Newbie DIYer : Could use financing advice for first Fix up & Rent

[Krishan Khalsa]

Hello All,

I am very excited to get into RE investing and my long-term plan is to build a portfolio of Single Family homes in the Los Angeles area where I live currently. I am great with my hands and would love to find a fixer-upper that I can add a ton of value to with my own sweat and dedication. I have 15k saved up which is not a lot to start in the Los Angeles market as most 3 bedroom houses start around 500k. I am self-employed and own 2 businesses that allow me to be very flexible with my schedule so I'm not worried about the time commitment. 

So I'm well aware that I won't be able to put 20% down on a conventional loan with the amount I have. I'm aware of FHA loans and so far I think that is my best option as I am thinking that I will live in the house for a year or more, basically however long it will take me to fix it up. I have a 750 credit score with a clean record. Everything seems doable and straightforward except for the financing. Is an FHA my best way to approach this deal? Are there other ways of funding that I am not aware of or ways to finance this type of plan ultimately resulting in me owning the house after the repair and renting it out so I can do the process again?

I've read up on the BRRRR strategy but I can't seem to make the numbers work out in this market so I'm a little stumped. Any advice would be greatly appreciated. For the pros/experienced investors out there, if you were in my position and just starting out how would you do it?

Thank you very much in advance for the great input. 

[Paul Welden]

@Ben Stoodley The max loan limit for the FHA 203k is not $50k. It actually varies depending on the county where the property is located. In LA County, the max loan limit for the FHA 203k is $765,600 for 1-family and up to $1,472,550 for 4-plex. Good advice on equity and LTV!

@Krishan Khalsa Make certain that your rehab provides value and not just mainly doing deferred maintenance items so that you can create value/equity when the rehab is completed. 

Another thing to think about is getting your profits tax free. If you can live in the property as your primary residence for any 2 year period during the 5 years prior to selling it, you could get up to $500k profits tax free. Refer to IRS Topic 701.