[San Diego] 1st Time Home Purchase: SF or Multi-Unit?

Question

My wife and I are looking to make our first home purchase in San Diego and would prefer to invest in an owner-occupied multi-unit building. We found a recent property that we could live in, but not be cashflow positive until after Year 5+ (with conservative assumptions). What are the pros/cons or factors to also consider this opportunity? First time posting, would love to hear feedback and route any calculators for this type of option! Thank you.

Property details:

• - 3 unit building (2bdrm, 1bdrm, studio)
• - Rental Income (approx): $5,500/mo
• - Mortgage (approx): $7,500/mo
• We would choose to live in the 2bdrm, which would cut the rental income to ~$3,000 ($4,500 to cover the remainder of the mortgage)

Alternatively, the single-family option:

• -We buy a single-family home and pay the mortgage of ~$4,500.

Twana Rasoul · Answer

@Kyle Engle my wife and I live in a multifamily in San Diego as well so I definitely prefer that over single family homes. but you can certainly do better than those numbers depending on loan type, down payment, location and the unit you would be occupying, among other factors.  San Diego properties do have initial negative cashflow unless you are putting in a good amount of value add, my personal purchases started out negative initially until a few years passed, but in that same period of time experienced great appreciation in value.

Kenneth Donaghy · Answer

@Kyle Engle First, I'm going to assume I know which property you're talking about. If I am correct, the pros are it's a good property in great location, and most likely will sell fast. One thing about that area to be aware of, is there are many developments in process creating an increase in micro units. Which will also have both pros and cons. Based on the numbers you shared, the question to ask yourself, do you want a owner-occupied rental property, and be a landlord, or do you and your wife want to live in a single family home? Should you start with a small multi-family, then later get into a SFR? It's really about what you and your wife's goals are, and the lifestyle you want to live.

Trevor Haney · Answer

The deal isn't terrible, not great but not terrible. I like to think of it like this. When house hacking the biggest purpose is to reduce your mortgage by having tenants. Looking at your deal, you and your wife would be paying 2k /month for a 2 bedroom place. About on par with market prices isn't ideal. BUT if you're like me and still rather new to real estate, needing to build a reserve, isn't your forever home, etc. Then I would argue this deal isn't a bad first step. My first condo purchase is still negative cashflow. Initially $450, now $150. However, after 3 year of appreciation and paying down the principle, I'm looking at about 60K in equity I can use to fund my next deal.

Kyle Engle · Answer

@Trevor Haney - thanks for the feedback! Interesting to hear your personal experience as well - thanks for sharing.

Dan H. · Answer

Most purchases in San Diego have initial negative cash flow.   What we typically do to provide initial return is we typically buy properties with a value add.  Note small value adds in San Diego typically result in tens of thousands of dollars of value and can easily exceed $100k.  The value add can help absorb the initial negative cash flow.  Eventually the rent appreciation will result in positive cash flow.

My opinion is that MF have slightly better cash flow, but because the quality of the San Diego RE purchase is primarily defined by the value of any value add, the discount at purchase, and the appreciation, that it is more about finding the good property than if it is SF or MF.  We have mostly duplex to quad that had value adds.

Good luck

Jeannine Harris · Answer

I am wondering the same thing. Putting an offer on a house with an ADU. My share of the mortgage will be about $1000, so the same as my current rent for a one bedroom apartment.  The house is 3/1 and needs lots of reno but the ADU is fixed up and has a long term renter.  I am thinking this is a good property to try with training wheels. I am in a slightly rural area with limited inventory right now and I need to move in the next couple months.

[San Diego] 1st Time Home Purchase: SF or Multi-Unit?

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