Hello friends and welcome to another episode of Ask Marco where I answer your investing related questions.

Today's question comes from Lester and Lester writes in and he says, hi Marco. I discovered your podcast this year and have been an active listener ever since. In my opinion, it has been exceptional content among the number of real estate investing podcasts I'm subscribed to because the information is succinctly delivered in each episode. We'll thank you for that. Similar to you, I'm located here in Southern California, specifically on the border of Los Angeles and Orange County. I understand that out of state real estate investing is the way to go, but I'm 30 years old, not a homeowner, and I have plans to be married and have kids within five years. Wow. A very specific goal, Lester. That's great. So he goes on to say, I have about 20% of a median home price in LA saved up and I am weighing my options.





Should I rent my whole life? If I plan to stay in SoCal and invest out of state, should I buy a home with a lot of rooms in California and quote-unquote house hack and or pursue ADU eligible homes, ADU meaning, uh, additional dwelling unit, ADU eligible homes or homes with Ady use in California to makes sense of the numbers. What would you suggest I do? Is there another path I'm overlooking? At any rate, I appreciate you and the work you do with the podcast. Passive real estate investing. Sincerely, Lester Lester, thank you so much for the kind compliments and for writing in, and this is a brilliant question because a lot of people have a similar situation in terms of affordability in expensive markets such as California or New Jersey, New York, Washington, D, C, Denver, Colorado. And the list goes on. Uh, it just happens to be very expensive here in the Southern part of California and in the Bay area up North.

So here's my quick take on this. You know, it's always nice and even sexy to think that you know you're a homeowner and you've got that pride of homeownership and you can tell your friends and family, yeah, I own my home and really I say own in quotes because you actually don't technically own the whole thing. If you have debt on it, you know the bank could take it away from you if you don't pay your property taxes or your mortgage payments. Ultimately you call it your own home and, and if it's free and clear, then yeah, I guess you own it free and clear. But let's look at it this way. So in orange County where you border and I live, the median price in Orange County is about $720,000 and that is very expensive. And for most people listening to this, it probably sounds very high.

If you consider a 20% down payment, that's $144,000 now let's just clarify something here. The minimum down payment requirement for a conventional loan is technically 3% and the minimum down payment for an FHA loan is three and a half percent and then there are some special loan programs out there that even allow for 0% down payments. Now before you get too excited, understand something 20% down is considered ideal when purchasing a home and some people refer to this as the 20% rule and there's really a basic reason for this and that is is because when you are under at or below 80% of the value of the property with your financing, you avoid paying mortgage insurance, which is not something you really want to pay. So I actually ran the math very quickly before I started recording here. If you were to purchase a property with 20% down, you would obviously avoid mortgage insurance.

But if you hypothetically put only 5% down on that property, the $720,000 median-priced home in Orange County, comparing that to putting 20% down over the course of 30 years, you would save $129,880 in interest and mortgage insurance. So basically $130,000 extra is what it would cost you to save quote-unquote, that 15% difference between a 20% down payment versus a 5% down payment, which is certainly more realistic and palatable for most pe...