Is 420K & a FHA Loan enough in San Diego?

Question

Hey BP,

My wife and I are in the process of looking for a home to house-hack in San Diego. We'd like to buy SF then create a JADU. We've been approved for a FHA loan for 420k and also down payment and closing cost assistance.

I grew up in San Diego and read 10-15 real estate books as we've been in the process. I grew up in and understand the area and while I don't know much think I have a solid start.

Most of what we've looked at end up selling for more than listing price it seems like right now. Like people are so frantic they just scoop up the houses even if they have to take an L. We're looking in areas primarily in East County - La Mesa (we wish), Spring Valley, El Cajon, Lakeside, Lemon Grove, and Santee. Are there other central/eastern areas we should be considering?

We're willing to Grant Cardone 10x the situation but my questions is if we even have enough to get into the market? Don't get me wrong, we're willing to keep charging, but wondering if anyone else has recently acquired deals in this price point? Or, anyone who's been able to acquire something that was listed higher and get the price down?

We're connected to the MLS, and check real estate apps obsessively.  Is the market just to over-heated right now for us to get into? Are there creative strategies we're not considering that will work with our loan?

Appreciate your thoughts

Dan H. · Answer

Have your agent run a list of homes in the area you are interested in that have closed at less than $450k.  Then drive by 10 to 12 of these homes.

If any one of them could work for you then is is possible. However if all of then end up not meeting you minimum requirements you may need to save more before starting your plan. I suspect you may be required to make some compromises but the exercise will be enlightening.

As for the plan, I think the verdict is still out on the JADU value in areas you described.

Good luck

Dan H. · Answer

There is a cost to add a JADU.  In my opinion it has not yet been proven that the return justifies the cost.  Will an appraisal show that the value has increased as much as the cost of the appraisal.  Will the JADU rent be enough over the individual bedrooms?

In my view there are areas that the JADU has been demonstrated to be financial advantageous but in my opinion this has not been convincingly shown to be true in blue collar areas.  I am not saying that it definitely is not worth it.  I will say in our primary blue collar market, adding a new detached ADU results in a higher cost than purchasing a property with an existing detached ADU.  My original protege has one (SFR with detached ADU) on the market at a price cheaper than an ADU could be added to an existing STR and it has not sold in over 2 months on the market. It is 3/1 SFH and a 1 BR ADU that is near mint.  It is on the market for ~$100k above the market value of the SFH.  That ADU could not be added to an SFH for $100k.  I use this example as evidence that adding the detached ADU in that market is not financially wise.

Ryan Knapp · Answer

Good point thanks @Kenneth Donaghy

@Dan Heuschele can you expand on the jury still being out on the value of JADUs in those areas? Do you mean bc JADUs are so small and bc those areas and further from downtown / central San Diego? And untested?

Kenneth Donaghy · Answer

@Ryan Knapp

Try not to confuse List Price with Sales Price.

The Value of the Property is the amount someone will pay for it, based on the Market. Which equals Sales Price

List Price is use to market the property to the most potential buyers, and get the highest value possible for the property.

When I see @Dan Heuschele mention compromise, the Realtor in me hears Expectations.

One can control and adjust their expectations, whereas they have no control of the Market.

Dan H. · Answer

I chose the $450k because I misunderstood what you were indicating when you indicated you were approved for $420k fha loan.  I figured at 95% LTV you had financing for $441k.

So I suggest the same exercise but look only at properties below $425k.  The lower price will equate to more compromises.  It is still a good exercise.

Good luck

Ryan Knapp · Answer

Hey @Dan Heuschele, that’s good feedback. Thank you.

We’ve see a lot under 450k that would work. It’s actually getting down into 420/the lower 4s where things get tricky. I’ve though we could get something at $450k down just a bit to make it possible but no luck so far.

Could you expand upon your comment of the value of the JADU in those areas? Are you taking cash flow, just over all value? Would love to hear your thoughts.

Best,

Ryan

Aaron K. · Answer

You aren't completely priced out but your options are limited, you'll be looking at a starter home for sure, so don't expect too much out of what you can afford.

Is 420K & a FHA Loan enough in San Diego?

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