Multifamily House Hacking in San Diego

17 Replies

Hello San Diegans! About a month ago I learned about this site and have been self-educating like a mad man about REI. This is my first time dipping my toes in the forums :)

I am 25 with a lifestyle that perfectly aligns with purchasing a MFP and house hacking. It's a no brainer for me to implement at this time in my life. Property management is my day job so fixing the property up, renting it, and managing it are aspects of house hacking that excite me even more about it!

My capital available to invest is not significant; however, I believe that if I presented family and good family friends with my goals and brought them deals that made sense I could raise the capital needed to secure my first property. I definitely have a lot of man hours to invest in analyzing and understanding deals before I begin making serious offers.

My question is this--am I being naive in considering an owner-occupied MFP in San Diego (most likely central, within a 10 mile radius of the highway 5/8 junction) as my first REI? I know SoCal can be cutthroat, but I love this city and would prefer to continue living here through my 20s at least.

All feedback and advice will be much appreciated!

@Bryce Baker

@Kevin Fox has the best advice in your local market. If you are investing you would have to go in as equal partners as you can't "borrow money" for the down payment with conventional. For a primary residence you can get low down payments with FHA financing - but the numbers would have to work out for the property to qualify for a 3-4 unit house. A 2 Family guidelines are not as strict. Here are the additional requirements;

Reserve Requirements

  • 3-4 Unit owner occupied properties must have 3 months PITI

Three (3)- and Four (4)-Unit Property

The maximum mortgage amount for 3-4 unit properties is limited, so that the ratio of the monthly mortgage payment, divided by the monthly net rental income does not exceed 100%, regardless of the occupancy status. This is also taking into consideration, a 25% vacancy factor.

@Bryce Baker I am trying to do the same. As long as the numbers work to what I’m looking to do I will end up doing the deal (even though San Diego seems to be close to peaking), granted it’s quite a bit difficult finding something that makes sense on mls, but it does come up every now and then if you really take the time to be on top of it. I recently lost out on a 2 unit. I was the highest of 7 offers but one of the offers was all cash...so I lost out.

@Jerry Padilla, thank you very much for the guidelines and referring @Kevin Fox!

@Twana Rasoul case and point of the cutthroat nature of SoCal! I don't want to dwell in the information soaking stage for too long so it would be awesome to hear more about the particulars on this duplex you made an offer on. I'll send you a DM.

@Bryce Baker I would highly encourage buying a MF property and using the BRRR strategy given your skill set. This will allow you to scale up in your later years. Hopefully the capital won't be a big issue since your family can "gift" you money to help with the down payment assuming this will be your primary residence. I would recommend going with agents such as @Kevin Fox  that work with investors; it's easy when agents speak the same investing language as their clients. Feel free to contact me with questions and best of luck!

Thank you all for the sound advice and referral to @Kevin Fox . I know I'll have specific questions so I'll be reaching out to you guys!

@Bryce Baker

I recently stumbled across REI and BP as well. I devoured information for probably 6-9 months before i pulled the trigger on my first property. I bought a 4 unit MF in San Diego so I could fix it up while living there. The high price-point was definitely my concern because the numbers aren't great, but with my rental income from the 3 other units I pay less for my mortgage than I would for a comparable property. Not bad for a 1200 sqft home in San Diego with a huge yard.

My property wouldn't be cashflow positive if i were to move out immediately, but I am looking at opportunities to add other units and utilize the space on my lot (roughly .3 acre lot) to help offset that. Luckily I had the VA loan to use, so raising the money for a down payment wasn't an issue.

Good luck,

Chris

Bryce, I’ve helped friends try to do this in San Diego. It is difficult finding deals that pencil well with a low down payment on the MLS as you know. We were looking at 4plexs in golden hills, normal heights, Linda vista, city heights etc. and the prices were crazy for properties that needed lots of work. People are paying a crazy premium just to get an apartment. A million bucks for a dump apartment with a cap rate of 4 maybe. Pretty hard sell.

@Bryce Baker It's definitely possible in San Diego. I have a friend who is also a property manager who has killed it flipping MF properties in San Diego. How you ask? Strong relationships with local brokers who send him pocket deals and a willingness to go into "management intensive" neighborhoods and fix them up anyway. His properties will go back on the market within a year, fully rented at higher than market rents and fully turnkey. He doesn't use personal money but does have investors.  PM me if you have any questions! 

I am trying to do the exact same thing and having difficulty - it seems like every multifamily on the market has rents that are undermarket, and getting financing where they discount rents to 75% isn't helping. I'm trying to stay in the metro area, but it so far all the 2-4 units I've found seem to be cash negative once I work in the debt financing. If you can get a big enough downpayment, you may be able to get the numbers to work. 

My advice to house hackers is to look at detached duplexes.  

Within 10 miles of 5 and 8 interchange is either expensive (PB/MB, OB, Pt Loma, Bay Park, North/South Park, etc) or not great areas (City Heights, National City, etc) as most of the in between areas (like Claremont) do not have many duplex to quad.  I would suggest not being quite as geographically limiting.  

The best cash flow in San Diego is achieved in the more blue collar areas but stay away from problem areas.  Here are some signs of potential problems: Old, not recently renovated, apartment buildings near by, too little parking and the streets are full of vehicles, inoperable vehicles, tagging.  You can no longer use a dead front yard as a reliable indicator in San Diego.

Good luck

@Dan Heuschele Clairemont has a ton of duplexes, but they're going for around $1mil generally. Insane!

I would argue that City Heights and certain parts around National City would be sound places to invest as they are economically on the rise. As a house hacking investment, you just need to consider if you're able and willing to live there right now.

Can you elaborate about detached duplexes? And which suburbs have you/would you look at investing in?

Originally posted by @Bryce Baker :

@Dan Heuschele Clairemont has a ton of duplexes, but they're going for around $1mil generally. Insane!

I would argue that City Heights and certain parts around National City would be sound places to invest as they are economically on the rise. As a house hacking investment, you just need to consider if you're able and willing to live there right now.

Can you elaborate about detached duplexes? And which suburbs have you/would you look at investing in?

I do not know where in Clairemont there are duplexes but I do not know all areas of Cleairment. I do know Linda Vista has duplexes/triplexes not super far from the Linda Vista post office. How did you determine the value that the duplexes are selling for in Clairemont? I ask because for duplex to quad in my local market there is a huge difference between what duplex to quad are listed for sell on the MLS versus what duplex to quad sell for. When shopping for SFR the MLS list price gives a decent indication of sold price but in duplex to quad do not even look at the MLS list prices as they will only provide an inflated expected value which will do you a disservice in any negotiation. Only look at closed sold RE (do not even look at those in the process of closing as many will fall out of escrow because offers are placed interior unseen, pre inspection, sometime by newbies who based offer price based off the MLS listings rather than sold price so the appraisal comes in short, etc.).

It is tough picking the next hot area but I would not have City Heights or National City high on my list.  It may be a long look but west Chula Vista is close to bay and far cheaper than Eastern Chula Vista.   IB has low values for beach front because of the class of people that currently reside there.  Raise the quality of housing and the class may rise.  Just some speculation that may not pan out (I have 0 investments in either west CV or IB).

Detached duplexes appear to be 2 single family homes but they are on one deed and typically have only one water meter.  Advantages are typically private yard, separation of living space, more parking, etc.  In general I have less PM issues on my detached units than my attached units.  Another advantage is their comps should be other duplex to quad RE.  Duplex to quad are purchased by investors and therefore typically have investor values not home buyer values. 

An example I recently closed (Oct 2017) on a detached duplex (3/1/1, 2/1/1) for $442k. I believe the 3/1/1 if it were a SFR would have sold at >$400K (look at my profile for the area I invest and determine what you think an average condition 3/1/1 would have sold for). So in effect I got the 2/1/1 for less than $42K. When it comes to rent price I see no rent difference between detached duplex unit rent and a SFR rent (apartments and attached units have a little lower rent and are typically harder to manage).

You can look at my profile for the area I invest but I did not choose that blue collar area because I thought it had to be a better investment area than other blue collars areas but because it is a convenient location for where I live and work.  I suspect blue collar areas like El Cajon, Escondido, Mira Mesa, La Mesa, Spring Valley, etc. may all have similar opportunities but I am only intimate with one of those areas.

Good luck

@Bryce Baker Hey man, Im in a similar boat as yourself. It has been a tough couple of months while looking at properties in SD as for new investors like you and I every thing is so expensive and very hard to find something that cashflows. I keep going back and forth as far as what a good game plan is for people in our situation. Ive had some ideas pop up, but with now real experience I don't know if they are distant dreams or realistic thoughts. Please reach out if you want to chat and bounce ideas off each other. Im in Oceanside, so if your ever around hit me up!

To everybody else, I've noticed the lack of multi families in the north county area. Is there an opportunity here to build some new multi families? Looking forward to hearing some feed back! 

Hi, I'm also in SD and looking for MFP for investment purposes, perhaps we should set up a group (meetup?) for local SD people looking to do MFP deals here. FYI I'm a licensed RE broker and attorney.

Ehud 

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