House hacking in San Diego single family

[Alejandro Romero]

I live in San Diego and I’m having trouble convincing myself that multifamily is a good investment here in San Diego. For example I saw a single family home in Otay Ranch that is a 3 bedroom 3 bathroom house for 515,000. I could easily rent out the two extra rooms and each roommate would have a private bathroom. I’m think wouldn’t it make more sense financially to house hack a single family then to house hack a multifamily due to the cost? Anyone beg to differ? I’d love to hear feedback, thank you.

[Donald E Appleberry]

I live in San Diego and I’m having trouble convincing myself that multifamily is a good investment here in San Diego. For example I saw a single family home in Otay Ranch that is a 3 bedroom 3 bathroom house for 515,000. I could easily rent out the two extra rooms and each roommate would have a private bathroom. I’m think wouldn’t it make more sense financially to house hack a single family then to house hack a multifamily due to the cost? Anyone beg to differ? I’d love to hear feedback, thank you.

Hey man,

I'll play devils advocate and give you the feeback I give my clients looking at house hacking. Also this is usually a very long conversation as your goals in REI and personal situation/preferences will dictate which you'd ultimately prefer. So bare with me and please forgive me if I don't dive into the many variables that come down that making that decision in one post.

San Diego real estate is one of the best places for a buy and hold investment IMO. Generally, Multi-family is more expensive than single family. So for a 2-4 unit here you most likely won't be cash-flowing.(Unless it's a value add situation.) In A LOT of peoples minds, especially people just getting into real estate investing, this makes the deal seem not worth it at all since they can cash-flow a multi family property in other markets like the Midwest a couple hundred dollars a month.

I'd challenge you to take a step back and look at the big picture. You're getting into a MF property that will serve as a long term investment. You're in a very desirable market, You're dramatically decreasing your monthly overhead for said property, and you're reaping the tax benefits. No, you may not be cash-flowing a couple hundred a month, but you now own and asset for the cost of a regular 2bd/1bth apartment in most areas. Maybe even less than that. Also, if you consider loan pay down, appreciation, depreciation and the fact that you have more personal space/security (compared to house hacking a SFR) you'll see that leveraging a MF property earlier than later will pay off down the road. Just because your house hack doesn't cash-flow day one, doesn't mean it's a bad investment. Paying for where you live isn't a bad thing. Haha. 

We aren't in a market where buying a property for 10% down will get you immediate returns(Generally). But we have the benefit of being in a market a majority of people want to live. Paired with consistent weather, vacation destinations, military bases bringing in potential renters and OOS monies, beachfront rentals, Billion dollar developments and a variety of other things, you can bet money (the down payment or leveraged benefits on your MF property) that your investment is bound to be a beneficial one. Not to include the fact that you get to enjoy the investment personally since its a house hack. I won't hit appreciation here too much since I recommend not basing your investment solely on it. What's the saying? "Appreciation is the cherry on top of a good deal." I'd just say that in this market it's two cherries and some sprinkles.

I already know the first thing that pops into everyone's mind when you mention appreciation and the answer is - "No, there is not a looming Real Estate market crash." At least not one that is justifiable based on the market inventory vs demand and in-place mortgage systems. You know, the facts. Side rant over. Hahha. 

Now for the SFR approach. There are typically only 2 ways to get a cash flowing property in this market. BRRR/Value add and house hacking a SFR. House hacking a SFR is not for everyone, and finding tenants you can live with can be challenging. Even close friends can be difficult tenants. If done correctly though, you can live for free and have some extra money in your pocket. I have clients that are doing both and each have their issues. But it's the best way IMO to get started in a market like this.

I'm free to talk more if you'd like. PM me and we can jump on a phone call. As I said, there's a lot of personal preference that goes into that decision. Unlike a typical investment, you're going to be living there. So just because the numbers look good, doesn't mean the property is going to be good for you and your situation. You're also investing your livelihood into the the property.