Thinking of House Hacking in SoCal

[James Marin]

Hello everybody!

I would love to house hack as my first investment but everything is of course very expensive here in Southern California, specifically Los Angeles. 

Currently looking at some duplexes, and as amazing as living in a duplex while having someone else pay off the mortgage sounds, it doesn't seem quite realistic. I wouldn't mind having the majority of the mortgage paid off by someone living in one unit, and then having a roommate living with me in the other unit. It would get me closer to getting the mortgage fully covered but perhaps not 100% 

Here are some places that I browsed and wanted to get your thoughts on.

https://www.zillow.com/homes/155-S-Madison-Ave-Los-Angeles,-CA,-90004_rb/20773431_zpid/

https://www.zillow.com/homes/906-Parkman-Ave-Los-Angeles,-CA,-90026_rb/20745402_zpid/

https://www.zillow.com/homes/2276-Earl-Ave-Long-Beach,-CA,-90806_rb/21195978_zpid/

The last one of course being the most affordable but perhaps a good option for me.

My questions are really this.

1) Where would one even START, and is looking on zillow even a good way?

2) How difficult is it to obtain an FHA loan to put 3.5% down on a property?

3) Would having MOST of the mortgage paid for by other tenants still be a good idea if that means I'm paying less than what I am paying currently in renting an apartment, or is that a bad idea?

Thanks for looking!

[Rob Massopust]

Originally posted by @James Marin:

Hello everybody!

I would love to house hack as my first investment but everything is of course very expensive here in Southern California, specifically Los Angeles. 

Currently looking at some duplexes, and as amazing as living in a duplex while having someone else pay off the mortgage sounds, it doesn't seem quite realistic. I wouldn't mind having the majority of the mortgage paid off by someone living in one unit, and then having a roommate living with me in the other unit. It would get me closer to getting the mortgage fully covered but perhaps not 100% 

Here are some places that I browsed and wanted to get your thoughts on.

https://www.zillow.com/homes/155-S-Madison-Ave-Los-Angeles,-CA,-90004_rb/20773431_zpid/

https://www.zillow.com/homes/906-Parkman-Ave-Los-Angeles,-CA,-90026_rb/20745402_zpid/

https://www.zillow.com/homes/2276-Earl-Ave-Long-Beach,-CA,-90806_rb/21195978_zpid/

The last one of course being the most affordable but perhaps a good option for me.

My questions are really this.

1) Where would one even START, and is looking on zillow even a good way?

2) How difficult is it to obtain an FHA loan to put 3.5% down on a property?

3) Would having MOST of the mortgage paid for by other tenants still be a good idea if that means I'm paying less than what I am paying currently in renting an apartment, or is that a bad idea?

Thanks for looking!

Big Ask here but here we go. Been in LA all day today working on this exact thing. 

Where to start.. The key advantage as an owner occupied rehaber you can get really inexpensive rehab money to do all sorts of things! For 3.5-5% down that is the only way you are going to get any kind of forced appreciation. Fixed up properties are at top of the market and going to be tougher to get. 

Answer me these questions first and I can be real specific:

1.Job type and location. The traffic quotient is a real thing. It can be only 12 miles but it takes an hour to get there. 

2.Down Payment amount/Reserves- Needs to be seasoned and or a gift, IRA etc - Need 3.5% plus reserves plus closing costs and Taxes*

3. Credit Score 620+ for FHA

4.Monthly Income amount. plus the income from the other unit will help you qualify up to 90% on FHA, 75% for Conventional. Taxes and W-2's needed. You can also do bank statement loans but not for FHA.

5. How long do you intend to live there, if you are trying to flip might be hard. Units are really competitive and FHA is at a disadvanatage for making offers. Many owner occupied buyers are hip to the 2-4 unit idea and are putting down 20%+ Decent Properties are going over bid. Not by investors mind you most times.

6. How much space do you need for yourself ie: 1 Bed 1 bath or I need 3 Bedroom - If its just you you can justify living in the back and renting out the front for more to help you qualify better.

7. Do you know anything about rehabs, rent control or what it takes to buy in such a competitive market.

8. Keep your expectations in check. We all want that great property but so does everyone else. Find your angle, advantage and where you can make concessions. Also if you can think bigger and partner up you can do that too. ie: Buy a 4 plex with 4 friends, Find a Vet and they get 100% financing and come 2020 VA financing will be unlimited amount and you can be co-borrower. Go Bigger Buy a 5+ unit - More on that later - Not for faint of heart but I can get you a 5-6 unit in some cases to go as a 4 unit!

Yes you can do a 2 unit as owner occupied up to $930,300 - Expected loan limit increase in 2020 ~5% to $976,815 - This is the max loan you can get with it still being conforming for FHA and Fannie Mae. 3.5-5% Down plus approximately 6 months of Taxes and MI, costs are closer to 5% but the MI upfront is rolled into the loan. So anything over that is a no go for FHA. The real sticky part in LA is units are most likely rent controlled[meaning you are either stuck with that tenant paying $673 per month for a 2 bed in Silverlake, hmm or you have to pay them $27k to relocate], you can not rent out airbnb [But I have an awesome way around this], and most of the properties in LA all need alot of work. Its a kick in the head to buy in LA but if you can pull it off more power to you. Long Beach has a limited rent control.

*There are down payment assistance for high income earners and 1st time homebuyers and grants but some regulations. Also there is an FHA Fixer Loan that is one loan to buy and rehab. But with LA most properities are too high of price to qualify.

County Name	LOS ANGELES
One-Unit Limit	$726,525
Two-Unit Limit	$930,300
Three-Unit Limit	$1,124,475 - Can do 3.5% down but Units need to Semi Qualify on their own, same as 4. But the MI is going to be costly.
Four-Unit Limit	$1,397,400

So you said House Hack and the concept is to buy property live for free! or Close as possible, does not have to be just a duplex.

Other ways to think about property and strategy.

- Rent where you live and Buy where you rent. Ponder this deeply and what the implications are or can be.

-Buy a fixer condo, [FHA rehab loan] fix up and live for 1-2 years and sell build up some equity.

    ie: I can get you into this condo for almost Zero Down, NO MI and rates about 3.65%, with a community development loan from a local      bank.* DOES not include rehab money this is a different program

PITI $1555 + $319 +$125 +$250 HOA - Rent out 2 rooms at $800 and you are there for $650 per month plus the rehab costs of about $25k.

https://matrix.crmls.org/DE.asp?ID=63962613345 - 

FHA Rehab Loan all in with rehab costs for about $400 higher due to loan amount and MI and 3.5% down plus taxes and MI

   If you have the fix up money it could be a good deal. Some conditions apply and will have to verify but seems likely.

         You can rent 2 rooms to friends and it should pay 80% of your mortgage and you had minimal down and the area is getting better. 

-Buy just outside of LA proper - Bellflower, Whittier, Valley, Long Beach etc - Might have to knuckle down in less than stellar area for a bit till you can build up some equity.

-Buy a SFR and do what is called an ADU - More on that later, or Google it - Accessory Dwelling Unit.

-Shared Equity Investment - Put down 5-15% and Investment Company will put up to 15 to 5% to get you to 20% for a conventional loan but they take a portion of the upside equity over long term. Not good for a flip but if you are going to keep forever and do not mind giving up some future equity its great. They also share in the loss if that occurs and you do not owe them if property goes down. Its a great hedge for sure. Especially if you are long term investor. Does not include rehab money.

Or even a combination of the above.

to be continued....