Buy duplex later or buy single family now

Member since 2020 · 29 posts · 4 votes

Hi everyone,

I'm trying to buy a duplex within the $750,000 range to house hack in Oceanside/north San Diego area.

I'm already pre approved for $800,000 loan but I only have $40,000 cash. I can't get an FHA loan because none of the sellers accept that. For the properties I'm looking at I'd need $22,000 for closing costs and mortgage company fees. So I'm short by $18,000. Should I keep the money I've saved up until now and keep saving until I have around $58,000 and try duplex later? Raising $18,000 would take me about at least 2 years.

Or should I buy a $174,000 single family house (which I can afford now) while the rates are low and rent it out? ? What would you recommend?

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Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

Your binary choice is what I have issue with.

I believe you can find duplexes that take FHA because I keep hearing about agents who are finding properties for their client that are being purchased via FHA in San Diego. If your agent cannot find any of these, maybe you have the wrong agent (I am not an agent, but there are agents finding FHA purchases of duplexes in San Diego area).

Second, there are many other purchase options: seller financing, subject to, lease to own, in-house loan, private money, etc.

Finding a $174K house in Oceanside or North San Diego will be harder than finding a duplex that takes FHA or owner financing. Maybe there was a typo on the price you entered. Also if you have $40K and purchase a SFH via FHA at 96.5% LTV, you should be able to afford significantly more than $174K. Maybe you need a different mortgage broker also. They should be providing you guidance on what you can qualify for with the various loan options for the various purchase options you are considering. My mortgage broker, I like a lot, but his strong point is not holding ones hands through the process otherwise I would recommend who I use. I am sure there are many lending specialist that could provide you the guidance that can help.

Good luck

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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
5y
Your binary choice is what I have issue with.
I believe you can find duplexes that take FHA because I keep hearing about agents who are finding properties for their client that are being purchased via FHA in San Diego. If your agent cannot find any of these, maybe you have the wrong agent (I am not an agent, but there are agents finding FHA purchases of duplexes in San Diego area).
Second, there are many other purchase options: seller financing, subject to, lease to own, in-house loan, private money, etc.
Finding a $174K house in Oceanside or North San Diego will be harder than finding a duplex that takes FHA or owner financing. Maybe there was a typo on the price you entered. Also if you have $40K and purchase a SFH via FHA at 96.5% LTV, you should be able to afford significantly more than $174K. Maybe you need a different mortgage broker also. They should be providing you guidance on what you can qualify for with the various loan options for the various purchase options you are considering. My mortgage broker, I like a lot, but his strong point is not holding ones hands through the process otherwise I would recommend who I use. I am sure there are many lending specialist that could provide you the guidance that can help.
Good luck
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JJ P.
Real Estate Agent · San DIego · Member since 2019 · 177 posts · 185 votes
5y
I don't think that there are currently any SFH in Oceanside that are priced in the 174 range. That should narrow your options. It sounds like you are enthusiastically beginning your journey but haven't done much research yet.
For instance, If you are preapproved for $800K, please double check that this is "desktop underwriting" aka "DU," and not just a form letter from a lender. The form letters are just one mini step towards getting a loan. DU means the lender has done all/most of their homework into you and your finances. They just need to pair the actual house for purchase with the underwriting data in a DU.
In other words, I suspect that if your cash flow is so tight, you may actually run into issues getting funding when the lender has reviewed your paperwork in depth. So, before you choose a direction, make sure that you've got those ducks in a row. Good luck.
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Twana RasoulBusiness Member
Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
5y
@Dan H. @Som Jafari I just close on a couple of duplexs in last couple of weeks using fha loans with 3.5% down around 800k range...it is doable indeed. To Dan's point, you won't find a SFR for 175k unless you are going out of state. Don't give in to SFR route yet, go with duplex
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Maxwell Ventura
Real Estate Agent · San Diego, CA · Member since 2016 · 308 posts · 173 votes
5y
@Som Jafari
It depends on how much of an "investors lens" vs "buyers lens" you have. Clearly you'll be purchasing less $ per door by going the duplex route. This is what I'd recommend. Ideal scenario is if you can find something w/ an exterior / alley access so your 2nd unit is out of sight, out of mind. You'll also have more potential for value ads and ADU plays on RM zoned lot vs a RS (sd city)
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Som Jafari
OP
Member since 2020 · 29 posts · 4 votes
5y
Thanks for the advice @Maxwell Ventura
Right now there's no duplexes in North County that I can afford. The competition is very intense and most houses are selling for way over asking price. I'm sticking with the duplex plan, but I'm gonna wait until the end of the year to go shopping again. I'm hoping by then I can save up an additional $10,000 in which case I'll have$50,000 total for closing costs, fees and down payment. Hopefully with that amount and more inventory and less competition I'll be able to buy that duplex in the area that I want which is North County.
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Maxwell Ventura
Real Estate Agent · San Diego, CA · Member since 2016 · 308 posts · 173 votes
5y
@Som Jafari
Hoping rents stay in the low 3s by then. If they go up that will also effect affordability. In the mean time all signs here point to continued accelerated appreciation w/ our low supply & high demand. We had +18% new construction in 2020 compared to 2019 and our inventory still went backwards. Supply is historically low and demand is historically high. Have you considered going 3.5% FHA? or are you looking at 5% conventional?
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Som Jafari
OP
Member since 2020 · 29 posts · 4 votes
5y
@Maxwell Ventura
I don't quite get what you mean by "rents stay in the low 3s". So you think prices are gonna continue going up and demand is still going to be high by the end of the year? Even after vaccines are rolled out and interest rates rise? But yes I am willing to use 3.5 percent FHA (if the seller accepts that) or a low conventional down payment like 5%.
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Clayton Plummer
Investor · Manhattan, KS · Member since 2020 · 81 posts · 52 votes
5y
@Som Jafari - I think Max means that rents will stay in the low $3000/mo range.
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Maxwell Ventura
Real Estate Agent · San Diego, CA · Member since 2016 · 308 posts · 173 votes
5y
@Som Jafari
Meant to say I hope the rates* stay in the low 3s. And yes until the rates go up expect the demand to stay very high and homes should continue to appreciate at a continued aggressive pace.
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Som Jafari
OP
Member since 2020 · 29 posts · 4 votes
5y
@Dan H. you were right Dan, the problem was the agent! I went with my man @Twana Rasoul here and I bought a duplex with FHA. Thanks for your great advice.
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