How to get started in coastal markets? (And a brief Intro)

I've always had a fascination with real estate. As a child growing up in Minnesota, I would imagine I was a developer and dream up different projects me and my team were going to build. I would scan the real estate pages of my parent's Sunday NYT and WSJ and look at the different buildings for sale - I had no idea how someone could get started in a tier A market! 

I went to college, and explored construction management and city planning in different classes and my dreams of building sky scrapers in New York City (which remains a goal to this day) slowly disintegrated while I tried to wrap my head around the biggest barrier to entry - money, capital, CASH. 

Fast Forward 10 years: after a 7 year stint in corporate America and a couple of cross country moves I decided to make the jump full time into investing and pursue my dream. I work full time as a commercial real estate agent helping investors build their portfolios in Southern California and purchased my first small multifamily investment last year (I know I know, I have a way to go until I'm building skyscrapers) but I was able to get my toe hold in the LA market by utilizing a owner occupied small down payment loan program which I've helped several other investors use to successfully jump start their own investing careers too.

There are two main small down payment owner occupied loan programs available to everyone I have experience with, Home Possible and the FHA loan program.

Home Possible requires a 5% minimum down payment, and you have to pay mortgage insurance - BUT - it offers a great solution for clients who want to get started in a competitive market. The program can be used to purchase up 2-4 unit properties and the loan limit increases as your unit count goes up. Loan limits vary by county so you'll want to check with your loan broker to make sure the property you're looking at qualifies before writing offers.

FHA Loans require a 3.5% minimum down payment, and there are higher mortgage insurance rates. They too can be used to purchase 2-4 unit properties, with increasing loan limits based on the number of units you look to purchase. 3 & 4 unit FHA properties have to pass a self sufficiency test (to keep it simple as possible - 'you'll need to prove that 75% of the rental income you're likely to receive will exceed the full monthly mortgage payment') The self sufficiency test can be a challenge to meet in competitive markets.

Since these are technically residential loan programs the bank will underwrite you based on your debt to income ratio (pay down your credit cards!) and want you to have full time employment (W2 or 2 Years of Tax Returns). 

My wife and I purchased our property while I was still employed with my corporate sales job which made the process easier - something that surprised me was that the bank counted student loans in our debt to income calculation - which caused a headache - but we were able to work through it. 

We've had lots of interesting learning experiences since buying the property (which I'll share for future blog posts) - but we're happily living there and looking forward to re leveraging the property early next year now that we've created significant equity in it!

Happy Investing!

John Alden

www.johnaldeninvestments.com