First Time Homebuyer Looking for Investment Opportunity

MD/DC · Member since 2024 · 1k+ posts · 1k+ votes

8mo

In situations where money is tight whether due to HCOLA or lack of funds I'm inclined to recommend starting by purchasing a SFH or townhouse that you are willing to live in for a few years. Consider one that would be a good investment from future rental or resale perspective ideally with the opportunity for some sweat equity also. I didn't have a problem living in a complete rehab but the thought of AUD or renting rooms to strangers is a hard no for me.

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Aaron ZimmermanBusiness Member

Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes

8mo

If you can afford it and are comfortable with more debt, you can put less down and have a higher monthly payment. Instead of taking the operational risk and making a unit an ADU on your first deal, could do you buy a 2-4 unit and live in one unit and rent out the others?

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Andrew Reis

Rental Property Investor · Boston MA · Member since 2020 · 48 posts · 20 votes

8mo

House hacking is the one of the most powerful ways to build wealth, so nice job on considering this as an option. There is opportunity in HCOL areas, but you have to work harder and get more creative than everyone else. I would absolutely take advantage of FHA loans. Some states even have low down payment loans where you can put down 5%. Look into that as well, as FHA loans can be restrictive on loan size in HCOL areas. Save the cash you would have used on a 20% down payment and use it for renovations, emergency funds, or other personal expenses, because these financial surprises always come up. Putting the property in an LLC will protect your personal assets in the event of lawsuit, but will make it difficult to refinance down the road, as the loan will be considered a commercial one (Please consult an attorney on this topic as well). Hope this helps!

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Dan H.Pro Member

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

8mo

Conventional OO on SFH to quad goes to 95% LTV. The fha and theirvrequirements and life of loan PMI do not justify the 1.5% higher LTV unless the only way you can complete the purchase is with that slightly higher LTV in which case I would have concerns about your reserves (does not apply in your case). Note the 95% LTV MF option is only a coupe/few years old. Use the 95% conventional option; do not use the fha for the lifetime pmi alone especially in hcol areas were appreciation can get you to 80% LTV a lot faster than equity pay down would for itself.

NAR in the past week pulled their ADU data on the premise of it being dated. I wish I had screenshot the data. I believe the real reason it was pulled is the data did not depict what NAR would have preferred. The data showed in a very large percentage of the markets the ADU Added less value than the cost of a hands off ADU addition. I believe that those who see a lot of appraisals related to ADUs already knew this, but ADU developers in particular avoid this or give misleading data. Perhaps the largest ssn diego ADU developer advertised prices based on noi and cap rate until I called them Out like a dozen times on this misleading and incorrect approach (assuming the ADU does not increase the unit count to 5 or more). So high probability that the ADU will be a value subtract meaning addd less value than the cost.

Some people think that ADU valuations will improve but in Ca the initial statewide ADU rules are now a decade old. NAR data showed that an ADU addition in my market added less than $20k of value. This was one of the lower added value in the nation (but there were some areas including a few in southern CA that the ADU decreased the value of the property). How long do you think it takes for the right value to be dipicted? More than 10 years?

Then add the effort, duration from first capital outlay to first income, poorer than purchase financing, detraction of something even if just yard but often a garage from the primary, etc.

you are better served buying a property with an existing ADU. better financing, less effort, let the person who added the ADU suffer the value loss.

Good luck

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David Krulac

Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes

8mo

@Alex Smith I like buying a moderate priced house in your area, getting the owner occupied mortgage with the lowest interest rate and the lowest down payment, and fixed for the longest period like 30 years. Go maybe FHA 3.5% down or conventional 5% down. Maybe rent a room or two to other people for some income. Stay at least a year then rinse and repeat. Somebody I know did that 7 times always getting the lowest down payment and lowest fixed rate mortgage as a legal owner occupant. Besides a townhouse and several detached houses he also bought a duplex, a 3 plex and a 4 plex using this same serial owner occupant financing.

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Vijay FriedmanBusiness Member

Miami, FL · Member since 2026 · 766 posts · 122 votes

4mo

Quote from @Alex Smith:

Hello,

My wife and I are looking to buy our first home within the next year and have some questions. We both have relatively high incomes and live in a HCOL area. I am trying to avoid the temptation to buy a nice, turn-key, single-family home and live happily ever after. I want to use this opportunity to get into our first investment property and potentially house hack. I am thinking about looking for a multi-family, but these properties seem very limited in our area. An alternative would be to buy a property with an unfinished basement and convert it into an ADU, but I know there can be a lot of red tape with this. Any insights on getting into the game in a HCOL area where multi-families are limited? Also, even if we have enough to put down 20%, should we take advantage of FHA and use the extra money for the renovations? One more question: with our high income, is it wise to put the property under an LLC to separate it from our assets?

I know a lot is going on here, but any insight is helpful! Thanks

@Alex Smith

You're thinking about the right variables. In a HCOL area where multifamily inventory is limited, I'd compare three paths side by side: small multifamily, SFR with ADU potential, and a regular SFR that can become a rental later.

Even if you have 20% down, it may still be worth looking at owner-occupied financing instead of immediately defaulting to FHA or putting the property under an LLC. For a primary residence, using an LLC can create financing complications because most owner-occupied loans are made to individuals, not entities.

I'd also be careful not to over-renovate just because your income allows it. Run the numbers based on future rent, ADU costs/permits, taxes, insurance, vacancy, and reserves. The best first deal is usually the one that keeps you financially flexible while giving you a clear path to future investment.

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Garrett CrosbyPro Member

Real Estate Agent · Los Angeles, United States · Member since 2021 · 392 posts · 162 votes

3mo

On the LLC question: skip it for the primary residence purchase. Most owner-occupied residential loans are made to individuals, not entities, and lenders won't allow the loan to be in an LLC. Beyond financing, the Garn-St. Germain Act gives lenders the right to call the loan if you transfer it to an LLC after closing. With high income, your liability exposure is better handled through umbrella insurance on the primary residence, which is cheap and doesn't complicate your financing.

On FHA vs. conventional: if you can qualify for conventional 5% down with a clean credit profile, the conventional route usually wins in HCOL areas because FHA has loan limits that cap out too low for expensive markets. Conventional conforming limits are higher and you get better flexibility. You can always put more down later — the real advantage of the lower down payment is keeping cash in reserve for the inevitable first-year surprises.

The serial house hack strategy David Krulac mentioned is underrated — buy owner-occupied, live there a year or two, convert to rental, repeat. In HCOL markets, you'd be surprised how quickly you can build a portfolio of properties locked in at owner-occupied rates that would be very hard to acquire as straight investment purchases. Happy to chat through more specifics if helpful.

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First Time Homebuyer Looking for Investment Opportunity

First Time Homebuyer Looking for Investment Opportunity

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