First time purchase: SanDiego or Out of state?

Question

Hey all,

This is my first post here. Loving this community!.

I am 25 years old, working from San Diego for past 1 year after my Master's. I am on a work visa. Looking to build some real-estate equity. Looking to purchase next year fall. I am trying to see if buying a house at SD or OOS property+property manager makes sense.

I am planning to stay in SD for 3 years min. and want to be renting it out later if I have to move out of state or even be prepared to move out of country as I am on a temporary work-visa.

I am thinking of a FHA loan for 3 bedroom house in SD around 600-650K$ or lower near Mira Mesa , since I work there. I plan to house hack for next 2-3 years. I know cash flow is nearly impossible, but I am even okay with paying a small share of rent while my roommates pay the major part.

Otherwise, I am looking to buy at nearby market such as AZ, Utah or Nevada as an investment property around 200K$, for which I can afford the 20% down payment. In this case, would prefer to use a property management and get some cash-flow too.

Any thoughts on how to proceed further? which route might be best for me ? I welcome your suggestions and insights. Thanks :)

Sam Khoshnavaz · Answer

Hey Shankar,

I currently live in San Diego and have lived in SD for the last 6 years. However, I'm moving back home to Saint Louis to start off my RE investing career where it's much cheaper and where I have an competitivadvantage.

with that being said, I would really consider what you have to gain vs what you have to lose form both those options you are pursuing. If i was in your situation, I would go after a small multi-family (anywhere between 2-4 units) to house hack.  I know it's hard to find 4plexes in San Diego within the 600-650k range but if you can adjust your budget a little bit, or get creative with your strategy, a 4plex would be a great way to start investing. Living in one unit and renting out the other three can be a great way to really minimize your mortgage per month. And if the unit you live in has an extra bedroom and you don't mind sharing a living space, you can rent that bedroom out and be possibly evening cashflowing! However, I think the most important part (and the part that has persuaded me to move back to STL) of investing in your backyard or better yet, househacking, is that you get to really learn what it takes to manage not only a property, but people too. This is an important skillset to have, specially in RE!

That can also work with a triplex/duplex/ if you really do your research!

If you decide to go out of state, let me know if you ever consider St. Louis! OOS investing can be really great too.

Brandon Goldsmith · Answer

House hacking is one of the easiest ways to get started in REI. I would suggest all first-time investors do that if they are able to. If the numbers work out or are even decent then it is a good option and limits a lot of risk. Out of state investing is also very feasible if you have the right team in place. Good luck! @Shankar Sridhar

Dan H. · Answer

There is a difference between cash flow and initial cash flow.   San Diego historically has great cash flow, but poor initial cash flow.   Everyone of our properties has a current rent to purchase ratio above 1%.

If you choose to go OOS, make sure you have a rockstar team and a good understanding of rental expenses.   There was a post recently on BP of a duplex that was purchased for $35k and rented for $900/month.   Most of the posts thought it was a great purchase.  Most of the more experienced RE investors had a lot of concerns.   Guess who I think was correct?

Good luck

Dan H. · Answer

I give little to no credence that condos and townhouses appreciate less over the long term than SFH.   I think looking at the short-term, one can appreciate more than the other, but over the long term the appreciation seems similar.

This does not imply that I believe condos/townhouses are as good for buy n hold.   It is not due to the HOA fees.  I believe condo associations are typically good custodians of the HOA fees.   I believe cap ex and maintenance costs are significantly higher than most newbies realize and that condo association typically get good prices due to the size of the work (scale).   The reason I am not for condos for buy n hold is the control that the HOAs have.  They can change rules.   They can limit/ban rentals.   They can levy fines for items associated with the tenant.  I want as much control of my rentals as possible and therefore I do not look at condos for out RE investments.

Good luck

Maxwell Ventura · Answer

@Shankar Sridhar

The SD market is appreciating at record rates right now. 6 months ago I would have said you can find a decent duplex in a decent neighborhood for as low as $550-600K. Now, not so much. You almost have to be closer to the $700K range.

Our year-over-year inventory has been hovering -40-45% less for the past 6 months. The 2-4 unit space is even more competitive.

If you're going FHA you'll be looking at duplexes because of the self sufficiency rule preventing you from looking at Tri's or Quads.

If your budget is around $650K-700K you'd be looking at mostly duplexes anyway.

Best areas to find something like this right now include but not limited to: Sherman Heights, Grant Hill, Logan, City Heights, Rolando, Chula Vista, NAT city, lemon grove, IB

Lane Kawaoka · Answer

I would go for out of state cashflow. I was buying turnkeys in 2012-2015... it gave we a good start.

Gregg Watkins · Answer

Hi Shankar,

San Diego is a great place to invest!

I like the idea of house hacking and putting as little down as possible. The holiday season can be a good time to buy. Fewer buyers around = less competition = better deal.

Lock in these fantastic low-interest rates for 30 years on a solid San Diego real estate asset. The ultra-low rates will also help you build up equity much faster on your property.

Good luck!

Mark Frattini · Answer

@Shankar Sridhar

Hi Shankar, welcome to Bigger Pockets! Looks like you've starting doing some research which is great. Whenever possible try to invest in your local market first if it makes sense. San Diego is going to be a great long term play for real estate. I can tell you from experience, managing and operating property is possible but more challenging than investing locally.

Saving money by house hacking here should lower your living costs. This will most likely outweigh the cash-flow you would receive on a out of state property. You are also using more leverage by only having to put 3.5% down and not having to put 25% down. You would self manage here so you'd be saving another 13% on property management. The benefits to investing locally go on from here...

Happy to run the numbers with you if it would help.

Ray Alsaigh · Answer

@Shankar Sridhar Welcome to BP! I would definitely recommend investing locally first if you can. House hacking using an FHA loan is a great option, and while you probably won't be able to cash flow, San Diego is an appreciation market so you're going to be building equity while having your tenants/ roommates pay down your mortgage.

In this current market, I'm not sure how likely you are to find a duplex near Mira Mesa for 600K but I would definitely get with a realtor and start looking at your options.

Best of luck!

Twana Rasoul · Answer

@Shankar Sridhar buy a duplex with 3.5% down fha loan. You’ll use less capital doing that than buying out of state and you will be buying a much better qualify asset. Live in one unit and rent out the other. If your unit has more than 1 bedroom then you can also have roommates to try to get most of your mortgage covered.

First time purchase: SanDiego or Out of state?

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