Buying my first Multi-Family Property with FHA in San Diego

[Sid Sriram]

Hi all, I'm a 22-year old, first-time home buyer who has been wanting to get involved in rental properties for a while.

I'm looking to relocate to San Diego in a few months, and I figured this is the perfect chance to begin build my real estate portfolio. After researching different types of rentals and loans, I decided the best way was to buy a duplex or triplex with an FHA loan and live in 1 unit while renting out the other units. I'm wondering is this the best strategy for someone in my situation with not much capital for a down payment? If anyone has any better ideas I would love to hear about them.

If any investors have done something similar with an FHA loan, I'd love to hear your thoughts and any advice to get started. If any real estate agents from the area see this, I would love to get on a phone call and get some more info.

[Dan H.]

FHA has sustainability requirements for more than 2 units. In San Diego, virtually no properties meet the sustainability requirement and therefore FHA cannot typically be used for triplex and quads. You will likely be restricted to SFRs and duplexes.

As @Greg Scott ‘s assertion that San Diego has poor cash flow is false.   If he was asserting that the initial cash flow is poor he would be correct.  There is typically an inverse relationship with initial cash flow and actual cash flow over a long hold period.  This is not happenstance.  The RE markets are efficient.  The high cost, low initial cash flow markets are high cost because of the perceived risk is low and/or the anticipated appreciation (both property and rent) is high.  Conversely, the high cash flow markets are that way because the perceived risk is high and/or the anticipated appreciation is low.  

All my properties cash flow far superior to the average initial high cash flow unit.  They all have rent to purchase ratios above 1%.  How did poor initial cash flow turn into such good cash flow?   rents have gone up over $100/month per unit year over year for many years.  This year I raised some unit rents over $300/month.  In addition, I have a unit turnover that rent will increase $1300/month.  Initial poor cash flow quickly improves to moderate cash flow, then good cash flow, then great cash flow.

Now about the property appreciation… my worst appreciating property has appreciated over $2k/month over my hold period.  My best appreciating properties have appreciated over $6k/month over the hold period.  

Case Shiller ranks San Diego as having the 3rd best return for this century.  Los Angeles and San Francisco were ranked #2 and #1 respectively.  California must suck for RE investing.  

Good luck