Trying to narrow down a househack strategy in San Diego
Hey all,
I'm pretty new to real estate and was originally considering buying a starter condo around 2024, but am now sold on house hacking. Below is some background information for context and a few options I have so far. I would appreciate any feedback on each route or any additional ideas.
Income: 120k
Downpayment: 5%
Credit: Excellent
Goal: Low effort equity building through house hacking
Area: North of I-8, West of I-15, South of Escondido
1. $600k SFH 3bd Condo - Rent out two rooms
Mortgage: $4500
Room 1 Rent: $1000
Room 2 Rent: $1000
2. 1.2Mil Duplex 3bd+ - Rent out one unit
Mortgage: $8500
Unit 1 Rent: $3000
3. 1.2Mil Duplex 4bd+ - Rent out one unit, rent out a room in other unit
Mortgage: $8500
Unit 1 Rent: $3000
Unit 2 Room Rent: $1000
4. Option 2 or 3, but do STR with a property manager instead of LTR
Thanks!
@Anh Nguyen All good strategies with what sounds like your stable income and excellent credit. However, if your goal is low effort than having one of your units be an STR may be a little more work than what you're looking for. I manage 2 STRs and have found the work required is manageable but still far more than an LTR. Even with a PM, there are some other considerations you'd have with using a unit or units as an STR.
Overall, I like Option 3 the most because without knowing the exact location, it appears to be the least risky as you'd have the most income (and probably least amount of work) coming in from tenants while having access to the long-term appreciation and equity of a $1.2M property.
Since you'd obviously not be close to cash-flowing, I recommend you create a sort of net worth analysis spreadsheet/tool to understand how these options would impact your overall net worth in the long-run. I've got one I use if you'd like me to share. It's at least a good starting point, you can tweak as desired for the specifics of the deal.
If you plan to be in SD for a while, I think house-hacking even when not cash-flowing is still a good strategy since you're overall housing cost will either be reduced or similar to as if you were just renting. Add your stable job, a long-term outlook, and the fact you'll be able to see equity growth via loan pay-down and appreciation along with tax advantages of owning RE, I think you're well on your way.
@Marshall Leipprandt I really appreciate your time to provide your advice and perspective! I do think I am underestimating the work in a STR and its probably best I start off easy with a LTR. It's just tempting to explore since everyone says how much more profitable it can be.
I have tried calculating rent vs buying a few times and it often ambiguous who the winner is since I am currently paying $300/month for a room. If you don't mind sharing your spreadsheet, I could hopefully make a more accurate assessment of the return of each route!
Thanks!
@Anh Nguyen Wow, hard to beat $300/month for sure! I just sent you a message in your inbox - I'll forward the spreadsheet.
Quote from @Anh Nguyen:
@Marshall Leipprandt I really appreciate your time to provide your advice and perspective! I do think I am underestimating the work in a STR and its probably best I start off easy with a LTR. It's just tempting to explore since everyone says how much more profitable it can be.
I have tried calculating rent vs buying a few times and it often ambiguous who the winner is since I am currently paying $300/month for a room. If you don't mind sharing your spreadsheet, I could hopefully make a more accurate assessment of the return of each route!
Thanks!
If you are paying $300/month for a room, renting is far cheaper than owning in the near term.
Even if your rent was at market rate, renting will be cheaper in the near term. This implies when properly allocating for expenses, the property will initially be cash flow negative with a high LTV loan.
Fed has announced intent to raise rates further. Mortgage rates are likely to rise more in the short term. Higher rates affect RE affordability. San Diego RE prices are likely to fall further.
In the city of San Diego there are STR quotas. If your application is not in soon, you will not be able to do an STR. If you managed to get application in on time your odds of being selected are very low due to priority being given to existing STRs.
I am not try to be discouraging. San Diego RE has historically been a great wealth builder. A buy at the worst time 10 years later has always looked good. My issue is will a buy today look good in 2 to 4 years or will you have wished you waited.
Good luck
@Anh Nguyen
If i was going to buy in todays market in SD, it would only probably be through creative financing (e.g. subject to or seller financing)
to get a better interest rate or terms and make the numbers work.
For the condo's, you could get a higher rent if it has its own bathroom. A couple of my buddies are renting out their spare bed and bath to traveling professionals (i.e. nurses/doctors) aka medium rental. Also take into your estimate the HOA's, those can kill your cashflow and prohibit you from doing STRs even if you can get a permit.
@Anh Nguyen You are pretty much targeting the following areas in San Diego based on your geographic requirements for multifamily and price point (Clairemont, Vista and Oceanside)
...other options to consider would be a house with an ADU in the 700-900k price point with a 5% down payment conventional loan. You can live in the ADU and rent out the house. If you are going to owner occupy a property you can also consider house hacking a duplex at a lower price point than 1.2m and doing an STR or medium term rental for the second unit to get a higher portion of your mortgage covered.
make sure you understand your numbers without you living in the property, those numbers are more important than what your numbers look like while you live there since this will likely not be a long term owner occupied property but a long term investment.
Wow $300 of rent! I would stay put and and save as much money as you can to put it down as a bigger down payment once we see the market drop some more with these high interest rates.
@Dan Heuschele I definitely agree right now is not the time to buy and I don't plan on it either until around 2024 when prices and rates are hopefully better. I'd like to hold onto the property long term for sure with a buy and hold strategy
@Wesley I. Yeah HOA estimates is currently $400 for a condo. I'm interested in medium rentals to travel professionals since I believe it wouldn't need the permit, but am not familiar with how competitive that area is, rental price points, or vacancy rates. Do you know what websites these travelers look for listings in San Diego so I can do some digging?
@Twana Rasoul Thats a great point regarding the numbers without me occupying it. I see myself living in San Diego long term so I had not thought about that. I was having trouble looking for properties with ADUs on Zillow. Any search with keyword for "ADU" only gave listings that said something like "plenty of room in the backyard for building an ADU...". But its definitely an option I am open to
@Chris Vargas Yea, I'm definitely lucky to be in this housing situation with cheap rent. Just going to sit tight and save aggressively for 2 years
@Anh Nguyen I just closed on a duplex in North park and plan on using STR to rent the front house and break even on the mortgage! Shoot me any questions that you may have
I think you are on the right path and getting your first place to house hack is one of the best ways to get going in real estate. Continue to save aggressively, lower your other living expenses, reduce discretionary spending and buy when the time is right and you can afford the payments. Your cost to live in a room is low but don't forget to consider the opportunity cost of not buying. With your income and low rent saving for a down payment should be quick and easy. My suggestion would be to not try and time the market ie. waiting for both rates and prices to drop. Both of these factors are inversely related anyway and it's going to be almost impossible to time a "bottom."
In our MLS we can use a string of search terms that will pull out properties with an ADU. You can't do that with Zillow.
@Mark Frattini Thank you for the clarification on ADUs. I guess I'll have to work with an agent to find them.
My total monthly expenses is $1750 so nothing else I can realistically shave off, but I'll definitely keep saving towards the down payment.
Although the relationship is inverse, would trying to buy home prices towards the bottom of a dip be more beneficial in keeping options open for refinancing, Home equity loans, etc?