MFH Primary Residence in SoCal?

Question

Hi guys,

Hope you find this message well!

I am from California, but invest out-of-state. So far so good and I plan on continuing to purchase turnkey properties for cash flow purposes.

Having said that, I am looking into purchasing a primary residence for my family and I in Southern California in a year or two – specifically in Orange County (Irvine, Tustin, Mission Viejo, etc.) or San Diego (Poway, Carlsbad, etc.) County. One idea that I am entertaining is to purchase a MFH where we can live in one unit and rent out the rest.

Does anyone here on BP have a similar experience as I do and had success purchasing a multiplex as their primary residence in SoCal? My objective is to buy a home that's decent to raise a family, but can cash flow/appreciate over time.

Very interested in understanding how you did it, whether these counties have MFH inventory (seems harder in areas with good school districts), expected price ranges, and any tips/advice you can share. Also, open to other suggestions!

Happy to connect and PM me too if you want.

Thanks,

Peter

Peter Cung · Answer

@Logan Allec great comment. I was see-sawing too between having more leverage or putting cash up-front. Depends on the numbers of course, but like you, I'd prefer to sink more cash into other deals so will keep this in mind.

Logan Allec · Answer

@Peter Cung Also, just because the market was "too" competitive for me (in the context of me with my 96.5% leverage goal), this doesn't mean it is for you.  If you are willing to put more cash into the deal, you may have better luck in the competitive markets.  Personally, I wanted to leverage as much as possible to sink more cash into other deals.  My personal philosophy was to borrow as much as possible while I was young and interest rates were low, but of course that may not be your strategy.

Dan H. · Answer

I have not seen any in Poway since the CA ADU related laws but have seen various that predate it.  My next door neighbor has a pool house.  It basically is an ADU.  A house a few doors down from that and across the horse trail has a 2 story tennis house that is far larger than many of my rental units but in a small footprint.  It is larger than the ADU law mandates allowing.  The north east part of Poway (expensive even compared to the rest of Poway) probably a majority of the properties have ADUs.  None of these that I am aware of have traditional renters.  They may have nannies or other house staff but many are empty including both that are close to my home.

So there is opportunity to do the type of house hack @Ben Leybovich advocated in his BP blog.  If you can find a way to qualify for the purchase you can STR the ADU and have some of the purchase paid for.

My home is not a good candidate for adding an ADU even though the lot is large (1.07 acres) the majority of the lot is in front of the house and the backyard is largely taken up with a pool and patio.

I desire to increase my knowledge on the CA ADU laws and see if there is some way I can leverage it without needing to live at the property.

Good luck

Dan H. · Answer

Duplex to Quad in Poway are virtually zero.  The last one I saw on market my offer was $20K above ask and I did not get a response.  Escondido has many small multiplexes (duplex to quad) and is close to Poway but significantly different class of neighborhood where the multiplexes are located (not nearly as nice as Poway).  Many of the nicer suburb areas of San Diego do not have the small multiplexes.

I am less familiar with Carlsbad and the number of duplex to quad there.

If you plan on living on the property another option to consider for either Poway or Carlsbad or Orange County is an ADU.  You would need to understand the local ADU requirements prior to buying the property.  It in effect is creating a duplex from a SFR house where the ADU size is constrained to quite small.  The advantage I see to this option is that you can in effect create a duplex in a nice area that does not have duplexes (i.e. Poway).

Good luck

Peter Cung · Answer

@Daniel Siapin @Christopher Suh @John Acheson thanks for the information guys. Yeah, I think it depends on the purchase price, but was going to either aim for 80/10/10 or FHA. Could be possible with 20% too. Fortunately, my credit score is good and DTI is low.

@Logan Allec appreciate your comment. Yeah, I would suspect it would be more competitive now. Glad you found something in Santa Clarita and hopefully it's cash-flowing nicely!

Logan Allec · Answer

@Peter Cung I used to live in Tustin and spent the better part of a year looking for a 3- or 4-unit to "house hack" in the Orange County vicinity, but the market was extremely competitive (and this was a few years back).

Eventually had to move out to Santa Clarita to buy one (4 unit with 3.5% down FHA loan).  I lived in it for a year to fulfill the loan requirements.

Can't really speak to San Diego.

Christopher Suh · Answer

Depending on the city you’re looking there are multi-units available.  Although lately it’s been a bit challenging finding a good one.  I expect with the rates going up that the market will slow a bit and may be a totally different market when you’re ready to buy in a year or two.

For 1-4 units you can do an FHA loan 3.5% if it’s going to be your primary.  Depends on the price point of course.  For my multi-unit in Fullerton I did 10% down to avoid the PMI and got a good rate putting it as a primary.

PM me if you have an other questions.

- Chris

Daniel Siapin · Answer

A lender will probably let you use 60-70% of GRM as additional income, so that you qualify. I think you can use FHA with low down, but the DTI will be way off, then you probably wouldn't qualify.

Go on Loopnet, Zillow, but the best would be to get a realtor to give you access to do MLS searches on your own.

You'll find one, you just got to be creative.... But you need that down payment and good credit...I think over 650.

John Acheson · Answer

Peter, if DTI is going to be a challenge to get to those high CA purchase prices, the most important thing you can seek out in a lender is one without overlays that can use the target property's cash flow whether or not you've done landlording. Boosting credit and income while paying all debt off will give you the best shot at a big loan, John

MFH Primary Residence in SoCal?

Most Popular Reply