Hey @Carmen Moscarillo - welcome to the community!
Great work on already getting your start in the RE investing world! It's a big step to expand your portfolio, and considering FHA versus conventional loans (and even alternative investment-specific products) is a very typical situation for investors looking to scale.
Here are some factors to consider when making this choice. If you haven't already, make it a goal to talk to multiple different lenders who have a solid understanding of real estate investing.
FHA Loan vs. Conventional Loan:
Down Payment: One of the primary advantages of an FHA loan is the lower down payment requirement (usually around 3.5%), while conventional loans on small multifamily will require a higher down payment (15% or more). If you have the personal financing for both options, this might not be a major concern, but it's still worth evaluating how a lower down payment may affect your overall financial situation and investment strategy. There are also investment loan products out there that allow non-owner occupied purchases with as little as 10% down (reach out and I can connect you with my go-to investment lender).
Mortgage Insurance: FHA loans come with both upfront and annual mortgage insurance premiums, which can add to the overall cost of the loan. Conventional loans may require private mortgage insurance (PMI) if you put down less than 20%, but it can be canceled once you reach a certain equity threshold. Consider how these insurance costs impact your monthly expenses.
Credit Requirements: FHA loans are more lenient with credit score requirements compared to conventional loans. If you have excellent credit, this might not be a significant factor for you, but it's something to keep in mind.
Property Type: FHA loans have restrictions on the type of property you can purchase, including requirements for the property's condition. Ensure that the property you're interested in qualifies for an FHA loan. In the Denver market where a lot the SMF homes are 100+ years old, this is an issue that comes up all the time.
Living Requirements: If you choose an FHA loan, you'll be required to live in the property for at least a year. This can be a good way to get started if you plan to be an owner-occupant and want to explore the local real estate market closely.
Interest Rates: Compare the interest rates available for FHA and conventional loans. Sometimes, conventional loans offer more competitive rates, but this can vary based on your financial situation and the lender.
Another strategy that is very popular in Denver and most parts of Colorado that allows for the best of both worlds is converting a single-family home into a non-conforming duplex. A lot of homes here have a side/garage entrance that leads right into the basement. With a simple door addition, you can easily convert a large single family into the same living situation as a duplex while using a low down payment option and much lower price points.
As for your interest in real estate podcasts and books, there are plenty of valuable resources available:
Podcasts:
“Rental Income Podcast with Dan Lane” - They do a great job of breaking down specific investing case studies.
"The Real Estate Guys Radio Show" - Covers various aspects of real estate investing.
Books:
"The Book on Rental Property Investing" by Brandon Turner - A comprehensive guide for rental property investors.
"The Millionaire Real Estate Investor" by Gary Keller - Insights from interviews with over 100 millionaire real estate investors.
Best of luck with your upcoming investment, and I look forward to hearing more about your experiences and insights in the future!
