Is it possible to do an fha with 3.5% down on a 2-4 unit in LA (i live in 90041 right now) and actually get enough income from the other units to pay?

Asked by Calico04, 90041 Sun Oct 4, 2009

I only make about 36k per year and am single so I know that I may not qualify on my income alone. Not really sure what my options are. I do not want to buy a condo, but rather a multi-unit. Thanks in advance!

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7
Raphael Guer…, , Mount Washington, Los Angeles, CA
Thu Mar 11, 2010
The key for you besides having an excellent lender is weather or not the units are vacant or rented. Vacant will allow you flexibility in many ways. Units that are occupied may be hard to assist in your financing if the rents are low since the area is under rent control guidelines.
0 votes
Sky Minor, , Los Angeles, CA
Tue Mar 9, 2010
First of all, kudos to you Calico04, for having the foresight to opt for a property that puts money in your pocket, not just takes it out of there. As Keith mentions, you cannot use the buildings' income to qualify because you do not have two years experience as a landlord. Thus, you are somewhat limited with a 36k income as far as what you can afford. My ballpark estimate of what you would qualify for is around $175k of mortgage.

There are certain places in LA that you can find properties like this, but not in Eagle Rock. Look further east, City Terrace, El Monte, Monterey Park area and there are a few diamonds in the rough. Alternately you can use the income of a family member also to help you qualify for more mortgage. From most of the younger first time home buyers I've been selling houses to over the last few years, this is a very common thing.

If you have any more questions, holla. (Yes, I said Holla on Trulia-that's just how cool I am)
Web Reference:  http://www.skyminor.com
0 votes
Jenny Durling…, Agent, Los Feliz, CA
Mon Oct 5, 2009
Yes, it is true that the minimum down payment for FHA financing is 3.5%. When buying income property, a lender will normally count 75% of rent coming in towards your income. So what you can afford to buy will depend on how high the rents are.. The amount will vary by property since rents can be all over the board. As others have suggested, your first stop should be with a loan officer who can go through your income and expenses with you and give you a ball park figure of how much rental income you would need to qualify for any given property. Hope this helps!
0 votes
Dorene Slavi…, Agent, Torrance, CA
Mon Oct 5, 2009
Hi Calico,
You really need to sit down with a good loan officer to discuss your options. Call me if you would like a referral. My contact information is below.
Web Reference:  http://www.doreneslavitz.com
0 votes
Keith Sorem, Agent, Glendale, CA
Mon Oct 5, 2009
Calico04
A couple of points that you may want to think about:
When you buy 1-4 units, YOU need to qualify for the mortgage. That means that even if the tenants are "paying the mortgage payment", in order to qualify for financing, you will need to qualify for the mortgage as if there were no tenants.

When purchasing multi-family housing there are two tools that we use to evaluate a property's value versus income.
First is the CAP (capitalization rate). That is the rate of returns of your profit compared to the price of the property. In most cases a cap rate of 4-5% would be a minimum. This is most useful in large buildings, but something to note.

Second is the Gross Rent Multiplier (GRM). Take the total rent (including your unit), divide by the purchase price. Normally in the current market that means at least a score of 15 or 16.

If you are looking in 90041, beware that this is a rent control area. I personally advise against buying rent control property because of the low rate of appreciation.

Generally in order to make income property cash flow positively you will need 30-40% down. That does not mean that you cannot buy property with 3.5% down, however in most cases the rental income will not cover the mortgage cost.

If you'd like to look at some specific properties and analyze their economics, let me know.
0 votes
M.D.J, , Los Angeles, CA
Sun Oct 4, 2009
The answer to the first part of your quesion is "Yes" you can purchase a 2-4 unit property with 3.5% minimum down payment with an FHA loan. The second part regarding enough income from the other units...not sure.

If you need more info. on FHA loans feel free to contact me.

Good luck.
0 votes
Monique & Joe…, Agent, Beverly Hills, CA
Sun Oct 4, 2009
Hello Calico04,

Great question. From what I understand you can purchase an income property with 3.5% down with an FHA loan. The first step is to get pre-approved for your purchase. I'd be happy to give you recommendations but what you qualify for will be based on your income and also what the income of the properties is. If you need some lender recommendations let me know and then we can find you a property that is best suited for you.

Best,

Monique Carrabba
The Carrabba Group
mcarrabba@kw.com
(323) 899-2900
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