Single Family or Multi Family property ?

[Eldar M.]

I am debating between SFR and Multi ,what are the advantages and disadvantages in each as a low budget-first time buyer . I want to purchase my first property, and I wouldn't mind combining it as an owner occupied property. Interested in Los Angeles area since I am working here, can do some renovations, and manage the property myself. The budget is roughly 150,000-350,000 Please advise Thank you !

[James Tran]

Hi Eldar,

For your first time property, I would definitely look into duplexes, triplexes, or quadruplexes.  If you don't mind managing a tenant or two, this direction is relatively safer for you in the long run.  You'll have the opportunity for cash flow, market appreciation, and forced appreciation with the multis.  The 2 to 4 units make for a great investment and will make it a lot easier to purchase subsequent properties after your first. 

If you are going to use traditional bank financing and plan to live in one of the units, you can try to qualify for an FHA financing and purchase with as little as a 3.5% down payment and a relatively lower interest rate compared to a conventional loan. Of course you will also have to consider paying additional for private mortgage insurance every month.

You can also purchase using a conventional loan where you can buy with a 20% down payment and not worry about the extra PMI. This option will be available if you are looking at duplexes. If you want to look at a 3-unit or 4-unit with a conventional loan, you will need a minimum of 25% down.

I suggest you get the 2 to 4 unit property because of the relatively higher income they produce per dollar of purchase price. This is important because if you plan on purchasing a second, third, or fourth property through traditional bank financing, the two to four unit properties as your first purchase, won't set you back as much for your next purchase as an SFR in qualifying for future loans (the relative impact to your debt to income ratio).

This allows you to buy more properties and put more money in your pocket. I did this for my first purchase in Los Angeles and its worked out great!