Buying my first Multi-Family Property with FHA in San Diego

22 Replies

Hi all, I'm a 22-year old, first-time home buyer who has been wanting to get involved in rental properties for a while.

I'm looking to relocate to San Diego in a few months, and I figured this is the perfect chance to begin build my real estate portfolio. After researching different types of rentals and loans, I decided the best way was to buy a duplex or triplex with an FHA loan and live in 1 unit while renting out the other units. I'm wondering is this the best strategy for someone in my situation with not much capital for a down payment? If anyone has any better ideas I would love to hear about them.

If any investors have done something similar with an FHA loan, I'd love to hear your thoughts and any advice to get started. If any real estate agents from the area see this, I would love to get on a phone call and get some more info.

I would not consider moving to San Diego to be a great opportunity to get into real estate investing.  Trading one high-priced landlord-hostile market for another just like it doesn't see to represent an opportunity.  Consider investing in a place where the numbers make sense and you have a good shot at cash flow.  In the long run, you'll be better off.

Originally posted by @Greg Scott :

I would not consider moving to San Diego to be a great opportunity to get into real estate investing.  Trading one high-priced landlord-hostile market for another just like it doesn't see to represent an opportunity.  Consider investing in a place where the numbers make sense and you have a good shot at cash flow.  In the long run, you'll be better off.

Good point Greg, the reason I wanted to begin investing as I move is to take advantage of an FHA loan to buy a multi-unit property. Any thoughts on how to use an FHA to my advantage?

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FHA has sustainability requirements for more than 2 units. In San Diego, virtually no properties meet the sustainability requirement and therefore FHA cannot typically be used for triplex and quads. You will likely be restricted to SFRs and duplexes.

As @Greg Scott ‘s assertion that San Diego has poor cash flow is false.   If he was asserting that the initial cash flow is poor he would be correct.  There is typically an inverse relationship with initial cash flow and actual cash flow over a long hold period.  This is not happenstance.  The RE markets are efficient.  The high cost, low initial cash flow markets are high cost because of the perceived risk is low and/or the anticipated appreciation (both property and rent) is high.  Conversely, the high cash flow markets are that way because the perceived risk is high and/or the anticipated appreciation is low.  

All my properties cash flow far superior to the average initial high cash flow unit.  They all have rent to purchase ratios above 1%.  How did poor initial cash flow turn into such good cash flow?   rents have gone up over $100/month per unit year over year for many years.  This year I raised some unit rents over $300/month.  In addition, I have a unit turnover that rent will increase $1300/month.  Initial poor cash flow quickly improves to moderate cash flow, then good cash flow, then great cash flow.

Now about the property appreciation… my worst appreciating property has appreciated over $2k/month over my hold period.  My best appreciating properties have appreciated over $6k/month over the hold period.  

Case Shiller ranks San Diego as having the 3rd best return for this century.  Los Angeles and San Francisco were ranked #2 and #1 respectively.  California must suck for RE investing.  

Good luck

@Sid Sriram

I would move to SD for 6 months before making a purchase. Instead of doing FHA on a duplex I would consider doing a conventional 5 or 10 down loan on a SFH and renting out the rooms. SD is a wonderful place to live and it's expensive.

@Dan Heuschele     Greg Scott's main point was not about cash flow - read again - it was about landlord hostile environments, which both CA and NY most certainly are. Of course anywhere in Cali can cashflow, but it is expensive for a 'first time buyer' with 'not much capital' and there are probably much better places for the OP to look at in the long run.

Originally posted by @Bruce Woodruff :

@Dan Heuschele     Greg Scott's main point was not about cash flow - read again - it was about landlord hostile environments, which both CA and NY most certainly are. Of course anywhere in Cali can cashflow, but it is expensive for a 'first time buyer' with 'not much capital' and there are probably much better places for the OP to look at in the long run.

Thanks Bruce. 

I do not believe that California is a good place to buy rental property.  Dan's made some bets in the past and done well, so he likes to disagree with me on posts related to CA.   I have invested in many different states over the years and only buy cash-flowing assets.  My returns are pretty much guaranteed the day I buy, and come with potential upside.   Dan has had to rely on the market outgrowing his negative cashflow.

I'll take my approach every day. It is the safer bet.

Originally posted by @Bruce Woodruff :

@Dan Heuschele    Greg Scott's main point was not about cash flow - read again - it was about landlord hostile environments, which both CA and NY most certainly are. Of course anywhere in Cali can cashflow, but it is expensive for a 'first time buyer' with 'not much capital' and there are probably much better places for the OP to look at in the long run.

 San Diego is my market.  Do you know what its eviction rate is?  Do you know what its missed payment is?   Both are near nation low.  

You could view that the low eviction rate is due to the difficulty doing evictions and that may play a role.  However looking at the missed payment rate combined with the low eviction rate seems to indicate something else may be the reason.  I believe the housing shortage and low vacancy rate is a bigger influence.  A tenant that gets evicted will find it hard to ever find good housing in San Diego.  Similar for missed rent payments that show on a credit report.  We explicitly indicate that an eviction (ever) disqualifies you from our units.  

My family has had rentals since the 1970s.  We have never had an eviction and have never done cash for keys to get rid of an undesired tenant.  The LL unfriendly regulations are typically, at most, a minor nuisance to properly managed properties in San Diego. 

Originally posted by @Greg Scott :
Originally posted by @Bruce Woodruff:

@Dan Heuschele    Greg Scott's main point was not about cash flow - read again - it was about landlord hostile environments, which both CA and NY most certainly are. Of course anywhere in Cali can cashflow, but it is expensive for a 'first time buyer' with 'not much capital' and there are probably much better places for the OP to look at in the long run.

Thanks Bruce. 

I do not believe that California is a good place to buy rental property.  Dan's made some bets in the past and done well, so he likes to disagree with me on posts related to CA.   I have invested in many different states over the years and only buy cash-flowing assets.  My returns are pretty much guaranteed the day I buy, and come with potential upside.   Dan has had to rely on the market outgrowing his negative cashflow.

I'll take my approach every day. It is the safer bet.

>Dan has had to rely on the market outgrowing his negative cashflow.

So far I have never purchased a negative cash flow property, but I would not be adverse to doing so if my pro forma projected a return that meets our criteria.   

>My returns are pretty much guaranteed the day I buy, and come with potential upside.

Cash flow is not guaranteed.  There were many markets in the Great Recession that had huge cash flow impacts including Detroit, Las Vegas, virtually all of Arizona to name just a few. 

If you require positive cash flow to meet your commitments, you may have no choice but to purchase in better cash flow markets. For investors that do not need he cash flow to meet commitments, the other profit sources should be considered in any property evaluation. If you do not need the cash flow to meet commitments, I believe value add and appreciation should have highest priority? Why? Because they allow you to extract your investment to quickly lovage that investment repeatedly. Only our most recent purchase has any of our investment still trapped in it. Even our most recent purchase has appreciated enough that we could extract all of our investment if we were to refinance or could obtain a HELOC on rental property (much harder to find since Covid).

Being able to extract our investment has allowed us to scale our number of properties.   If I had to rely on a few hundred dollars of cash flow per unit, we would have not been able to scale like we have.  


Originally posted by @Sid Sriram :

Hi all, I'm a 22-year old, first-time home buyer who has been wanting to get involved in rental properties for a while.

I'm looking to relocate to San Diego in a few months, and I figured this is the perfect chance to begin build my real estate portfolio. After researching different types of rentals and loans, I decided the best way was to buy a duplex or triplex with an FHA loan and live in 1 unit while renting out the other units. I'm wondering is this the best strategy for someone in my situation with not much capital for a down payment? If anyone has any better ideas I would love to hear about them.

If any investors have done something similar with an FHA loan, I'd love to hear your thoughts and any advice to get started. If any real estate agents from the area see this, I would love to get on a phone call and get some more info.

Hi Sid.

That's great that you're getting started. Real estate is a fantastic way to build wealth, and protect it, if you are careful and leveraged with how you buy, hold, manage and sell.

I agree that when starting, you may be better off with a strong single family home rental. I closed escrow 2 days ago, with a 1st time home buyer who purchased a multi family residential zoned, 2 unit house (single family on the MLS- hah!). He got some great local financing with a low interest rate through my preferred lender. Great cash flow, great appreciating market area, and very landlord-friendly state. There are quite a few places you can find this combination right now.

I enjoy helping new investors, and not just seasoned pros (Whom I work with quite a few, as well). If I can help you, send me an email or a call, and let's connect.


“Cash flow is not guaranteed.  There were many markets in the Great Recession that had huge cash flow impacts including Detroit, Las Vegas, virtually all of Arizona to name just a few. 

If you require positive cash flow to meet your commitments, you may have no choice but to purchase in better cash flow markets.  For investors that do not need he cash flow to meet commitments, the other profit sources should be considered in any property evaluation. ”



I truly don't know what happened in Detroit and Arizona during the Great Recession. But cashflow skyrocketed in Vegas. There was a massive influx of SFR renters who used to own homes and weren't going back to apartments and and even larger decrease in supply. But it's also a decent appreciation market. With 20% increase in the last year and 200% in the last 10 years, the cashflow is only a contributing factor.

But so many people also forget that principle paydown is income and on more expensive properties with big loans it can be significant. The only property I purchased with known negative cashflow of -$800/mo had an income of $15,000/year before $18,000 in depreciation  now that it’s paid off it’s closer to $30k of income and cashflow  

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Originally posted by @Bruce Woodruff :

"Just wouldn't be my first choice for a first timer with no $$."

Not sure how that's hating @Claudio Salvatorelli

 My recommendation for newbies as their first choice is their local market.  I believe virtually all markets can provide opportunity for smart, hard working RE investors. 

I believe remote RE investing is more difficult in building and maintaining the team, getting market expertise that at least is equivalent to the locals, and to perform heroics when necessary.  Remote RE investing almost mandates use of professional PM that is an expense that local newbies can save as well as self managing provides a learning opportunity.  Remote RE investing also eliminates opportunities such as house hacking and its various advantages.

I recommend newbies start local regardless if they are in cheap, low appreciation, high initial cash flow market or if they are in expensive, high appreciation, poor initial cash flow market.

The OP is a young, first time home buyer that will be living in San Diego. The route I recommend for him would be to house hack a detached duplex that needs some TLC using a high LTV FHA loan. I would move into the more thrashed unit, renting the available bedrooms and rehab in place doing as much of the work myself as I could manage (painting for example is easy). Renting all the bedrooms likely would bring your monthly cost to less than renting. When the rehab is complete, I would move into the second unit renting initial unit at top of market rent (it has just been rehabbed so should get top of market rent). I would then repeat with the second unit (rent extra bedrooms and rehab in place). After completing this rehab (which will be slow process doing it in place) I would look to refinance into traditional Fannie/Freddie loan at 80% LTV. I would hope between the value add and the appreciation, this refinance would allow me to extract all of my initial investment (including rehab costs) while dropping the PMI. The experience gained would valuable and allow you to repeat the process or look at other opportunities, including potentially OOS RE a vesting, being better prepared.

This path is not passive or without sacrifice. Roommates can be trying. Rehabs is work. Managing tenants is work. However, historically this has been a cannot miss strategy in San Diego. It is basically how I started except mine was a SFH that I rented the spare bedroom. I still own that property. It has appreciate $2k/month over its 27 year hold. During the time I house hacked, I always paid less including all expenses than renting similar property.

Go luck

Hey Sid!

It's great that you are looking into getting started with real estate investing! I applaud you for taking action :)


I am not located in San Diego nor do I have any knowledge when it comes to that market. However, I just recently closed on my first triplex with using an FHA loan and it has been great so far! I was able to only put down 3.5% and lock in my interest rate at 2.5%!!! I highly encourage you to use an FHA loan if the numbers on the property make sense.

One of the mistakes that I made was not accounting for Private Mortgage Insurance or PMI. This will be charged being that you put down less than 20%. Just make sure to include this cost when running your expenses. Feel free to reach out to me personally as I just finished up this whole process and have knowledge to provide. I would love to go into more depth.

Best of luck to you with your first property!

Hi Sid, my first purchase was a fourplex in San Diego with an FHA203K loan. Its been a great return and an interesting learning process. That was a while ago and values have changed but overall I am happy I made this purchase. 

The bottleneck will be finding the deal, if you can do that you are set. Also the market has changed in some ways that the rich dad books aren't going to know about or consider ADU's as an option which they are and its an amazing play in the San Diego market. Be sure to get up to speed on ADU laws and the opportunities.

@Sid Sriram Welcome...FHA loan to house hack a duplex is one of my favorite ways to get started. I've done nearly a dozen duplex deals using FHA loans so far this year in San Diego. Contrary to what others may say, your FHA loan to house hack goes a lot further in a market like San Diego than in a low cost/High cap rate market.

@Sid Sriram - great to see another San Diegan!

The truth is... San Diego is freaking EXPENSIVE! And although you want to take advantage of an FHA loan, things to consider:

1. If you want to 'House Hack', you'll obviously need at least two units (or a large Single Family House). These will run you at least 600k in basically all areas of San Diego. And that number is more realistically to be $1mm

2. Even so, you probably won't cash flow! You can utilize the 203k loan and do a rehab with low money down, but a turnkey rental that cashflows in San Diego thats under, say, $2mm is very rare.

3. Even if you found one that was in your price range, and DOES cash flow... you still need to qualify. Having the down payment for these expensive properties is one thing.. but qualifying for the mortgage is another. You'll need to have a pretty high income and no debt in order to do this.

4. Given all of this... I think your 3.5% (before closing costs) on a million dollar home ($35,000) may be better elsewhere. Thats almost $250,000 for a 15% loan on single family home investment property out of state. That would cash flow MUCH better than San Diego!

I love San Diego, I would love to buy here one day. It depends on your goals: are you looking to just not pay rent? Or are you looking to work towards financial freedom via cash flow?

Hope this helps. Reach out anytime!

@Ian Plocky @Sid Sriram

Goldman Sachs predicts overall housing prices to appreciate another 16% on average.  San Diego has usually been above average.

I sold a duplex in La Mesa for 685k last month, buyer used FHA loan to house hack and another duplex also last month for $1M in North Park also using FHA loan. You will be between 600k to $1M in San Diego for a duplex. FHA loan limits pretty much you out at a $1M purchase price.

San Diego is not great for initial cashflow but for long term cashflow it is one of the best markets in the US.

Qualifying for an FHA loan on a duplex is easier than qualifying for a single family home since lender is able to use rental income from the second unit towards your income.

Your 3.5% down payment on a $1M duplex will go much further in building you wealth than spending that money on a $250,000 property in a random state that you don't know.  You will likely make that 3.5% down payment back in equity in a matter of months, not years.

What ever your goals, whether looking to pay less on your mortgage, not pay rent or just to grow wealth, San Diego is a great market.  

All that said, where ever one lives, I believe house hacking where you live is usually a much better way to get started than going long distance.

@Sid Sriram

You can utilize the FHA loan 3.5% down for a duplex, but a triplex or fourplex will have to pass what is called the "self sufficiency test." which means that 75% of market rental income needs to cover your loan payments (which include payment, interest, taxes, insurance and mortgage insurance) so it is extremely difficult to find 3-4 unit deals that pass the self sufficiency test in San Diego County so a duplex (or duplex with an ADU or SFR with ADU) will be your main options. (Unless you have the VA loan, in which case, VA buyers don't have this rule to follow).

A trick I have found and proven that's easiest to get a launch into real estate investing is "flipping" 2-4 units. This is where you buy a property that is under-market rent and do turnovers to the units to achieve leading market rent in the area. You just increased the income, which means you increased the value for a buyer. You roll that equity into larger and larger deals. The higher you scale the more your return compounds.

I help new investors accomplish this as well as am doing it myself. I bought a duplex last year with this model and am going to be listing it within the month with the new rental rates and rolling it into a four unit building to do the same. I work with long term owners who own hundreds of units here in San Diego who started with a duplex following down this same path. Unlike my coworkers at my apartment brokerage I help new investors get into this game, so would be happy to connect further to discuss. I will private message you for more details. 


Best,