All Forum Posts by: Krystin Aversa

Hi BP Members!

I am currently looking to purchase investment property, and have been pre-approved with the credit union of which I am also a member. The loan package has a very favorable interest rate as well as additional cash-back incentives. My issue is with the lender himself. In a phone call discussing my long term goal of scaling a real estate portfolio, the lender (specifically, the mortgage originator to whom I have been connected with by the credit union) stated that he never recommends FHA loans. He stated that these are "fall-back" options for individuals with less competitive credit, and that the loan package itself is ultimately more costly than conventional.

While I know that FHA loans can indeed provide opportunities to applicants with lower credit scores, his remarks are counter to what I have come across in my research regarding real estate investing- and that is, to get into a deal with as little cash outlay as possible, in order to preserve cash for the next investment. I have seen many investors use and recommend FHA loans as the most effective strategy for acquiring long-term buy and hold SFH properties.

So my question is, is his take on FHA loans in any way accurate? Are these packages in someway more costly? Or is he providing the more conservative, Dave Ramsey-like mindset that is very much debt-averse by advising applicants to utilize conventional loans?

Greatly appreciate any thoughts and feedback!

Hi BP Members!

I am currently in the SF Bay Area and ready to begin my real estate investing journey. I had initially began pursuing a property to house hack in the Bay Area through a realtor here, however the properties available within the FHA loan limits (below 1,053,000 for a duplex and 1,272,750 for a triplex) are in C-class neighborhoods with moderate crime rankings and very poor school rankings. Safety is a non-negotiable, so I am trying to pivot and explore different strategies.

My realtor recommended instead purchasing a townhome or condo with a mortgage that is equal to or less than what I am currently paying in rent; this way, the money I am paying towards rent is at least going towards an asset. My concern is that this feels less like an investment and simply a property purchase. Another strategy we discussed was also buying a home that I could force appreciation into.

And my other option would be to just continue renting here and take my saved capital out of state! With so many approaches and options on the table, I would greatly appreciate any reccomendations and advice!

@Bjorn Ahlblad

I am also in Silicon Valley, but my timing is not as fortuitous as yours, having just moved here for work! I read that you would not purchase a buy and hold investment here that is not cash flowing, but I was curious to get your opinion on house hacking here? I plan on living here for the next 5-10 years. I am currently spending 36k/year on rent. So far, on the properties I’ve analyzed house hacking may lower my monthly housing costs by ~200-400$/month (although I do realize this could quickly be negated by maintenance costs and unforeseen repairs); my train of thought is that I would still be contributing that 36k towards an asset that is building equity (while someone else also helps me achieve that), instead of paying it in rent with no return. Interested to hear your thoughts on this!

@Obie Gutierrez

Hi Obie, thanks for your input! Also, regarding the FHA loan, my understanding is that once you achieve 22% equity, you can refinance into a conventional loan and no longer pay MIP. We are currently looking at our options regarding the FHA vs conventional loan routes, and I do have to say, it appears 5% conventional loans have the advantage of PMI automatically falling off once 22% equity is achieved (without having to refinance), as well as the fact that there is no up-front premium (1.75% of the loan amount for FHA loans, which can be substantial, particularly when looking at properties in the Bay Area). However, the monthly MIP for FHA loans is .85% of the loan amount, while the monthly PMI for conventional loans can be up to 2.25% of the loan. A lot to consider, and a lot of numbers to run!

@Derrick Dill

Hi Derrick, thank you for sharing your experience! That sounds like an amazing house hack, and it’s very encouraging to hear your success. Were these units set up as you described prior to purchase, or did you have to modify the home so that each unit had its own kitchen and entrance?

@Amit M.

Hi Amit, you make a very good point, and provide a great graphic: a picture is really worth a thousand words! As I mentioned to Carlos, I am currently undecided as to whether I plan to stay in the Bay Area for more than 5 or 10 years (I am from the East Coast), and therefore I am not sure if I will be here long enough to enjoy the home appreciation. Some have suggested I could still keep the home and rent it out, but after looking at the numbers it appears rent would not cover the full mortgage (let alone other expenses), and it would be difficult for me to continue to pay Bay Area mortgage prices if I go back to East Coast income. Many things to consider, and I appreciate your insight!

@Carlos Ptriawan

Thank you for your truly insightful and detailed response. You provided me with a lot of different perspectives to consider. And you make a great point regarding the value of having a home in the Bay Area in terms of appreciation and true wealth building, while OOS investing offers cash flow. I am currently still trying to decide if purchasing a home in the Bay Area is personally right for me, as I am from the East Coast and I am still unsure if I want to stay in the Bay Area long enough to realize the appreciation of a home here (and I wouldn’t be able to keep the home and afford a Bay Area mortgage if I return to an east coast pay scale, and renting it out would not cover the full mortgage). I am taking all of your advice into consideration, and definetly have more research to do! Thank you again

@Lane Kawaoka

Hi Lane, thanks for sharing your perspective! If CF is the goal, would you say it may be a better option to continue renting while living in the Bay Area, and pursue OOS CF in markets with greater returns and lower cost of entry? If I were to purchase a home here, specifically a duplex, it would be OO and very likely would not cash flow, but would go towards mortgage pay down and equity. My general dilemma is really centered around the concept of investing OOS while paying over 30k/year myself in an apartment in the Bay Area, or to purchase a primary home for myself first here and then resume OOS investing once I have regained the capital

@Marc Rice

Hi Marc, I appreciate your insight! My dilemma is that I can comfortably do a 5% down payment here, or 20% elsewhere in a market like OH, but not both simultaneously, so I’m trying to determine which is the better financial decision to set me up for a successful investment portfolio. I have considered investing OOS initially, and have read a great deal actually about the Columbus, OH market, but the concept of continuing to pay over 30k/year in rent while I live and work here in the Bay Area, with no equity or appreciation in return, is difficult to accept or view as a favorable financial position.

@Joseph Crunkilton

Hi Joseph, thanks for your input. Do you think it would be wise to continue paying over 30k/year in rent while I pursue OOS investing first and more aggressively? There are so many incentives to OOS investing, such as the landlord friendly laws and great returns as you mentioned. But the idea of continuing to pay over 30k/year towards rent that is providing me no equity or appreciation is what is making this decision a bit more difficult