Funding Deals in the LA Market

[Dorian Jones]

How’s it going BP family? I’ve been reading, listening to podcasts and I hear a lot of people(new and seasoned investors) picking up deals left and right. I am in the Los Angeles market and just comparing the prices to these deals people are finding it seems a little more feasible. Correct me if I’m wrong, in the LA market you’ll need a bit more capital compared to some other markets. If you’re buying a 80-100k property it’ll be easier to save up the 20 or 30 percent requires to get a hard money loan or something. Here in my market you can find something maybe 200-300k on the lower end and that’s if the price isn’t driven up by other investors, and that 20-30% increases drastically. I know that there are deals out there I’m not complaining just curious how LA investors are findings their deals. Do you first save up 50-100k first or is there another route that you are using to get funding for these deals. Any advice is greatly appreciated.

[Account Closed]

Hey Dorian!
I hope you're doing well and I'm so glad you asked this question because this would be a great topic for our next meeting.

So to answer your question; there are a few ways to get funding for your property with a lower downpayment than the 20%-30%.

1. Get Government-guaranteed financing aka FHA, VA, USDA loans. I'm not as familiar with VA & usda loans but they also have low down payment options. FHA provides financing for SFR & 2-4 unit properties as long as you are occupying the property for a minimum amount of time (I believe it's 12 months but double check on that). The downpayment requirement is as little as 3.5% but also varies based on lender and other factors. So for the duplex, I only had to put down 3.5% on $400k property = $14,000. Better than 20%-30% down, right? You'll also need cash for closing costs; I estimate about an additional 1%-3% for closing costs (mine was about 2% of purchase price). FHA will require you to pay a monthly insurance premium until you get to 80% Loan to value. If you find a value-add property, then you can rehab the property, get the property to 80% LTV or less and refinance the property to a conventional loan to remove the monthly insurance premium.

2. Depending on your local neighborhood of interest/location of property, you can qualify for low-downpayment loans at community development financial institutions (CDFI). Check Broadway bank and OneUnited and other local banks to see if they participate in the program. Usually CDFI and small community banks provide more attainable loans for home purchases in the local neighborhoods.

3. More Consumer banks are offering mortgages with lower down payments (I heard Wells Fargo is promoting a 5% downpayment for primary residence home mortgages) so you can check with your bank to see if they'll offer similar options. However if you purchase a 2-4 unit, they may require a higher downpayment than a standard SFR. Also if you put less than 20% down, there is a good chance these consumer banks will also charge a mortgage insurance premium (PMI) until you get to an 80% LTV.

Also, if you don't have all the downpayment + closing cost cash in a savings account but you have it in an IRA, you can use up to $10k from your account tax & penalty free for your home purchase.

Let me know if you have more questions. I forgot to mention at the meeting that my professional background is in banking/finance 😑😑😑(that probably would've been helpful). Haha, I hope this helps!