House Hacking a multifamily in San Diego

[Max May]

Hello BP!

I am a newbie investor, and long time BP Lurker. 

I have been interested in real estate for years, and thanks to a random influx of cash I am now finally ready to get started with my first property. My plan is to buy a duplex via FHA loan, and live in one unit with my girlfriend while renting out the other. Ideally it would be a property with some sort of value add, and I would fix it up while I live in it. Then hopefully a couple years down the line I will refinance, and try the whole process again. Essentially, house hacking a multi family / duplex with a touch of delayed BRRR.

Realistically, it looks like I can afford something in the 500k - 600k range for a duplex 4br/2ba.  I know the 1% rule is impossible here, so I have calculated that a .07% (at minimum) would work for me ( 0.7% is calculated assuming I no longer live there, and both units are rented out). I know there are cheaper options in other parts of SD county, but since I have to live there I would prefer not to be in south or east SD.  Clairemont area is ideal.

The issue I am having is finding any deals. I have been monitoring the MLS, loopnet, craigslist, ect for months and have made a few offers only to be outbid by cash offers. Maybe I am looking in the wrong places? I have driven all over and built a list, now I am now working on building a very targeted direct mail campaign.

Any help would be greatly appreciated here.

Max

[John Arendsen]

It's definitely a sellers market in SD right now almost everywhere in the county. I just looked at a property in Oceanside on North Tremont. It's in a rather new (10 years old +-) and gentrifying area where the average price point is in the 800k to 1m & up range. So when I saw a new listing hit the street for 690-729k I got a cold shiver running up my spine and couldn't wait to beat a path to the property and check it out. 

It was built in the '90's and had been rode hard and put away wet. Probably (and I say this as a general contractor) needed at least 100k in deferred maintenance. However, the average unwary buyer wouldn't have noticed a lot of the things I spotted almost immediately. 

The RE agent was as good a strategist I've seen in the game as they get. He scheduled all the appointments in a 15 minute cluster so lookie lous were stepping on each others heels to preview the property.

I informed the agent that we were cash buyers and would be willing to make a full price offer and close in 17 days with the proviso that the offer would be withdrawn in 24 hours. We are leaving early Saturday morning and will be out of the country and did not want to get caught up in any bidding wars.

He, unlike a lot of RE professionals came right out and said that they would be accepting all offers until Sunday evening at 6pm. They would then evaluate all offers and go back out for final offers. That's tantamount to an auction without being an official auction. 

Needless to say we were not the least bit interested. Especially in view of the fact that there would be the deferred maintenance issue looming within a short period of time. Bottom line? This is the first sign that you as a buyer should be cooling your jets for awhile and sitting on the sidelines. 

It's only been a decade since our last RE correction. Or should I say total collapse. It took 5-6 years for us to start inching our way back from that debacle. Will we ever learn our lesson. I'm not liking what I'm seeing in the RE market right now and I've been an investor for decades. I can see the writing on the wall and it's not saying buy, buy, buy.

That's not to say there aren't other creative ways to invest in RE because they surely are and @Lee Ripma hit on it. It's a perfect time for folks to look at RE investing from a completely different perspective. At least for awhile until this buying hysteria starts cooling its jets a bit. 

That's my 3 cents/sense worth adjusted for inflation.