FHA Loan on First Los Angeles Purchase

New to Real Estate · Los Angeles, CA · Member since 2021 · 70 posts · 31 votes

Im on the verge of purchasing my first investment property here in Los Angeles, and I will be applying for an FHA loan, rehab the house (mostly cosmetically) and maybe add an ADU if possible, and live there until i reach 20% on my mortgage, refinance out of the FHA into a conventional loan, and then look for my next deal & repeat this process over and over again.

My goal is to build my portfolio in this manner and buy at least 1 door every 2 years here in Los Angeles. I would like to see if anyone has any thoughts on this process, or recommendations any other strategies? Any insight or tips would be appreciated.

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Charles Renn

Real Estate Agent · Los Angeles, CA · Member since 2021 · 215 posts · 103 votes

Hi @Alex Ballesteros,

You have the right idea. Not knowing the specifics of your situation the only thing I can add is to consider looking at 2 unit properties vs. adding an ADU. Perhaps you know this already, but with duplexes, your lender considers the additional rent from the 2nd unit to increase your purchase power. Rather than build/convert an ADU, you can mortgage the higher purchase price and save capital for renovations. Hope this helps!

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Nick Riccio
Lender · Boston, MA · Member since 2018 · 171 posts · 137 votes
4y
@Alex Ballesteros sounds like you have a good strategy in mind! I've done a very similar strategy here in Boston, and I'm in my third house hack. The key in my opinion to doing this in an expensive market is to prioritize value-add. I've done this through major renovations, and sounds like you're looking to do the same.
My only other piece of advice would be to be flexible. We always want to have a plan, but just know with real estate & mortgages, sometimes the plan doesn't work exactly how we envisioned. Just be flexible!
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Charles Renn
Real Estate Agent · Los Angeles, CA · Member since 2021 · 215 posts · 103 votes
4y
Hi @Alex Ballesteros,
You have the right idea. Not knowing the specifics of your situation the only thing I can add is to consider looking at 2 unit properties vs. adding an ADU. Perhaps you know this already, but with duplexes, your lender considers the additional rent from the 2nd unit to increase your purchase power. Rather than build/convert an ADU, you can mortgage the higher purchase price and save capital for renovations. Hope this helps!
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Nicholas Coulter
Real Estate Agent · Southern California · Member since 2019 · 681 posts · 281 votes
4y
@Alex Ballesteros the house hack is your friend. I would look to house hack every 2 years to grow the portfolio since its so high cost of living.
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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
4y
Quote from @Alex Ballesteros:

Im on the verge of purchasing my first investment property here in Los Angeles, and I will be applying for an FHA loan, rehab the house (mostly cosmetically) and maybe add an ADU if possible, and live there until i reach 20% on my mortgage, refinance out of the FHA into a conventional loan, and then look for my next deal & repeat this process over and over again.
My goal is to build my portfolio in this manner and buy at least 1 door every 2 years here in Los Angeles. I would like to see if anyone has any thoughts on this process, or recommendations any other strategies? Any insight or tips would be appreciated.
FHA loan can be great for the rates right now. Are you planning on financing the repairs as well? Something to consider is the tenant laws here so plan for that as well.
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Alex Ballesteros
OP
New to Real Estate · Los Angeles, CA · Member since 2021 · 70 posts · 31 votes
4y
What tenant laws are you referring to?
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Ethan Hanes
Real Estate Agent · Westlake Village, CA · Member since 2021 · 64 posts · 41 votes
4y
Quote from @Alex Ballesteros:

Im on the verge of purchasing my first investment property here in Los Angeles, and I will be applying for an FHA loan, rehab the house (mostly cosmetically) and maybe add an ADU if possible, and live there until i reach 20% on my mortgage, refinance out of the FHA into a conventional loan, and then look for my next deal & repeat this process over and over again.
My goal is to build my portfolio in this manner and buy at least 1 door every 2 years here in Los Angeles. I would like to see if anyone has any thoughts on this process, or recommendations any other strategies? Any insight or tips would be appreciated.
Alex,

What a great plan! This is sure to work out. I think at a certain point, having your name on multiple properties will be a little bit exhausting. This is the main reason most investors begin investing in multifamily properties instead of multiple scattered properties. There is a hugeeeee market of multifamily properties in Los Angeles and the San Fernando Valley.

What are your thoughts on this?

Thanks,
Ethan
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