House Hacking a multifamily in San Diego

Buying & Selling Real Estate

House Hacking a multifamily in San Diego

Encinitas, CA · Member since 2016 · 6 posts · 2 votes

Hello BP!

I am a newbie investor, and long time BP Lurker.

I have been interested in real estate for years, and thanks to a random influx of cash I am now finally ready to get started with my first property. My plan is to buy a duplex via FHA loan, and live in one unit with my girlfriend while renting out the other. Ideally it would be a property with some sort of value add, and I would fix it up while I live in it. Then hopefully a couple years down the line I will refinance, and try the whole process again. Essentially, house hacking a multi family / duplex with a touch of delayed BRRR.

Realistically, it looks like I can afford something in the 500k - 600k range for a duplex 4br/2ba. I know the 1% rule is impossible here, so I have calculated that a .07% (at minimum) would work for me ( 0.7% is calculated assuming I no longer live there, and both units are rented out). I know there are cheaper options in other parts of SD county, but since I have to live there I would prefer not to be in south or east SD. Clairemont area is ideal.

The issue I am having is finding any deals. I have been monitoring the MLS, loopnet, craigslist, ect for months and have made a few offers only to be outbid by cash offers. Maybe I am looking in the wrong places? I have driven all over and built a list, now I am now working on building a very targeted direct mail campaign.

Any help would be greatly appreciated here.

Max

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Homeowner · VISTA, CA · Member since 2015 · 726 posts · 340 votes

9y

It's definitely a sellers market in SD right now almost everywhere in the county. I just looked at a property in Oceanside on North Tremont. It's in a rather new (10 years old +-) and gentrifying area where the average price point is in the 800k to 1m & up range. So when I saw a new listing hit the street for 690-729k I got a cold shiver running up my spine and couldn't wait to beat a path to the property and check it out.

It was built in the '90's and had been rode hard and put away wet. Probably (and I say this as a general contractor) needed at least 100k in deferred maintenance. However, the average unwary buyer wouldn't have noticed a lot of the things I spotted almost immediately.

The RE agent was as good a strategist I've seen in the game as they get. He scheduled all the appointments in a 15 minute cluster so lookie lous were stepping on each others heels to preview the property.

I informed the agent that we were cash buyers and would be willing to make a full price offer and close in 17 days with the proviso that the offer would be withdrawn in 24 hours. We are leaving early Saturday morning and will be out of the country and did not want to get caught up in any bidding wars.

He, unlike a lot of RE professionals came right out and said that they would be accepting all offers until Sunday evening at 6pm. They would then evaluate all offers and go back out for final offers. That's tantamount to an auction without being an official auction.

Needless to say we were not the least bit interested. Especially in view of the fact that there would be the deferred maintenance issue looming within a short period of time. Bottom line? This is the first sign that you as a buyer should be cooling your jets for awhile and sitting on the sidelines.

It's only been a decade since our last RE correction. Or should I say total collapse. It took 5-6 years for us to start inching our way back from that debacle. Will we ever learn our lesson. I'm not liking what I'm seeing in the RE market right now and I've been an investor for decades. I can see the writing on the wall and it's not saying buy, buy, buy.

That's not to say there aren't other creative ways to invest in RE because they surely are and @Lee Ripma hit on it. It's a perfect time for folks to look at RE investing from a completely different perspective. At least for awhile until this buying hysteria starts cooling its jets a bit.

That's my 3 cents/sense worth adjusted for inflation.

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Shawn CouchBusiness Member
Investor · Encinitas, CA · Member since 2013 · 116 posts · 48 votes
9y
@Fabio Salas, Thank you for your service, and good job on getting in the game. Being in the military helps for the IB purchase, since many of the bases are in the area.
@Max May, You could try house hacking an SFR in a lesser area and rent or Airbnb a room or two. I know of an off market property in Poway, but it's a higher price. Definitely room to make sweat equity there though.
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John Arendsen
Homeowner · VISTA, CA · Member since 2015 · 726 posts · 340 votes
9y
As seasoned investors in San Diego and Newport Beach we are now pursuing SFR's that can legally accommodate and/or already have ADU's on them. There's a real push by the State of Cali, as a result of the January 1, 2017 SB 1069, AB 2299 & 2406, for affordable housing solutions and this is definitely on the right track. Just a thought.
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Michael Conway
Investor · San Diego, CA · Member since 2015 · 52 posts · 27 votes
9y
My wife and I recently bought a "house-hack" duplex in North Park. I agree with looking for value add opportunities, outside the box thinking. We purchased a 700K+ property for 35K out of pocket on an FHA loan, and got 10K back during closing (net 25K out of pocket...) The duplex we bought is in a prime location, and we knew the second unit would be perfect as a short term rental (STR). San Diego is a tough cashflow market when you have limited capital. We knew we had to do whatever it takes to MAKE this property CASHFLOW, and our analysis showed that was possible, so that we can continue to buy assets for appreciation. We don't plan on selling this properties, so buying at the top of the market cycle doesn't scare us. Don't be stupid, but don't be scared to take calculated risks. We knew this deal would work for our plan, and it's working...
We fixed the place up, and pending the market holding up over the next 6 months... we plan to refinance this property into a conventional loan. This will increase our cash flow to around $200/door and allow us to purchase another 2-4 unit FHA with 30-45K down by end of year. That's about 1.5M in RE, for around 60K out of pocket... leverage. I love the idea of "riding the wave"... or buying a property at least every year such that market changes average over the life of your portfolio. That's our plan, but It all comes down to YOUR goals, go get em!
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