Looking for second investment property in San Diego mid-term/house hack/short-term

[Michael Daley]

We bought a house in the SDSU area last year with an attached JADU. We are mid-term leasing the attached studio to travel nurses. 

We are looking to purchase our next property: 2-4 units, $1 - $1.4 mid-term/house hack with 20% down. Prefer light renovations/updates, and ability to force equity with opportunity to add ADU(s).

The MTR market definitely seems to have gotten more competitive in San Diego over the last year. We are looking at mostly central San Diego (Normal Heights, University Heights, Hillcrest, Talmadge, SDSU). Open to La Mesa and West Chula Vista, although I have concerns that they will be tougher to appeal to MTR. We are open to STR and just applied for a license on our current place.

Looking off-market now because on-market is so slim. I know there are a few people on here that do MTR in San Diego, in different areas. Just trying to make a decision on what might work best right now for our next move on buy and hold. Any feedback/insight would be appreciated.

[AJ Wong]

HI Michael, congrats on the success to date. I specialize in STR's along the coast and have had a lot of success with MTR's for medical professionals as well. Here in SoCal I am very high on Chula Vista, Bonita and SDSU in general especially with the conventional center under construction. I also have some great investor jumbo loan resources as well. Feel free to connect anytime I can share a few multi family homes on my immediate radar. Cheers.

[Dan H.]

Quote from @Michael Daley:

We bought a house in the SDSU area last year with an attached JADU. We are mid-term leasing the attached studio to travel nurses. 

We are looking to purchase our next property: 2-4 units, $1 - $1.4 mid-term/house hack with 20% down. Prefer light renovations/updates, and ability to force equity with opportunity to add ADU(s).

The MTR market definitely seems to have gotten more competitive in San Diego over the last year. We are looking at mostly central San Diego (Normal Heights, University Heights, Hillcrest, Talmadge, SDSU). Open to La Mesa and West Chula Vista, although I have concerns that they will be tougher to appeal to MTR. We are open to STR and just applied for a license on our current place.

Looking off-market now because on-market is so slim. I know there are a few people on here that do MTR in San Diego, in different areas. Just trying to make a decision on what might work best right now for our next move on buy and hold. Any feedback/insight would be appreciated.

 You may already know this (you should know this), the JADU requires owner occupancy on the property to be rented as an individual unit.   This should have been conveyed as a deed restriction.  This will impact the rents on your current home when you move to house hack.

I believe the MTR/STR market in San Diego has suffered similar impacts as many other STR markets resulting from the fed trying to slow the economy. This off season was our slowest since the Great Recession (excluding COVID lockdown periods). So far the high season is performing much better than the off season, but not as well as 2019, 2021, or 2022.

Good luck

[Michael Daley]

I actually didn't realize JADU rental had to be on-premise. I thought it only was required for STR. That will impact how we purchase our next property.

[Michael Daley]

Quote from @AJ Wong:

HI Michael, congrats on the success to date. I specialize in STR's along the coast and have had a lot of success with MTR's for medical professionals as well. Here in SoCal I am very high on Chula Vista, Bonita and SDSU in general especially with the conventional center under construction. I also have some great investor jumbo loan resources as well. Feel free to connect anytime I can share a few multi family homes on my immediate radar. Cheers.

Thank you, AJ. The Bayfront project and University make West Chula Vista interesting. I know it will have value in the near future, just wasn't sure how well STR and MTR is doing. You are having success?

[Dan H.]

Quote from @Michael Daley:

Quote from @AJ Wong:

HI Michael, congrats on the success to date. I specialize in STR's along the coast and have had a lot of success with MTR's for medical professionals as well. Here in SoCal I am very high on Chula Vista, Bonita and SDSU in general especially with the conventional center under construction. I also have some great investor jumbo loan resources as well. Feel free to connect anytime I can share a few multi family homes on my immediate radar. Cheers.

Thank you, AJ. The Bayfront project and University make West Chula Vista interesting. I know it will have value in the near future, just wasn't sure how well STR and MTR is doing. You are having success?

 In addition to the Chula Vista bay front redevelopment, South Bay also has the Brown Field expansion.  Buying raw land near brown field could be a good long term play.   Very passive, but expect it will require patience.  

Good luck

[Twana Rasoul]

Quote from @Michael Daley:

We bought a house in the SDSU area last year with an attached JADU. We are mid-term leasing the attached studio to travel nurses. 

We are looking to purchase our next property: 2-4 units, $1 - $1.4 mid-term/house hack with 20% down. Prefer light renovations/updates, and ability to force equity with opportunity to add ADU(s).

The MTR market definitely seems to have gotten more competitive in San Diego over the last year. We are looking at mostly central San Diego (Normal Heights, University Heights, Hillcrest, Talmadge, SDSU). Open to La Mesa and West Chula Vista, although I have concerns that they will be tougher to appeal to MTR. We are open to STR and just applied for a license on our current place.

Looking off-market now because on-market is so slim. I know there are a few people on here that do MTR in San Diego, in different areas. Just trying to make a decision on what might work best right now for our next move on buy and hold. Any feedback/insight would be appreciated.

 I operate several mid term rentals and I'm still a big fan.  With that price range you are looking in I'd explore doing just 5% down conventional for a mutlifamily rather than 20% if you want to be able to save your funds to be able to purchase again sooner.

[Michael Daley]

We are fortunate to be getting 20% gifted to us. Even with 20% down I'm having a tough time getting it to pencil out with current inventory and rates in these areas.

[Twana Rasoul]

Nothing will pencil, value add opportunities are needed to make this happen in San Diego whether through renovations, additions, ADUs, etc.

[Michael Daley]

This is why I'm thinking more about taking the STR route until I can refi with a better interest rate. 2 units (2/1) in a good area at $1.3 with some ability to update and has a garage or ADU capability would work if we can get $5000 per month for each unit.

[Dan H.]

Quote from @Michael Daley:

This is why I'm thinking more about taking the STR route until I can refi with a better interest rate. 2 units (2/1) in a good area at $1.3 with some ability to update and has a garage or ADU capability would work if we can get $5000 per month for each unit.

$10k STR rent on $1.3m property at 80% LTV  will be negative cash flow when properly allocating for all the expenses.  Prop tax alone will be ~12% of the rent.  P&I will be ~70% of rent.  Pm likely ~25%.  I smmsssuming vacancy is built into your $10kmonth.   Before maintenance/cap, insurance, misc 107% of rent. 

Next in this environment you may be challenged to get $10k rent on $1.3m property.   I know I will not obtain this rent to price ratio this year on my San Diego STRs.  

make sure you do conservative underwriting. In my view an STR that does not project far over a 1% rent to cost ratio is going to bleed cash in our market.

Good luck

[Michael Daley]

Thank you, Dan.  I appreciate your advice. I just got the deal sent over to me yesterday, before I posted, so I haven't run the numbers on it, and knew that it would be a stretch.

I am still gathering info on the deal, and haven't done many projections for STR. It's in South Park, on a good street. One the units is updated with solar. The other is in good condition but needs updating. I haven't seen them yet. I am estimating at least $50,000 between furnishing it and updating.

How does this look:

$1.3 million with 20% down DSCR loan buy-down the rate from 9% to 8% 30 year = $9,332 (principal/interest/tax).

Utilities - $750

Income - Was thinking $250 per day but let's say $225 per day for each unit (30 days) just looked at AirBNB and AirDNA in area = $13,500 (.20 vacancy) = $10,800.

I would manage it, but still need to think of cleaning fees. It would be new furniture and updated appliances, but still need to think of capital expenses.

Basic Supplies (tp/shampoo/paper towels) - $200 per month

Cleaning - $250?

Maintenance/platform fees/cap ex/rental insurance - $2,000

Income - $10,800

Expenses - $12,532

Is this somewhat accurate? Where can I look to get a better understanding on how to underwrite it?

In this market I'm not looking to really cash flow, but want to at least break even until I can refi with better rates and value add.

Where/what would you suggest to look at in San Diego right now?

[Dan H.]

I am not sure about what you are reflecting in the cleaning number but for me 1) it is shocking what cleaners charge but it is not where you want to try to save money for quality 2) it is a pass through, the guest pays it. 

$250 per turn would be for larger unit and very good job.  Small units start about $150.  Most hosts pass this through to the guest.  It is big impact on short stays and less impact on longer stays. 

My cleaners have the basic resupply built into their costs which means guest is paying for the consumables.  

I have no units in South Park but 1) 3 of my 4 STR units had significantly higher vacancy than 20%. My 2 STR units in pt loma had over 50% vacancy. This was my slowest off season since the Great Recession (not counting Covid lock down periods) 2) when building up your reviews you will likely be best served by having a rate below market. If you charge market with a few reviews, why would I choose your unit over similar priced unit that has dozens of reviews? I think 1st year it will be real noticeable 2nd year slightly noticeable. So close to 2 full years to obtain optimized rents.

Your maintenance/cap ex is far too low for the long term. You will be lucky to get 20 years out of kitchen at STR quality and should maybe plan for 15 years. I am thinking near $400/month per unit including furnishings. 2 units would be $9600. It may seem like my number seems high but the cap ex on the kitchen alone with 15 year life is approaching $100/month. Water heater 12 years to replacement (may need some service before replacement).

Recognize many cap ex items are years away. Roof ~20 years, STR kitchen 15 years, HVAC 15 years, etc. However their monthly cost should be accounted for in your projections

Good luck