Seeking Advice: Starting Real Estate Investment in NY with FHA or Conventional Loan

[Raymir Cuevas]

Hello BiggerPockets community!

My spouse and I are excited to begin our journey in real estate investment in New York. We currently own a co-op in Queens, which we purchased a year ago for $260,000. We made a 20% down payment, and the mortgage is under my spouse's name. The co-op's monthly cost, including HOA and mortgage, is around $1,800, and we cannot rent it out.

We are both employed, with a combined annual income of $147,000. Our goal is to create a large portfolio and invest in rental properties and any other opportunities. We have been prequalified for both a conventional loan of up to $308,750 and an FHA loan of up to $378,000.

We are considering the "house hacking" strategy by purchasing a multi-family property, living in one unit, and renting out the other units to offset the costs. I know in NY is difficult to find anything under 400k. Since we have been prequalified for both FHA and conventional loans, we would like some advice on which loan type would be best suited for our situation and goals.

Here are our main questions:

1. Should we opt for the FHA loan due to its lower down payment and more lenient qualification criteria, even though it may have higher mortgage insurance premiums?
2. Would a conventional loan be a better choice, considering our goal of building a real estate investment portfolio?
3. Are there other financing options we should consider for our first investment property?
4. Any recommendations on areas in NY to begin our real estate investment journey, considering the current market conditions?

We greatly appreciate any advice and insights from any investors on this platform. Thank you in advance for your help!

[Abel Curiel]

Quote from @Raymir Cuevas:

Hello BiggerPockets community!

My spouse and I are excited to begin our journey in real estate investment in New York. We currently own a co-op in Queens, which we purchased a year ago for $260,000. We made a 20% down payment, and the mortgage is under my spouse's name. The co-op's monthly cost, including HOA and mortgage, is around $1,800, and we cannot rent it out.

We are both employed, with a combined annual income of $147,000. Our goal is to create a large portfolio and invest in rental properties and any other opportunities. We have been prequalified for both a conventional loan of up to $308,750 and an FHA loan of up to $378,000.

We are considering the "house hacking" strategy by purchasing a multi-family property, living in one unit, and renting out the other units to offset the costs. I know in NY is difficult to find anything under 400k. Since we have been prequalified for both FHA and conventional loans, we would like some advice on which loan type would be best suited for our situation and goals.

Here are our main questions:

1. Should we opt for the FHA loan due to its lower down payment and more lenient qualification criteria, even though it may have higher mortgage insurance premiums?
2. Would a conventional loan be a better choice, considering our goal of building a real estate investment portfolio?
3. Are there other financing options we should consider for our first investment property?
4. Any recommendations on areas in NY to begin our real estate investment journey, considering the current market conditions?

We greatly appreciate any advice and insights from any investors on this platform. Thank you in advance for your help!

 Hello Raymir!

Welcome to the BiggerPockets forum! 

Great questions here... just curious, what neighborhood is your co-op in? Reason for asking is that the co-op market has taken a hit in some areas due to very high inventory and more restrictive boards. 

We've seen this being a case-by-case thing in areas like Jackson Heights and Forest Hills so hopefully you're in a place where you've earned some appreciation and have little-to-no flip tax.

That said, I have 1 more question... were you pre-approved for a single-family or multifamily property? 

I just spoke with a lender who informed me that FHA is accounting for potential income from Additional Dwelling Units (ADUs) which allows borrowers to qualify for higher loan amounts - as long as the ADU (basement, attic, etc) has a full bathroom and kitchen.

Regarding your questions:

1. I agree with @Mohammed Rahman - leverage FHA to keep your down payment relatively low (i.e. using the same $52K you used for your co-op purchase) and hold onto reserves

2. This depends on pricepoint but in NYC, you're looking at $100-140K down payment (on the low-end) to get a conventional loan for a multifamily

3. No other options have proven to be better for first-time investors outside of FHA, Conventional and Seller Financing. In NY and other hot markets, Seller Financing deals are like finding a needle in a haystack. Pretty much all sellers prefer to cash out on the sale vs. Collecting a down payment, interest payments AND holding the note

The best way to target potential seller finance deals would be to launch an expansive marketing campaign to target properties and be direct contact to the homeowner. Essentially, compete with all investors, wholesalers, and agents for seller leads. I do not recommend this as it is a time consuming and co$tly road to go down!

Private $ and Hard $ will have stricter terms and higher interest rates so these aren't popular options for first time investors either

4. In NY, Westchester, Rockland, Long Island and surrounding suburbs. For your next deal, I'd consider going outside of NY to more landlord-friendly states

All the best @Raymir Cuevas!

Abel