Hello BP!

I live in bay area and I am looking to see if I can house hack on a quad-plex. 

I am mainly looking in San Jose, Santa Clara area, and I know I know... super expensive, but worth looking right?

I don't think at our price range, house hacking in duplex does not buy me much in terms of reducing housing cost. e.g. ~1.2M purchase, maybe $2500 rent on one side. However, I see that if played right 4-plex might work e.g. ~1.8M purchase, $6-7000 from 3 units and live in one.

I am trying to see what kind of creative financing option I have to make this work. I called a couple of banks and they all say for 4-unit you have to put 25-30% down even for owner occupied case at this price range (>1.5M). I looked up FHA loan and it looks like the limit is ~620K so definitely not going to work. Does anyone have experience doing multi-unit property house hacking with financing strategy to minimize down payment and something like 5/1ARM with IO?

Thanks!!!!!

Okay, I'm gonna sound like your Mom now .....   Why do you want to house hack ?  Get specific.  Not a general, vague, " I wanna have more money".  Specific.  Ex: I want to pay off $xxx debt.  I want $xx income stream.  What are you gonna due with an income stream ?  How much income tax will you be paying on it ?  

Should you be looking solely at types of investments that have preferential tax treatment ?  You are considering taking on a lot of debt.  

Would you borrow $1 million to buy a business that you have never worked in ?  Cuz that is exactly what you are doing.  If you were in the midwest and could buy a house for 30k,  I'd tell you to go for it.  Learn as you go. What's the worst that can happen ?  

Okay, that is my opinion.  Obviously, I don't live there and the numbers freak me out.  ; )

How much do you spend on rent in a year ?  Are you already splitting rent with a roommate?  Are you borrowing $1 million to save $30k a year ?  If you can qualify for a loan in that price range with a down payment etc.  You have a lot of investing choices.  You could buy an entire apartment building or a mobile home park in another area that would generate enough to pay your rent.

Hope this helps a little.

@Christie Gahan

Thanks for the reply Christie. I understand what you are trying to say.

I own two investment properties in bay area. And I also invest in KC for that very reason you mentioned (cheaper and better CF). I like both markets for different reasons. 

Right now my situation is that family is growing and I need to find a bit nicer place to live (currently living in 900SF condo...) i.e. >1M SFR in bay area, which is definitely not what I want to do.

Another option is to house hack and reduce housing cost. If the property can pay for itself, I am not afraid of larger numbers. I don't think in my market, I can live completely free, but with some creative financing methods, I think there is a possibility to reduce housing cost significantly.

Just looking to think out of box and try ; )

Ahhh..... From reading your post, I thought this was your first deal ever.  My apologies.

Wow! There are 4 plexes selling for less than $2M in the South Bay?...Must be small units or fixer uppers.

I'll be following this thread to see if I can learn too.

Yeah I dont think for a million you are getting anything with 4 doors... maybe in vallejo and it will be thrashed

Originally posted by @Carson Wilcox :

Yeah I dont think for a million you are getting anything with 4 doors... maybe in vallejo and it will be thrashed

 There are 4 plexes around and certainly not as far north as Vallejo. I found one in Richmond that sold for around $470k If I'm not mistaken. The only problem is the rent control and the numbers did NOT work out for me and I would have had to offer a ridiculously low amount. 

@David S. , @Carson Wilcox

I was looking at this one: https://www.redfin.com/CA/Santa-Clara/3265-Homeste...

Unfortunately I heard back from seller that he will not consider seller carry and they already received an offer over list price...  

@Keong Kam ,

You're right you can't do FHA at that price point.
But check with credit unions like San Francisco Credit Union. They're doing 0% down on >$1MM single family homes, so they might let you get away with 10-20% on a 4plex. They understand the higher-priced market. Maybe check with SoFi also? (not sure about them, but they're thinking outside the box..). Probably will depend a lot on your personal finances. 

@Carson Wilcox ,

I own 2 4plexes in the SF Bay that I will gladly sell you for less than a $million right now, and closer to SF than Vallejo! It is hard to find a 4plex in an area you'd really want to live in for under $1MM though.. ;)

@J. Martin   Ha!  I obviously was being general... But yes, I was kind of applying the "somewhere OP might actually want to live" standard.

@J. Martin

Thanks J I will definitely look into SF Credit Union. Unfortunately this particular property is already gone, but I will be looking around. 

I am looking for 4plex that "I can live in with my family" like you said ; ) definitely brings the price point up a lot...

@Keong Kam - Thanks for the link...Yet another one selling over list...Best wishes on your search.

I house hack all the time, bro, but the principles of good investment still apply. 

You've got to think about the price to rent ratio whether you live in it or not. I play ball in the Bay Area and I'll tell you that rarely will you find a good price/rent ratio. The prices are just too dang high for you to hope for anything better than breaking even. Unless that's your only aspiration already :)

I think what you're trying to get at is you want to make that sweet, sweet Bay Area salary and subsidize your living costs at the same time. This isn't a true investment vehicle and they only way you can think of it as one is if your strategy is to bet on appreciation and dump out your equity in a few years to buy a *real* investment in a more favorable market. 

@Clifford Tran

I got you man. Definitely agree on that. 

My thing is like you said, trying to subsidize my living cost. 

For example, let's say I do 'house-hack' a 4-plex. And certainly rents from 3 units will not fully cover PITI. If I am $2000 out of pocket living in 3bed unit of the 4-plex, I am happy. And over time, next 2-3 years, the property will become cash flowing property like my other two properties, even with conservative estimation on rent increase and appreciation.

I am certainly not looking to do all this by putting down a fat 30-35% down on a 2M property - this would be a bad investment locking down a lot of capital. I am looking to find a creative way to finance by combination of seller carry + low interest ARM with IO for a few years. Then when I am ready to move out, refi into more conventional financing terms.

@Keong Kam just curious what you ended up doing.  I've had the same thought.  I ran the numbers about 6 months ago and I'm remembering off the top of my head but I found something like the following: A turn key 2M quadplex in Sunnyvale, with 400k down, would give me 35k/year in equity generated, I'd pay (myself) ~35k/year in rent (all numbers ran with appropriate taxes etc on the BP calculator), and the tax depreciation could be written off against my real estate investing profit from my land flipping business to the amount of an extra 17k/year.  So like everyone has acknowledged, this isn't a "house hack and make $100/month cash flow and live for free" this is an "I'm paying 30k/year in rent already, I'd like to not see that thrown into the abyss but rather into my own equity" play.  So that would be a ~50k swing for me every year to my net worth.

I do a ton of direct mail marketing for my land flipping business and am confident I could get a significant discount on that 2M quadplex if I find one off market, that needs a little work (mostly cosmetic to avoid permits and such), using a very personalized letter.