Is house hacking even possible in San Diego area?

Question

Hello everyone,

I am a newbie from San Diego area (north county) and I am very motivated to buy my first investment multi family by the end of this year. As you know SD is very hot which makes me thinking to I invest out of state first. However, I always heard you guys saying it is best to invest where you live but still this doesn’t make sense for me as I am looking for cash flow and not really chasing future appreciation ( I mean if I can benefit from it that will be great but I am not relying on it). So I always had this thought of asking if one of you has invested in SD area through house hacking? I am very interested to know your stories.

Thank you!

Ryan Zomorodi · Answer

Hey @Karim El Amili I'm a San Diego local with experience in property management, house hacking, and investment sales. In my opinion, one of the most feasible ways to make a house hack pencil out in our market is to rent out units room-by-room. Find properties with higher bedroom count, add bedrooms, or convert garages. Get to know the room rental rates in areas that you can afford, and use those rates for your analysis. I find that you can typically get higher gross rents this way. You might consider offering additional amenities, such as wifi, laundry machines, meal services, and/or upgraded interiors to obtain even higher rents. I believe we can't have more than 2 unrelated parties in one rental unit, so you'll have to put tenants on one master lease, then create subleases for each room. Not that difficult to execute.

Another big trend in our area is Accessory dwelling units (ADUs). You can add a second unit to single family homes and essentially convert it into a duplex with two addresses and separate utilities. The state of CA has recently waived a number of fees so that the costs are reduced. Something to look into. I'm going to an event in Feb which will teach all about this topic. DM me for details if interested. Best of luck in your endeavors.

Dan H. · Answer

House hacking is the newbie's best advantage against more experienced investors that in addition to having more experience also typically have more money, bigger/better networks, more sources of finding the better deals, etc.

House hacking advantages:

• High LTV via FHA loan.  With 96.5% LTV you can spend ~6 times as much on a house hack than an OOS investment property with the same amount of down payment.
• better terms due to owner occupied (lower interest rate)
• Easier self manage, no need for a PM
• Easier to address smaller/handyman issues yourself.  You are already there and typically only have one RE investment (versus with double digit units it gets hard, and is stupid, to do the handyman tasks).

You have wife and kids.  I agree the rent rooms out with multiple tenants is not ideal in that situation but when I started I rented a room out in my house with my girlfriend staying over regular (but no kids then).

What I suggest for you is to get a duplex.  A detached duplex with its own yard would be best.  I will provide a link below of one of my units in Escondido that is part of a triplex.  The only way you can tell it is not a SFR is that there is only a single water meter feeding the 3 units.  It has its own fenced yard, its own parking (half length carport for this unit, the other 2 units have full length car ports), is detached.  If you found a similar unit on a duplex you could easily raise a family with 2 children there, but ideally you leverage this into bigger/nicer home in a few years and let a young family rent this unit from you have them pay off your property.

A value add duplex will provide a better upside.  Look for the detached duplex that is a little thrashed and can benefit from a rehab.  Live in the more thrashed unit while rehabbing in place.  When it is rehabbed, rent it at top of market price (because it has a fresh rehab) and more into the other unit and repeat for that unit.  When done refinance before moving out (better terms and higher LTV) to pull out some of you money or refi it at 80% LTV to get rid of PMI.  I prefer minimal investment and would be fine with the tenants (via their rent) paying my PMI so I would refi at the highest LTV that I could obtain.

Good luck

https://www.zillow.com/homes/138-Beech-Escondido_r...

Derrick Lloyd · Answer

I agree with Chace, it depends on how you define a successful house hack.  For me, I did more of a condo hack, purchasing a 2/2 condo with intent of renting out the spare room.  With a roommate, I pay less than what market rent would be for a master bedroom - this is including the costs of taxes, insurance and HOA dues.  Not only do I pay less, I get the tax benefits from deducting interest and prop taxes, and have built equity from mortgage paydown and appreciation.

I recently opened up a HELOC on the property since it has appreciated and I am using the money to buy and rehab properties out of state using the BRRR method.

So overall, I think just saving money and the benefits from owning make a successful house hack, even if you are not cash flowing - and this is VERY possible in San Diego.

Ali Boone · Answer

You bet!

Karim E. · Answer

@Ali Boone Very Nice article and you made very good points. Thank you for sharing your thoughts!

Karim E. · Answer

@Ali Boone Hi Ali, thanks for the link!

Dan H. · Answer

They cash flow exceptionally.  This is mostly through rent appreciation but also through value adds and smart purchases.

I do not have a goal of any number of purchases so I am quite content with one a year that is a good purchase.  This makes it a little easier.

I have purchased a property that I projected at cash neutral at purchase but it had a good size value add (purchased at $390K, put in ~$50K, refinanced (with a poor appraisal so market was greater than the appraisal) at $544K.  So $155K increase but it had an assist by some market appreciation.  My estimate for the value add without the market appreciation is that our ~$50K value add investment yielded ~$100K of value (so ~$50K profit on a $50K investment).

Even our last purchase that does not yet have any value add work performed cash flows because it was a good purchase.  It is a duplex and one of the two units is a good candidate for a value add which we will do if the tenant moves out but so far we desire to keep the tenant.  For that unit I expect a ~$20K investment will yield ~$45K value (for a $25K profit).  The other unit is in too good shape (not great shape but good shape - the best rehab value adds are on the most thrashed units) to get the same type of return on a value add investment.  So we have no intent to rehab it any time soon.

Good luck

Ali Boone · Answer

Some considerations for house-hacking-

https://www.biggerpockets.com/renewsblog/considera...

The biggest issue for SD will be the numbers.

Karim E. · Answer

@Chace Fraser Hi Chase, thanks for your message. I definitely agree nothing comes for free: need to put more down payment to expect more cash flow but also you lower the risk in your investment.

Karim E. · Answer

@Dan Heuschele Thanks Dan! That is a great point of view. Are your properties cash flowing?

Thanks

Is house hacking even possible in San Diego area?

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