Purchasing 2nd home as an investment for parents - suggestions/advice needed

Los Angeles County, California
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Purchasing 2nd home as an investment for parents - suggestions/advice needed

Alan Phan
Member since 2018 · 5 posts · 1 vote

We purchased our home during covid and we have a chunk in equity, which we do not want to tap into. If we were to sell, we're looking 1.2-1.5mil.

Our situation is we want to purchase another property for my parents to live in - it would be 600-700k condo. We do have enough for 20% down payment. Because this will be considered a 'rental/investment' what do I need to know? Should I approach a broker or lender?

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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
2y
Quote from @Alan Phan:

We purchased our home during covid and we have a chunk in equity, which we do not want to tap into. If we were to sell, we're looking 1.2-1.5mil.

Our situation is we want to purchase another property for my parents to live in - it would be 600-700k condo. We do have enough for 20% down payment. Because this will be considered a 'rental/investment' what do I need to know? Should I approach a broker or lender?


 Hey Alan, 

Technically this would not be considered an investment since you have a relationship with the tenants. I would structure this as a second home loan. Rates are much more favorable compared to an investment property. 

We would need to verify that you are able to meet the DTI requirement since we will not be able to use rental income to offset the mortgage debt. 
[email protected]818-269-7983
LuxePrivate Investments LLC 572 Reviews
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  • Uriel Resendiz
    Member since 2023 · 23 posts · 7 votes
    2y

    @Erik Estrada

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  • Rick Albert
    Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    2y

    There are a couple of things:

    1. It is always good to get pre-approved first so that you know that you can qualify for the condo. Because it will be classified as an investment property, an appraiser may do a rent survey and determine what it should rent for. Then the lender will generally count 75% of the rental income towards your qualifications.

    2. Condos as an investment property can be tricky in Los Angeles right now. Some are hurting financially because when COVID hit, people started working from home. This meant higher water costs and more strain on the piping. Also properties built in the 80s that were considered to be "newer" condos are now having system failures, specifically roofs. None of this is of concern, but just be prepared if HOA dues go up and/or special assessments.

    3. If you are looking in Los Angeles, most complexes built prior to 1978 will be subject to Los Angeles Rent Control. I understand this is for your parents, but I'm thinking future. 

    4. Your price point can get you a pretty nice condo depending on where. Think about future resale. Many of my clients have done well on their condos because we thought ahead. Things like amenities, location, and specs of the condos matter more now than ever.

    5. What I do like about the condo market right now is fixer condos are going for a steeper discount than it actually costs to remodel. For example, I had a house hacking investor buy a condo for $499K, put $60K into it, and it is work somewhere in the low $600K range. He did a fairly decent remodel and converted an awkward cut out in the floorplan into a functional den, making it a great home office for future tenants and resale. I would talk about my success with my condo but I bought in 2015 and sold in 2022 so I had fast appreciation on my side. 

    6. Talk to a tax professional. Because your parents are going to be living there, are they paying rent? Are you reporting the income? These things are important so later on you can do a 1031 Exchange if you want to sell and buy something else.

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  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    2y
    Quote from @Alan Phan:

    We purchased our home during covid and we have a chunk in equity, which we do not want to tap into. If we were to sell, we're looking 1.2-1.5mil.

    Our situation is we want to purchase another property for my parents to live in - it would be 600-700k condo. We do have enough for 20% down payment. Because this will be considered a 'rental/investment' what do I need to know? Should I approach a broker or lender?


     Hey Alan, 

    Technically this would not be considered an investment since you have a relationship with the tenants. I would structure this as a second home loan. Rates are much more favorable compared to an investment property. 

    We would need to verify that you are able to meet the DTI requirement since we will not be able to use rental income to offset the mortgage debt. 
    [email protected]818-269-7983
    LuxePrivate Investments LLC 572 Reviews
    WebsiteView Page
    2Reply
  • Rick Albert
    Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    2y

    I thought about this being the parents but didn't want to put it in writing in case something changed or there were exceptions.

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