Expensive Market House Hack, 0% down, Does it work?

Question

Hi BP champions,

I just recently moved to San Diego. Looking to house hack with VA loan, 0 Down. This sounded great in theory but does 0 down in an expensive market even work?

Here's a demonstration property I recently offered on:

Total Price: 487,000

Mortgage w 0% down at 3.5int.: 2,229

Property Tax: 507monthly

Insurance: 80

No PMI and for this example lets just not worry about 5% vacancy, set a side money, etc.

That brings us to 2,816 (much higher if I set aside 5% each month)

Now in theory renting out the rooms in this area for comparable properties at 1k a room would bring me to -816 out of pocket which is ok as far as bringing down my monthly expenses on renting vs owning. But if I try to rent the house out as a stand alone property, 3b2b in the area only go for 2,400 (so basically an L on my investment property.)

No matter what combo I look at 0 down just throws the numbers way out of wack and it doesn't work. If the property in San Diego costs more than 500K it moves my lost income higher and lets be real, not a lot of decent homes under 500k here. Has anyone had any success with this or any ideas on how to get around it?

I've considered condos and townhomes where the overall price is lower but kinda scared to get into HOA fees.

Any advice would be great from those who have beat this hurdle.

Dan H. · Answer

If you purchase SFR to quad retail in San Diego at high LTV, it will initially be cash flow negative.  Every rent increase will improve the cash flow situation.  In the last 4 years, San Diego SFR rent has increased over $600 on average.

The issue is handling the negative cash flow and the length of time the RE will need to be held to produce a good return.  For this reason, I look for value add duplex to quad.   If I can add $40k to $100k of value add, then my initial return starts outstanding.  The return decreases each year until the cash flow becomes outstanding.  Once the cash flow becomes outstanding, it is usually time to refinance and extract value which then lowers the cash flow and the process repeats but I have much bigger pockets due to the money extracted.

Good luck

Zacchaeus Miller · Answer

@Nicholas Glatter

The living there for a year thing is a myth. The only occupancy requirement with regards to the VA handbook is that you have to have the “intent to occupy within 60 days of closing”. That’s it.

Nicholas Glatter · Answer

@Zacchaeus Miller

I don’t want to contradict what you are saying if you know a secret I don’t, but the lingo of “intent to occupy within...” is tricky.

You could work the system where the VA will allow you to move or not live at the residence for a “valid” reason.

But if anyone reads this and assumes they can just not live at their new VA purchased home just cause, that’s loan fraud and certainly punishable.

Dmitriy Yeshin · Answer

I think you are concentrating too much on negative cash flow. As long as your negative cash flow is less or close to what you would pay for rent of similar room GO FOR IT!!! You are missing the fact that there are a ton of other benefits in house hacking aside from cash flow. Mortgage payoff, property value appreciation, tax benefits the list goes on and on. If you want some specific advice or just want to bounce an idea off someone, feel free to reach out.

Dmitriy

Brian Garlington · Answer

@Nicholas Glatter

It goes without saying that the VA requires you to live there for a year so I already assumed you would do this my man. As another poster said, using it in a “desirable” area at Zero Down will be most likely negative cashflow so if you are trying to use it in Coronado or LaJolla it will not work. I purposely am not going to say what are D or F Neighborhoods in San Diego County, but again, you will only have to live there onsite for 12 months.

Now if you really want to “ball out”, use an FHA Loan on a duplex or triplex first. Live there for a year and if you are still in stationed in SD then move out after one year and get a VA loan. Yes you can have an FHA loan and a VA loan simultaneously if you got the FHA loan first.

After 2 years you will now own two properties. Then when you get stationed somewhere else you may be able to use BOTH again.

Repeat.

Russell Brazil · Answer

Id say anyone who is 0% down should expect to be at negative cash flow if they are in a desireable area.

Sam Khoshnavaz · Answer

Hey Nicholas,

I also live in San Diego and was considering doing the same (house hacking) but thorough an FHA loan.  However, I feel like in this market, it is really hard to get a good enough ROI through SFRs in San Diego, unless you can put a lot down. However, I believe that if you can find a great deal in one of the college areas here in San Diego, you might be in good shape.

I wish you the best in your endeavors.

Nicholas Glatter · Answer

VA requires you to live there for a year. The numbers don’t cash flow as duplex or tri either with 0 down.

Brian Garlington · Answer

Use it for a duplex or triplex like I did in Oakland.

Expensive Market House Hack, 0% down, Does it work?

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