House Hacking in So Cal Market - How to make it work?

[Sam Bewley]

Hi All! First time posting here. I have been studying and researching this method and would love to get my foot in with my first property. I have been looking for some great deals that I can get creative with my first house hack being a high rent and high priced market. 

Scenario:

2 bed 1 ba house in high appreciating area in southern ca (west of the 5 for anyone who lives in San Diego) which is high priced now but being coastal and in an up and coming area is set to roll. 

1 granny suite in the back with full kitchen and bath + Separate barn unit (not zoned for a dwelling unit but is carpeted). 

This property is about 3400 square foot of land and zoned R3 (thinking strong potential for future to build additional units). 

I am on the fence about this deal... asking is 600k and total costs would be about 3700 (with PMI) through FHA at 3.5 and can probably generate 2100 in rent while living in the granny suite. I'd be eating extra cash until I build up the 20% to get PMI wiped away however - the R3 zoning is a huge oppty to get into this area with as it is a large plot of land for the area.

I am wondering if this investment makes sense... on a black and white stand point however - the future potential has got me considering it heavily. 

Anyone have an experience in the so cal / N. San Diego market that could provide some insight? 

[Dan H.]

Originally posted by @Huong Luu:

@Sam Bewley When you find out what the 50% and 1% rules are and AB-68, ADU and JADU is, can you post it here? Although I have been in RE for 20 years, I am not familiar with these (only shows you don't know what you don't know...).

 They are all covered well in various BP threads but I will provide very brief definitions:

• 50% rule basically is that all expenses other than mortgage service is approximately 50% of rent. This includes maintenance, cap expense, vacancy, PM, insurance, prop tax, HOA where present.
  
  1% rule is basically a belief that if the rent equals 1% or more of the purchase cost (purchase price +immediate repairs/updates) then the RE is very likely to be cash flow positive.  The primary issue with this rule is that typically the best rent to purchase ratios are in the worst areas.  Areas that are tough to deal with.  I am not a big fan of the 1% rule but do believe rent to purchase ratio is a quick way to compare similar properties for their likely cash flow. 
• 
  AB-68 is a recent CA bill (goes into affect Jan 1) that basically allows an Accessory Dwelling Unit (ADU) and Junior ADU (JADU) be added to virtually ant SFR in the state of CA. These are only relevant for people investing in CA so it is not surprising that RE investors from other states would not know these terms.

As indicated, you could find more on each of these by searching BP.