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Kevin Kim
  • Rental Property Investor
  • Los Angeles, CA
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Strategy for First Time Buyer, 760+ Fico, $100K DP in Los Angeles

Kevin Kim
  • Rental Property Investor
  • Los Angeles, CA
Posted Mar 8 2020, 01:05

What's the best strategy for my first deal?

I want to invest in an income producing residential property.  I have about $100K cash saved with a steady $9500/month W-2 paycheck, 760+ FICO and no debt. I'm willing to put 5%-10% down payment and spend an additional $4000/month over any rental income the property may produce. 

I originally wanted to do an owner-occupied, low down payment purchase of a 4 unit property in Los Angeles, ranging $1M - $1.4M and hoped to get a 30yr fixed with 3.75% or lower. I couldn't find any loan products that could make this happen.

Now I'm leaning towards buying a single family home in a decent area of Orange County and use it as my primary residence. Finance with a High Balance Conventional loan, 30 year fixed 3.0%, 10% down and a target purchase price of $850K. I'll spend the first 3 months building out an ADU with my own money. I plan to sell it after 2 years to get the main home sale exclusion tax benefit where most of my appreciation will be excluded from capital gains tax.

Can anyone point me in a better direction for my first deal?  I want to stay local for my first investment.


Loans

FHA - The low down payment is very attractive but the self-sufficiency criteria eliminates every 3-4 unit home I've seen so far within a 25 mile radius of Los Angeles.  I'm only able to look at 1-2 unit properties but the high mortgage insurance makes it undesirable when compared to other loan products.  5% downpayment allows for me to eliminate mortgage insurance after 11 years but I think I'll only be in the property for 2-4 years.
Fannie Mae - They seem to have a lot of products including a down payment assistance with zero interest.  The products look very attractive but I haven't read enough to understand what the restrictions are.  Can anyone offer a simple breakdown of how it'll apply to my scenario?  Also, how many units can I purchase with their products?
Freddie Mac Home Possible - I believe I'm not qualified due to maximum income thresholds.
High Balance Conventional loan - I've seen interest rates around 3.0% for single family homes with no mortgage insurance and 10% down.  Does anyone know if I can buy multi-unit properties with this type of loan and still have downpayments around 5%-10% with 3.0% interest?
Property Types
Single family - Lots of funding options with low down payment.  No rental income produced but I can probably find one with enough space to build an ADU.
Duplex - Immediate rental income. Rent control troublesome for properties not at market rates. A few options with low down payment.
3-4 units - Immediate rental income. Rent control troublesome for properties not at market rates.  The very limited low down payment options demand higher interest rates and high mortgage insurance rates.

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