House Hacking at $1,050,000! - Only $5,000 (net) out of pocket! - San Diego

85 Replies

Hello BP!

For my friends out there I am little late in writing this post considering that we closed on our first 4-plex July 10th. I have collected 3 out of the 4 rents due and I am expecting the last payment in my po box today, I will let you know how that goes.

So.... After a 5 month search for a multifamily property in San Diego that my wife and I can afford, if we only had one income. Ironically enough, that has become a reality. I was laid off the day that we were supposed to close escrow.

Now, about the deal. 4 unit building listed for $1,250,000 in a great part of San Diego, 100% rented (this is good and bad). Each unit is renting for $1,700 with room to raise the rents to $1,950. All units are 3/2, 1130 sqft. All recently updated with new carpet and paint, except for one unit. Both car ports were completely rebuilt from the ground up, new fencing, new coin operated laundry room and washer and dryer.

After a month with no action on the building, the price gets dropped to $1,125,000. I took this as a sign that the seller was really motivated, and they came back to reality. Since we were using a zero down VA loan, I had already ran the numbers and calculated the max purchase price for us including vacancies of $1,050,000. So we submitted our offer and prayed that the seller would love a low VA offer.

Two days later the seller responded with, "We regret to inform you that we have accepted another offer that better suites our needs." What does that mean??? We took it as though they accepted a lower offer with less money down. We had only offered $5,000 earnest money.

Three weeks go by, my wife and I had all but given up on the multifamily property and submitted an offer on a single family home that we could do a live in flip, and then move on and hopefully start our multifamily portfolio down the road. Our offer was accepted on the single family on a Wednesday. GREAT! Friday we get a call back from the listing agent on the multifamily, "our buyer is backing out. Are you still interested? We need $10,000 earnest money" OF COURSE!

We canceled the single family, and placed all our eggs in the multifamily. Ordered the appraisal and inspection ($900) immediately. We had final loan approval in 5 days, thanks to our awesome loan originator. The VA appraisal took 28 days!!!!! Held everything up, it turns out the appraiser took a week long family vacation in the middle and then struggled to find comps. He ended up coming in at value.

We closed Friday July 10th! After our $10,000 earnest money, we received a check for $5920 from escrow for prorated rents and security deposits, making our out of pocket expenses $4,100 in closing costs and appraisal plus the $900 inspection fee.

Sunday, July 12, we get our first maintenance/service call from the previous PM, we hadn't even had time to notify the tenants of the change in ownership. "There is a homeless guy that has locked himself in the laundry room and thrown the dead bolt." So my wife and I drive about an hour down there and he is gone by that time. The next day I change the laundry room locks and give a new key to all the tenants. Problem solved for now...

Now I am sure there are naysayers out there that will say this isn't a great investment but all the numbers worked for my wife and I in our situation. We are only 33 years old and once this building is paid off in approximately 25 years, we will be collecting between 9 and 10 thousand dollars a month in rent. And that is why we did it, plus once we move in to the building our rent will only be $750 per month :-) and that is dirt cheap in San Diego. Within the next year we are planning on saving enough to be able to buy another 4-plex on the same street using either a VA loan and refinance out of this one, but with a 4% interest rate, we will probably go with an FHA 3.5% down.

Sorry if that got long winded. Please let me know if you have any thoughts or questions.

Hi Matthew,

It sounds like an interesting deal and I would love to know more about it since I'm in San Diego as well and have always had problems finding properties that would cash flow.


Hey Matthew, congrats on closing on the new property!  

How did you get a VA Loan for that amount? The San Diego County VA Loan limit is $562,350. Anything above that requires a jumbo VA Loan, and you'd have to pay 20% down for any amount beyond $562,350.

Bruce M.: The VA loan limits are $1,081,450 - 4 Unit, $870,200 - 3 Unit, $719,900 - 2 Unit, $562,350 - 1 Unit. When I started this process I had no idea those were the limits either. We were able to use 70% of the rental income as our own to qualify for the loan and if it weren't for that this junior level accountant married to a teacher would have never been able to afford a property like this.

Originally posted by @Mathew Deines :

@Nathaniel Johnson - You are correct for a single family home. In San Diego the VA multifamily loan limits are below.

$1,081,450 - 4 Unit

$870,200 - 3 Unit

$719,900 - 2 Unit

$562,350 - 1 Unit

We had to account for a 30% vacancy rate as well.

VA also requires you to move into the property, right? How much time do you have to make that happen?

We signed a form that we intend to occupy the property within 60 days and that we intend to occupy the property for 12 months. All of which is true.

We did have to give one of the tenants 60 days notice to vacate. So we should be moving into the property in the middle of September.

Ahhhhh Matt!!!! You made my day.  I was looking for a story like this a few months back.  You have just explained how to gain a $1M property with little capital. AWESOME!!

Originally posted by @Mathew Deines :

So on a side note, I am currently looking for a job. I am an accountant with my bachelors degree and a passion for real estate (if you couldn't tell). ;-)

Thanks for the additional info. Wish I had know about it before I used my VA loan to buy a house last year. Best of luck on the job search!!

Ouch, those are some tough numbers for an investment, BUT, you got great financing and you plan on living in it.  From a pure investment standpoint, most BP folks would want $10,000 to $15,000 a month rent for that purchase price.  Hopefully, rents can raise for you to reach your goals.  But my guess is, you will sell it in 10-15 years for $2M plus!

@Mathew Deines

 Just got off the phone with an originator and hes said the following:

--You can only buy up to  5 unit MAX.

--$417,000 will qualify for 0% down

      --(any amount over $417K borrower will have to pay 25% of the difference)

Example: Price $500K....VA loan $417K.... Down payment $83K*0.25 = $20,750.

He also said you have to qualify for the loan on your own income.  They cannot use the income of the property, UNLESS you can show that you have collect rents sometime in the past.

I am fortunate that I have worked as an accountant at a real estate investment fund before and I did have to write a generic letter explaining my experience and why I think that I would be successful. I wonder if you calculate a property management fee, and you could say that you are going to use professional property management to handle collecting rents, if that would be sufficient?  

@Mathew Deines Congratulations on diving in! I appreciate you sharing all the details of your investment. Would you be willing to break down all your projected expenses? (CapEx, Insurance, Property Tax, Utilities, etc.)

I'm assuming that was all hidden in the numbers that eventually landed you at $750/month out of pocket rent expense.

Thanks, and good luck with your future investments!


I wish you could spell this out.  It does not meet the 1% rule?  Correct?  It does not meet the 50? rule?
You don't need a Property Manager because you are right there managing so that is good!!!

So is this all based on apprecition?  

How much rent will you be collecting a month including your own rent and what are your expenses every month.  How much is the insurance?  How much are the taxes.  ow much does it cost to keep the halls clean and the water?  and the Garbage?

You are an accountant so I am sure you can spell this our so even I can understand it.  Where will the negative cash flow be coming from?  What are the comps?

Originally posted by @Dennis Williams :

@Mathew Deines

 Just got off the phone with an originator and hes said the following:

--You can only buy up to  5 unit MAX.

--$417,000 will qualify for 0% down

      --(any amount over $417K borrower will have to pay 25% of the difference)

Example: Price $500K....VA loan $417K.... Down payment $83K*0.25 = $20,750.

That's completely false but again it could be right if in that originators area the va limit is 417k so he may through you were talking about 1 unit properties where the loan limit is 417 (conforming loan limit).

Loan limits for VA got simplized in 2015 to whatever the high loan balance of that county is so for instance the one unit max for va in San Diego is 562,350 and it goes up from there to a max of four units va does not do 5 unit Multifamily Atleast in the residential va program.

The part about 25% of the difference is correct if you're going over the limit however the "limit," per county is different in ever county. The rep you talked to may have lived in a county where the limit was lower or misunderstood your question.

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