House hacking in San Diego single family

San Diego, CA · Member since 2020 · 17 posts · 10 votes

I live in San Diego and I’m having trouble convincing myself that multifamily is a good investment here in San Diego. For example I saw a single family home in Otay Ranch that is a 3 bedroom 3 bathroom house for 515,000. I could easily rent out the two extra rooms and each roommate would have a private bathroom. I’m think wouldn’t it make more sense financially to house hack a single family then to house hack a multifamily due to the cost? Anyone beg to differ? I’d love to hear feedback, thank you.

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Donald E Appleberry

Real Estate Agent · San Diego, CA · Member since 2018 · 144 posts · 145 votes

Hey man,

I'll play devils advocate and give you the feeback I give my clients looking at house hacking. Also this is usually a very long conversation as your goals in REI and personal situation/preferences will dictate which you'd ultimately prefer. So bare with me and please forgive me if I don't dive into the many variables that come down that making that decision in one post.

San Diego real estate is one of the best places for a buy and hold investment IMO. Generally, Multi-family is more expensive than single family. So for a 2-4 unit here you most likely won't be cash-flowing.(Unless it's a value add situation.) In A LOT of peoples minds, especially people just getting into real estate investing, this makes the deal seem not worth it at all since they can cash-flow a multi family property in other markets like the Midwest a couple hundred dollars a month.

I'd challenge you to take a step back and look at the big picture. You're getting into a MF property that will serve as a long term investment. You're in a very desirable market, You're dramatically decreasing your monthly overhead for said property, and you're reaping the tax benefits. No, you may not be cash-flowing a couple hundred a month, but you now own and asset for the cost of a regular 2bd/1bth apartment in most areas. Maybe even less than that. Also, if you consider loan pay down, appreciation, depreciation and the fact that you have more personal space/security (compared to house hacking a SFR) you'll see that leveraging a MF property earlier than later will pay off down the road. Just because your house hack doesn't cash-flow day one, doesn't mean it's a bad investment. Paying for where you live isn't a bad thing. Haha.

We aren't in a market where buying a property for 10% down will get you immediate returns(Generally). But we have the benefit of being in a market a majority of people want to live. Paired with consistent weather, vacation destinations, military bases bringing in potential renters and OOS monies, beachfront rentals, Billion dollar developments and a variety of other things, you can bet money (the down payment or leveraged benefits on your MF property) that your investment is bound to be a beneficial one. Not to include the fact that you get to enjoy the investment personally since its a house hack. I won't hit appreciation here too much since I recommend not basing your investment solely on it. What's the saying? "Appreciation is the cherry on top of a good deal." I'd just say that in this market it's two cherries and some sprinkles.

I already know the first thing that pops into everyone's mind when you mention appreciation and the answer is - "No, there is not a looming Real Estate market crash." At least not one that is justifiable based on the market inventory vs demand and in-place mortgage systems. You know, the facts. Side rant over. Hahha.

Now for the SFR approach. There are typically only 2 ways to get a cash flowing property in this market. BRRR/Value add and house hacking a SFR. House hacking a SFR is not for everyone, and finding tenants you can live with can be challenging. Even close friends can be difficult tenants. If done correctly though, you can live for free and have some extra money in your pocket. I have clients that are doing both and each have their issues. But it's the best way IMO to get started in a market like this.

I'm free to talk more if you'd like. PM me and we can jump on a phone call. As I said, there's a lot of personal preference that goes into that decision. Unlike a typical investment, you're going to be living there. So just because the numbers look good, doesn't mean the property is going to be good for you and your situation. You're also investing your livelihood into the the property.

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Alfred Uda
New to Real Estate · Raleigh, NC · Member since 2020 · 32 posts · 13 votes
6y
@Alejandro Romero This is pretty smart. One of my concern is how are the rooms separated relative to the other tenants. Most, houses I have been in share a common living room/kitchen etc and it’s hard to not notice other individual leaving in the house. Maybe, you can convert the single family house in a way to give individual tenant their privacy.
0 Reply
Kenneth Donaghy
Real Estate Broker · San Diego, CA · Member since 2016 · 355 posts · 195 votes
6y
@Alejandro Romero a 3bd/3ba is a great beginner househack. It's a straight forward, realistic and successful strategy. I'm working with multiple househacker within the same price range with a similar strategy. A couple adjusted their strategy away from multifamily because the risk tolerance didn't sit well for them after COVID.
When buying units, you will be able to use some of the projected rental income to qualify for a larger loan amount. Depending on the loan product, the lender may take landlord experience into consideration.
So if you be a balance of location you desire, price range, risk tolerance, and lifestyle you feel comfortable with, to better know what is the best strategy for you. Hope that helps!

1 Reply
David Pere
Rental Property Investor · Springfield, MO · Member since 2016 · 1k+ posts · 890 votes
6y
@Alejandro Romero Your head is in the right place, but don't get wrapped around the cost. A $1,000,000 home that rents for $10k would be the same rent-to-price ration as a $500k home that rents for $5k.
You can still rent bedrooms in a single family home too.
That being said, the home you just described sounds like it would work great. Just don't talk yourself out of a bad deal based on price point alone. There are some expensive properties that make good deals, it is just harder to find them.
2 Reply
Joshua J Cawthorn
San Diego · Member since 2019 · 87 posts · 50 votes
6y
Hey Alejandro,
If we are speaking in hypotheticals, then sure this sounds like a good plan. However, lending will have to be considered. Take some time to consider how you plan to fund your house hack. What time type of loan do you anticipate using? Are you putting any money down? How about money to pay for any repairs, in case things go wrong? Are you a first time home buyer? Lenders will factor all of these things in and, accordingly, will be pretty conservative because you may appear to be a risky borrower. It's pretty easy to overcome a lot of lender's concerns by having a large amount of money to put down (in the neighborhood of 20% is pretty common).
You'll see a lot of "investors" scared to get started in San Diego for exactly this reason: it's a lot more expensive to put 20% down in San Diego than it is in, say, Ohio.
0 Reply
Donald E Appleberry
Real Estate Agent · San Diego, CA · Member since 2018 · 144 posts · 145 votes
6y
I live in San Diego and I’m having trouble convincing myself that multifamily is a good investment here in San Diego. For example I saw a single family home in Otay Ranch that is a 3 bedroom 3 bathroom house for 515,000. I could easily rent out the two extra rooms and each roommate would have a private bathroom. I’m think wouldn’t it make more sense financially to house hack a single family then to house hack a multifamily due to the cost? Anyone beg to differ? I’d love to hear feedback, thank you.
Hey man,
I'll play devils advocate and give you the feeback I give my clients looking at house hacking. Also this is usually a very long conversation as your goals in REI and personal situation/preferences will dictate which you'd ultimately prefer. So bare with me and please forgive me if I don't dive into the many variables that come down that making that decision in one post.
San Diego real estate is one of the best places for a buy and hold investment IMO. Generally, Multi-family is more expensive than single family. So for a 2-4 unit here you most likely won't be cash-flowing.(Unless it's a value add situation.) In A LOT of peoples minds, especially people just getting into real estate investing, this makes the deal seem not worth it at all since they can cash-flow a multi family property in other markets like the Midwest a couple hundred dollars a month.
I'd challenge you to take a step back and look at the big picture. You're getting into a MF property that will serve as a long term investment. You're in a very desirable market, You're dramatically decreasing your monthly overhead for said property, and you're reaping the tax benefits. No, you may not be cash-flowing a couple hundred a month, but you now own and asset for the cost of a regular 2bd/1bth apartment in most areas. Maybe even less than that. Also, if you consider loan pay down, appreciation, depreciation and the fact that you have more personal space/security (compared to house hacking a SFR) you'll see that leveraging a MF property earlier than later will pay off down the road. Just because your house hack doesn't cash-flow day one, doesn't mean it's a bad investment. Paying for where you live isn't a bad thing. Haha.
We aren't in a market where buying a property for 10% down will get you immediate returns(Generally). But we have the benefit of being in a market a majority of people want to live. Paired with consistent weather, vacation destinations, military bases bringing in potential renters and OOS monies, beachfront rentals, Billion dollar developments and a variety of other things, you can bet money (the down payment or leveraged benefits on your MF property) that your investment is bound to be a beneficial one. Not to include the fact that you get to enjoy the investment personally since its a house hack. I won't hit appreciation here too much since I recommend not basing your investment solely on it. What's the saying? "Appreciation is the cherry on top of a good deal." I'd just say that in this market it's two cherries and some sprinkles.
I already know the first thing that pops into everyone's mind when you mention appreciation and the answer is - "No, there is not a looming Real Estate market crash." At least not one that is justifiable based on the market inventory vs demand and in-place mortgage systems. You know, the facts. Side rant over. Hahha.
Now for the SFR approach. There are typically only 2 ways to get a cash flowing property in this market. BRRR/Value add and house hacking a SFR. House hacking a SFR is not for everyone, and finding tenants you can live with can be challenging. Even close friends can be difficult tenants. If done correctly though, you can live for free and have some extra money in your pocket. I have clients that are doing both and each have their issues. But it's the best way IMO to get started in a market like this.
I'm free to talk more if you'd like. PM me and we can jump on a phone call. As I said, there's a lot of personal preference that goes into that decision. Unlike a typical investment, you're going to be living there. So just because the numbers look good, doesn't mean the property is going to be good for you and your situation. You're also investing your livelihood into the the property.
4 Reply
Maxwell Ventura
Real Estate Agent · San Diego, CA · Member since 2016 · 308 posts · 173 votes
6y
@Alejandro Romero

I'm going to second everything @Donald E Appleberry mentioned above, and add 1 more caveat to that 3/3 in Otay Ranch..

I'm going to make an ASSumption that there is also a Mello-Roos tax on that property? If so, significantly hurting your cash flow projection.

I have a client in escrow in Otay Ranch right now and all the new builds have Mello-Roos over there. I'm not saying don't live there as the homes/communities are very nice and the PPSF is great compared to a lot of SD county. May not be the greatest investment opportunity however.

Good Luck!
0 Reply
Alejandro Romero
OP
San Diego, CA · Member since 2020 · 17 posts · 10 votes
6y
@Alfred Uda
That’s true, I’m trying to figure things out and I’m currently brainstorming. I just can’t see making money off a multifamily here in San Diego, or at least not as a first purchase.
0 Reply
Alejandro Romero
OP
San Diego, CA · Member since 2020 · 17 posts · 10 votes
6y
@Kenneth Donaghy I’m playing it safe as well, I have a good income for San Diego and I will be able to make the payment with or without the rooms rented out. I’ve been looking at duplex’s and it’s hard to find one that’s in a decent area let alone under 650,000.
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Alejandro Romero
OP
San Diego, CA · Member since 2020 · 17 posts · 10 votes
6y
@David Pere Exactly, with the limited knowledge I have gained the numbers don't make sense in San Diego, this will be my first purchase and I will be using a FHA loan.
1 Reply
Alejandro Romero
OP
San Diego, CA · Member since 2020 · 17 posts · 10 votes
6y
@Joshua J Cawthorn I work as a RN in San Diego so my income is decent for the area. I make in the lower six figure range. I can make the payment with it without the tenants. I'm thinking about using a FHA loan which is 3.5% down and I am a first time buyer. My credit is in the 700s.
0 Reply
Alejandro Romero
OP
San Diego, CA · Member since 2020 · 17 posts · 10 votes
6y
@Donald E Appleberry Thaknyoi for the information posted, I'm a bit overwhelmed and can't decide on what will work best for me. I'm not ready to buy this second, but my goal is 6-10 months. I plan on using a FHA loan which is 3.5% down. I will gladly give you my number, thanks.
0 Reply
Alejandro Romero
OP
San Diego, CA · Member since 2020 · 17 posts · 10 votes
6y
@Maxwell Ventura This was an example I used, but yes they do have those fees. I was told Rancho Del Rey doesn’t not have those fees, but I could be wrong.
0 Reply
Joshua J Cawthorn
San Diego · Member since 2019 · 87 posts · 50 votes
6y
Originally posted by @Alejandro Romero:
@Joshua J Cawthorn I work as a RN in San Diego so my income is decent for the area. I make in the lower six figure range. I can make the payment with it without the tenants. I'm thinking about using a FHA loan which is 3.5% down and I am a first time buyer. My credit is in the 700s.

Awesome! Based on that credit score and income, you could probably qualify for a good amount to buy a house with. Lenders will also factor in debts you have (commonly referred to as "DTI" or debt-to-income ratio). I'm sure you could qualify for an FHA loan on a SFH (single family home). If possible, I think you should aim for a duplex or triplex. A SFH or MFR (multi-family residence) may not cash flow- even for the first few years. San Diego is a unique market. It's super expensive to buy, so it takes a few years to break even. If you can wait 5-10 years, you'll experience extraordinary market appreciation that is also relatively unique. Here in SoCal, it's a much longer timeline and a different strategy than other markets where the could begin immediately while there's virtually no market appreciation.

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Alejandro Romero
OP
San Diego, CA · Member since 2020 · 17 posts · 10 votes
6y
@Joshua J Cawthorn Thanks for the feed back, my DTI ratio is about 30-35% I have paid off all of my consumer debts. The only think I have left to pay of are my student loans which are 40,000 and I was hoping to pay that off once I got my house. The money I save on rent will make it easier to send larger payments to my student loans.
1 Reply
Twana RasoulBusiness Member
Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
6y
@Alejandro Romero Hi Alejandro...I get quite a few people that come to me to house hack here in San Diego and most of them look at condos or townhomes and sometimes single family homes for one reason or another. I always have to give them my thoughts on multifamily in San Diego as a 2-4 unit enthusiast myself.
It may take you a little longer to find a 2-4 unit to house hack but I would recommend skipping the condo or single family home house hack for a 2-4 unit instead all day long, unless there are very specific reason you want a condo or single family home that a 2-4 unit cannot provide. Heck as an agent it is easier and faster for me to help a client buy a condo or SFR as there are more of them around and less supply of 2-4 units but that's how much I believe in 2-4 unit investing (I put my money where my mouth is as well and own 2-4 unit property myself and look to add more).
It doesn't always take very long either, for example, I met a VA buyer on May 1st and we were in escrow on a great multifamily property 8 days later. Really depends on several factors.
If you qualify for a 500k+ house in San Diego, you can probably qualify for around a 700k duplex depending on the current or market rents of the second unit, need to talk to your lender.
For the military folks obviously lean on the VA loan and for others I encourage taking advantage of the 3.5% fha loan if you can before jumping to conventional loan products....(by the way, we have been locking in 2.75% interest rates for fha and VA 2-4 unit buyers but interest rates are starting to tick up slowly)
Hope that helps and best of luck to you!
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Chris MasonPro Member
Moderator
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
6y
Originally posted by @Alejandro Romero:
I live in San Diego and I’m having trouble convincing myself that multifamily is a good investment here in San Diego. For example I saw a single family home in Otay Ranch that is a 3 bedroom 3 bathroom house for 515,000. I could easily rent out the two extra rooms and each roommate would have a private bathroom. I’m think wouldn’t it make more sense financially to house hack a single family then to house hack a multifamily due to the cost? Anyone beg to differ? I’d love to hear feedback, thank you.

It may be a little tougher in San Diego than up here in Oakland (where we have a bunch of 100+ year old homes all over the place), but if it's around down there I'll do you one better than a 3/3. If you can find 4 or 5 bedroom houses, or even 6, you will find that the bedrooms beyond the 3rd have a VERY minimal impact on price compared to going from a 2 bedroom to a 3 bedroom. The 4th is the "when grandma is staying here" room, but what's the 5th?

Vanilla married couples just don't have 4 or 5 kids these days. The extra bedrooms are functionally obsolete to much of the market - "why would we want 5 bedrooms? That's just 1-2 extra rooms to clean that we do not need..." Supply and demand sets pricing, if there's scant "demand" for that 5th bedroom, than it's price will be equally small. So you can get that last extra bedroom or two on the cheap, but it'll still rent like the first couple bedrooms. Maybe not for QUITE as much if you get into a shared bathroom scenario, but relative to what little (if anything) you paid for it...

ACTUALLY sold prices, 3 bedroom houses in a random SD neighborhood:

Same 'hood, 4 bedroom:

There is a difference in price at the high and low ends for both, but there's more price overlap than not. A "meh" quality 4 bedroom, I am guessing, sells for the same as a "turnkey quality" 3 bedroom, that sort of thing. You can redo carpets and paint a 4 bedroom for cheaper than it would cost to build out a 4th bedroom in a "turnkey quality" 3 bedroom.
I'll defer to the seasoned San Diego Realtors if they say that I'm bonkers, I just know it works out pretty well up here in the East Bay area to look for that "oversized" single family home that the market regards as having "extra" functionally obsolete bedrooms.
1 Reply
Natalie Schanne
Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
6y
@Chris Mason @Alejandro Romero - Like Chris said, additional bedrooms and SF bring in substantially more income than their cost. I have single family house hacked a 6 bedroom and a 7 bedroom house and they cash flow over $1000/mo each plus living for free. Generally you want at least 1 full bathroom per 2-3 rooms. Example: a split level with 6 bedrooms, 3 up and 3 down from walk in main level with kitchen and living room. 3 bathrooms. Cost $400k. Rent a 10x10 room for $600/mo, a 12x13 room for $650/mo. These rooms share a hall bath. A 16x16 master with private bathroom for $800/mo. Downstairs is 12x13 for 650, a 12x20 for 700 and a 12x25 for 700, all 3 rooms share the second hall bath. The house is 2400sf with about 600sf of common area and 300sf of utility room/storage. Roommates split utilities equally at cost. No utilities are included in above prices. So as you can see the larger master bedroom and the private bathroom is the least revenue effective. Everyone asks about a private bathroom but the rent bonus for it is only 50-100/mo. House stays 98% occupied. In the same market, you can get a luxury 2/2 1000sf condo for $300k and each 1/1 rents for $1000-1200. It’s your choice how much privacy matters to you. Most roommates stay in their rooms or are out of the house, most of the time so it’s not even that disruptive. The downside is none of the potential roommate income will qualify towards your loan and buying a bigger house. Good luck and let us know how it goes.
1 Reply
Ali Boone
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
6y
Have you run the numbers on both scenarios? Doing that makes it really easy to see which one has better returns. But for househacking in general, here's some things to think about:
https://www.biggerpockets.com/...
Watch out for the numbers especially in San Diego. Househacking doesn't usually pencil out well in SoCal.
0 Reply
Alejandro Romero
OP
San Diego, CA · Member since 2020 · 17 posts · 10 votes
6y
0 Reply
Alejandro Romero
OP
San Diego, CA · Member since 2020 · 17 posts · 10 votes
6y
@Twana Rasoul I appreciate the information and I like what you had to say about multifamily homes. I’m brain storming at the moment, but I plan on making a move late this year or early next year.
0 Reply
Alejandro Romero
OP
San Diego, CA · Member since 2020 · 17 posts · 10 votes
6y
@Ali Boone Thank you for that link, it really helped.
1 Reply
Alejandro Romero
OP
San Diego, CA · Member since 2020 · 17 posts · 10 votes
6y
@Chris Mason I’m not sure I could live with that many people, I think two tomates is more than enough, but I guess I might have to suffer in the beginning to get the results I desire.
0 Reply
Alejandro Romero
OP
San Diego, CA · Member since 2020 · 17 posts · 10 votes
6y
@Natalie Schanne Like I replied to the comment above yours. I’m not sure I could live with that many people, I think two roommates is more than enough, but I guess I might have to suffer in the beginning to get the results I desire. However, I’m not sure how comfortable people will be having to share restrooms like that.
0 Reply
Jordan Graham
Real Estate Agent · San Diego, CA · Member since 2019 · 54 posts · 27 votes
6y
@Alejandro Romero
My opinion on best approach for house hacking in expensive market like SD (which I am currently shopping around for as strategy as well) is a 4+ bedroom SFH with in-law suite or separate entrance for privacy reasons (3 bedrooms on one side of the house with own kitchen and then your own bedroom/ kitchen/ bathroom in your segment of house).
I'm 29 and do not feel like having arguments over dirty dishes in the sink like when I was in college. The best part about this is that you are pretty much buying a duplex but for the price of a SFH... and there are many more SFH than duplexes/ triplexes and you are typically just competing against regular home buyers instead of investors. Rent out the other 3 bedrooms individually on other side of house and you can easily get $1,200+ per room depending on area of city. 3.5% down and tie PMI into purchase price of home in order to rid yourself of monthly PMI, thus leaving more room for cash flow. ($550,000 x 3.5%= $19,250 down payment... $3,284 mortgage payment with no PMI... $1,100 per room x 3 = $3,600- $3,284= $316 in cash flow a month.)
After a year, move out and repeat the process again with low down payment, convert into owner occupied home into strictly rental (adding depreciation income), and BOOM... do the process all over again for as many years as you can stand and you will have created enough wealth for yourself to last a life time.
1 Reply
Kenneth Donaghy
Real Estate Broker · San Diego, CA · Member since 2016 · 355 posts · 195 votes
6y
@Chris Mason I lived in Oakland for 9 years before moving to SD. The homes in West and North Oakland based on size and ability to divide them make a lot more sense for that strategy. There are a few neighborhoods in SD that have similar properties, yet they're very early in the gentrification process.
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