Should I purchase my first real estate property as owner occupied

Question

Hi all,

I am hoping to start my real estate investment journey and can't decide between either co-buying my first real estate property in LA vs buying an out of state investment property.

For the first option I would co-buy with my sister who would then occupy the house and help find and manage renters. Co-buying would make it easier for me to pay a down and mortgage in an expensive area like LA and hopefully we could qualify for some owner occupant benefits (not sure about the details there). My concern with LA is that it would be difficult to find a property that works given the high prices and I'm not sure if I would take advantage of FHA loans because of it's high mortgage insurance cost.

On the other hand, I had initially thought to invest out of state by myself in a much more affordable home and rent out the place through a property manager. However, I would then need to purchase an investor mortgage and also I wouldn't be as familiar with the real estate market. In addition, I'm not clear on whether owner occupant mortgages are significantly better than investor mortgages.

I would be renting in both cases since I currently live in NYC and am not sure where I would want to stay long term. A third option I am entertaining is that I move out of state and house hack but that would be longer term as I haven't decided where. Wondering what others think or even details/things I have not considered. I am pretty lost here as to how to best get started...any advice would be welcomed. Thank you!

Nathan A. · Answer

I wouldn't focus first on the difference between owner-occupied and investor mortgages, that's like choosing condiments before you pick what you want for lunch.I have to say I don't love the idea of buying with your sister no matter how awesome your sister is, because it ties your financial life together with your sister's financial life in a way that just isn't very flexible for either of you, especially if you are on opposite coasts. It's not like you are just splitting a restaurant check here, you'd both presumably be making the most expensive purchase of your lives and using up huge amounts of your life savings to do it. If you do buy together, make sure to create a formal partnership agreement that covers things like what to do when one of you wants to sell and the other doesn't, what happens if your sister stops wanting to live in a house-hack, and the like. Even then having things in writing up front doesn't preclude a strained relationship later.

I really dislike the option of investing somewhere you don't know.

That brings me to your third option, mostly by default, even though it means waiting. My two cents.

Brennen Thompson · Answer

Hi!Couple thoughts to keep in mind:

1. Your sister would be the only one on the mortgage in LA if you're using FHA since it would not be your primary residence (as you live in NY)

2. Investing out of state with little experience is tough. To be honest, I've been investing for three years and I'm just starting to get comfortable with this. It's not impossible, and you can definitely do it. It's just going to take longer and cost more money than you would expect! 3. My best suggestion is to start with an owner occupied loan (like FHA). It decreases your risk (since your down payment is so low) and keeps the home in your backyard while you get your feet under you (you can always move after a few months, just need proper cause)

Matthew Wolk · Answer

Erica,

Congrats on beginning your house hunting journey!  If you want to get a primary home you will be able able to do as little as 3% down and your rate will be around 1.5% better.  Depending on your credit score, the PMI might be even higher on the conventional than the FHA monthly mortgage insurance and you get a lower rate on an FHA loan. Also with FHA, there is a loan limit, check out, you can see them below:

https://fhaloans.guide/loan-li...

Whichever you decide, good luck!