Advice on 1st MF House Hack in high priced market
New to Real Estate · San Diego, CA · Member since 2017 · 92 posts · 26 votes
Hello BP community,
My wife and I just got married this year and are looking to find our first multi-family rental in San Diego. The plan is to house hack it and use my VA loan to fund the deal. Our big goal is to get a primary residence loan every year to build a portfolio locally. We got pre-approved and I am going through the MLS listing to find our 1st deal.
From the BP podcast, videos and books I get the basics on analyzing a generic deal. But Im still lost on how to determine if the property is a good deal. What CoC should I be targeting? What year should I target to be in the black as far as cash flow? Are these even the right metrics that I should be focused on in an appreciation market?
Any advice would be much appreciated. Or if a video exists where someone does go through the breakdown of their house hack in a high priced area that would be even better!
Thanks and I look forward to discussing this more with you pros.
Getting a new loan every year doesn't sound like it'd free up too much capital. Assuming a 30 year VA loan with 20% down, a starting balance of $500,000 and an interest rate of 3.75%, you're looking at $9,100.00 paid down in a year. I'm not a CA guru, but from what I do know prices are higher out there and $9,000.00 won't buy much.
You're thinking the right way, though! Keep it up!
Thank you for your service to our country. I would target being in the black year one but you dont really have to. I dont know what rents are there, but let's say it would cost you guys $2k a month to have a place to live. If you found a whatever plex that offset that number to say, $1200 a month then you are essentially cash flowing $800 a month. The more you offset of your own expenses, the better off you are.
Side note, you wont be able to use your VA loan every purchase. That is a finite thing, however FHA loans and conventional loans are so cheap that once you get a little equity, you could refi out of the VA and then get into something else using the 0 down or pull some cash out to use on your next deal. Also, you have to "intend" to occupy the residence to get the VA or FHA loans, otherwise you are looking at investment loans and those down payments shoot up to 20% or so.
@Patrick Senas I just did this exact thing a few months ago. My wife and I purchased a home in the San Diego area using our VA loan. The home has a downstairs ADU that we rent out. I'm happy to chat more with you about our experience and what we learned.
Good luck!
Hi @Patrick Senas,
Congrats on getting started! You're off to a great start by getting pre approved before you find a deal. A lot of people get this part backwards. What's a good deal on a house hack in San Diego? That depends on who you ask. Some investors are OK purchasing a property that is cash flow negative for the first few years of ownership. Others want to cash flow from day one. Given our current market and that this is your first deal try for a "base hit" and not a "home run." If you're currently renting just getting into a home where you are paying your mortgage and not someone else's is a deal. Locking in a loan at today's rates is a win. Use the VA loan to your advantage. Find a single family house with a granny flat, studio, ADU etc. Combine this with your search for a 2-4 unit. Make sure your agent knows how to hack the MLS search to your benefit. Find properties that other people are passing on because it needs work, smells bad, has an outdated look etc.
I would echo the sentiment that your first deal just needs to lower your cost of living. if that means you buy a 3 bedroom condo and rent out a couple rooms or you get a quad and live in one...it almost doesn't matter...just reduce your living expense.
@Scott- after doing some more research, from my calculations I would need to live in the property at least 4+ years before moving out in order to be net positive once I rent out the other unit. So maybe my 1 year timeline is a bit out of reach. I don't want to carry the property for multiple years before it breaks even.
@Doug Spence - yea I'd love to connect
I'm definitely looking for base hits. Mostly looking for properties that could use some love. I'm trying to avoid turnkey properties because I want to be able to add value.
Me and my wife have been saving up, so we lived at her mom's house for barely anything. So any place we move into will increase our cost of living. But it's all about perspective. Ill just compare cost as if I was renting a similar unit.
I plan on buying 3 houses in 3 years, so I believe we are on similar tracks. I purchased my first home a 3/1 and have started to rent out the extra rooms. It... hasn't been an easy thing... The process will pay for itself.
When I purchased this home, I was assuming I could get maybe $600 in rent per room, so $1,200 gross rental income with a $1,350 FHA mortgage payment. I knew that inflation was coming and I wanted debt. So the 237k home price was basically free money at this interest rate, provided I can keep the property for 30 years.
I didn't care about the home itself, its location or anything like that. I cared that I could afford it myself without stretching myself financially. I cared that I got started. I did the single most difficult thing I had ever accomplished in over a decade. While feeling completely unprepared I bought a house with the intention of living with people. It has not gone well. My first roommate passed away. It took a long time to find a second, and its very likely I could be charging $800 for the smaller room and $900 for the larger one. I think those prices are crazy, but I'm not having trouble finding people for $700/$800 a month.
Now instead of kicking myself for not getting started as soon as possible I'm looking at how to prepare for a second one. I have a minimum of 10 months to save and prepare before I'm allowed to move. I can't save enough in that time frame without at least one roommate.
So lets recap...
By ignoring all the common investor numbers/math, I bought a loser and it "turned into" a winner, because the markets are crazy and I just made sure I can personally afford it. If I was paying rent like a normal person that would have accounted for a bulk of my new living expenses.
By starting I was able to participate in the rising tide effect, but I'm also financially prepared for a low tide event. You don't have to be a genius to raise your boat when the tide is rising.... just don't sink it. :)
I would focus on 2 things. 1, What risks do you think you need to prepare for? For me, it is a falling home price. It would have a negligible impact on me -- and I don't think it is likely. Falling rent prices would be the next one. Again, not something that is likely to impact me much on this first property. -- What can you do to minimize the risks?
2. How can you get started sooner, rather then later? The worst thing that can happen to you is that you stay out of the market because it doesn't meet CoC numbers. This is the first property. Don't go in hoping to get lucky, but also don't wait until you hit the winning lottery numbers either.
So long as you can weather the storms and any short term down trends getting in the market is going to be your best bet. Then, find out what you did great, and what you can improve upon for your next property. If you focus on getting started and improving as you move on you will be in a much better position no matter what happens.
Glad your first one turned out ok! Yea I agree, getting the first deal done is key. Unfortunately the median home prices in SD is $1M. I can't exactly go off the cuff and wing it. A financial mistake on the deal would be detrimental to say the least. So I need the numbers to make sense. I was just curious as to what metrics investors were using in my area to consider it a "base hit".