. So our expenses together are around $3700. How could we find a property with a monthly payment that comes out <$2500/month? Unless you were referring to our gross income, which is about $15k/month which would bring us up to an alloted monthly payment of $3750/month. For simple terms, let's say that would put our max purchase price at $600k for a SFH (which it currently is for us). But with a duplex, I'm assuming we could still swing a price of up to $825k if my math is right.
We're working with a lender now but happy to connect with the one you used for your house hack. I've been told it's good to work with multiple lenders to get the best deal possible. Is this true?
@Dan Portka - Can you elaborate a bit on why buying a duplex is a great strategy? Let's use these 2 scenarios for comparison.
Option #1: We buy a turnkey duplex around $850k. The tenants in our other unit are helping to pay some of the mortgage (lets assume we're not cashflowing on this). However, we're paying more to live in our unit. For example, other unit is paying $1700, I'm paying $3800. This means that my only next play is wait and hold right? I'd be wanting to stay living there for 5-10 years and banking on appreciation?
I'd be nervous to buy a fixer upper duplex because I've never done a rehab before or purchased property. So going into something like this where I'd have to fix up a unit with 1-2 months seems a bit...nerve racking.
Option #2
I buy a SFH fixer upper with the intention of living in it for 2 years. It appreciates naturally a little, plus the amount from the rehabbing process. Then I sell it, and use the money as a down payment for a duplex so that the monthly payments are lower. Then stay there for 2-3 years and save up for another down payment on a SFH (where I can raise a family), move in to the SFH, and rent out both units in the duplex. Hopefully by that time, our household income will be much more than what it is now, and we can then work on buying out of state rentals whether they're duplexes or SFH's.
Is this making sense? Happy to connect and discuss too if you're up for a live chat sometime.
Real Estate Agent · San Pedro, CA · Member since 2019 · 253 posts · 128 votes
3y
@Kevin Thomas with FHA you can put down as little as 3.5% down on an owner occupied small multi family property. In HCOL areas, 3 or 4 unit isn't really an option because of FHA's self-sufficiency test (google it if you need more info). That leaves you with single family or duplex. I think you already understand why a duplex is a better investment - your tenant pays some of your mortgage payment while you get all the other benefits of owning investment real estate (appreciation, loan paydown, tax benefits).
You're correct in option 1 after just a couple years if you want to move out you probably won't be cash flow positive. If you're not okay with that you're left to either sell or live their for longer. If you're considering buying a SFH fixer, what makes you more nervous about buying a duplex fixer? If you do somewhat of a combined strategy between your options 1 and 2 you'll buy a fixer duplex and force some appreciation/higher rents by rehabbing and you'll likely be in a better situation after a few years than if you just bought a turnkey duplex.
Investor · San Diego, CA · Member since 2016 · 1k+ posts · 975 votes
3y
@Kevin Thomas I'm not smart on buying a property with someone who isn't a spouse, so I'd ask a lender, but you want to make sure you both are on the mortgage as well as the title for the home. You don't want to get stuck w the mortgage by yourself, while she owns half the home.
How much money or time/expertise do you have to dedicate towards a rehab? You're talking about doing a 'live in flip' as a potential strategy - which is a fantastic one. I would just be clear about how much work you're willing to do/can afford to do so you can communicate that to your agent.
Ok thats good you've determined 600k for a SFH and 825k for a duplex, assuming your math is right. Thats info your agent will need.
Yes I would chat with multiple lenders and multiple agents before you decide.