House-hacking in Northern California as a Resident Physician?

Question

Hi everyone!

I am in a unique situation than most in that I am still uncertain of where I will be moving but a good possibility it may be somewhere in the Bay Area because I am still waiting to see where I match for residency in March. If matched in Northern California/Palo Alto I am considering living in either in Palo Alto/Mountain View/Cupertino/Sunnyvale for residency which would be a 4 years starting this June.

I am interested in house-hacking a two or three multi-plex or a 3 vs 4 bedroom, 2 bathroom family unit while renting out the other rooms to pay off mortgage and saving any left over for repairs etc. I will be eligible for a physician loan for up to

a) 750k-850k mortgage with 0% down, no PMI

b) 1.25m with 5% down payment, no PMI

c) 1.5m with flexible down-payment, no PMI.

Of course if I move anywhere else in the country the numbers make more financial sense as the bay area is currently probably the most expensive housing market. But I was wondering if it is doable and would love to hear other people's thoughts on howt they would invest in my circumstance. I am thinking of renting out the rooms to fellow colleagues and eventually making this an unofficial "resident house" for when I leave and eventually house-hack my next place and continue to invest through BRRR in the midwest/south when my real salary comes in.

My goals were to aggressively pay off debt and live frugally through residency. I have about 80k in total debt (student loans) and will be refinancing my student loans to a lower interest rate so I can tackle it through the next four years. I thought house hacking would be perfect because if I broke even or had even a little bit of extra profit I could use my resident salary to just tackle debt aggressively and once I finish, I can just put a property manager in to manage renters who will continue to pay mortgage and have the property appreciate slowly while I continue my real estate through BRRR and other house hacks.

My average monthly salary would be $5800 so ~$4352 after taxes along with $600 housing stipend monthly, cell phone allowance of $1000, educational allowance of $2000 and food allowance ($10 per day) and a moving stipend of $3000 from my program to offset living costs. I would love to hear everyone's thoughts or different strategies for my potential bay area move and house hacking in a mega-city with a costly housing market!

Thank you again for taking the time to read this!

Best,

Smaller Pockets

Diane Kim · Answer

@Dylan Vargus Thank you so much for your reply!

I think another option is to see if I can get a physician investment loan to buy a duplex or multiplex in an area like Indianapolis where my family already has some real estate so that it can generate enough cash flow after mortgage, property tax etc to help supplement my rent for residency. I am unfamiliar with any physician lenders who allow this with a little to no down payment. I have reached out to about 10-15 lenders via email to see what I can get pre-approved for in the interim to crunch the number between a house hack and investment property in a cheaper location with a high, stable renter's market.

Diane Kim · Answer

I will keep you updated!

My third option and perhaps the most feasible is to rent a 5 person house in Sunnyvale and rent out the other four rooms to pay my share and split utilities/WiFi so any extra cash flow can help pay that as well. I will have to make an agreement with the landlord.

Lane Kawaoka · Answer

I would still just buy out of state. Its a smaller cost (to just get educated on being an investor). As a doc you will likely grow up to syndications but having the experience of running a remote rental will be invaluable.

Jessica Connor · Answer

I do agree that it is hard to find a SFR in those areas in the $1 million range, but I think SFR is more doable for that price range than a multi-family in Palo Alto/Mountain View/Cupertino/Sunnyvale. May want to also consider west San Jose to get to the $1.3-$1.5M range for a nice SFR. Given the amount of room sublets I see on Facebook Marketplace etc. in those areas, being able to rent to your resident colleagues would be fantastic to help you get cash in the door as soon as possible. I would also consider making sure the SFR has sufficient bathrooms (having private baths helps get you higher rents) and also big enough bedrooms (as many newer SFRs prioritize common areas over bedrooms, but bedrooms are more rentable). Also consider whether any of those cities have rules on the number of rooms you can rent out in a SFR - I believe in San Jose it is limited to 2 rooms to be rented out in a SFR and also San Jose requires business license registration for landlords (and Airbnb-ers), so would suggest you check the rules for the cities you mentioned. Lastly, don't forget the property taxes - they will bite here in Bay Area and you'll likely need to rent at least 1 room to cover the property taxes (if not a bit more than that).

Dylan Vargas · Answer

@Diane Kim Great idea! This will present some challenges to find that cash flowing property to off set the rent but anything is doable. I do like that you have family in Indianapolis and they can help look after properties and probably have some connections to the people you need. I lean toward a primary residence that is owner occupied while renting out rooms to help substantially reduce the mortgage payment. Renting out rooms will not cost near as much as a rental property with regard to money to help offset mortgage if that makes sense. The down payment will be 0-3% I would think. Then I would venture out for investment properties for cash flow to help off set mortgage. You are on your way to some great thinking in looking at different ways to make this happen. Great to hear!

@Dylan Vargas thank you for connecting with me, it’s always nice to brainstorm new strategies as I am new to my new found interest in real estate!

Dylan Vargas · Answer

@Diane Kim Welcome! I would check out homes and run the numbers. If it works give it a whirl. I really like the idea of finding tenants from your residency. What a great fit. Its all about if the numbers work and specific to residency housing in my opinion. Even if the market dips if colleagues need rental housing (or traveling nurses etc) such as in your situation it will work. Most people dont want to rent rooms out but the people that do usually make it work and can afford their "own" home. Good luck and keep us posted.

Gayle Eisner · Answer

Tough market in Silicon Valley but rental prices are slowly going down, so I expect housing prices to take a downturn slowly as well. Lots of techies working at home and moving. Things are a changing I believe, but you still can't touch a SFR in the areas you are thinking for under $1 million plus. Good Luck!

Sattir Bitti · Answer

You are stepping into the heart of silicon valley...doubt if you can find multi-family in the $1mil range...single family is a possibility!! then you need to stay in 1 bed and rent the others to roommates...

House-hacking in Northern California as a Resident Physician?

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