San Diego House Hack Devil's Advocate

[David Singyee]

Hello everyone,

I am a newbie investor and haven't done purchased any properties yet, but am looking to do my first House hack in San Diego next summer. I'm looking for all the Devil's Advocates out there who can provide me cautionary insight. I'm 23 and am one year out of college renting with some friends from college for $675/mo. 

My mom just inherited some money from her mom and she has agreed to loan me the money for a  down payment on a 1-4 unit property when I plan to be purchasing next summer. I'm also lucky enough to have a 0% interest on it. My caveat here is, with as good of a deal the financing is, should I look to pursue this in San Diego with the current market conditions, or should I move to another area and take her up on that offer? I'm in digital marketing as analyst and my skills are pretty transferable, but I am looking to eventually transition into full time real estate investing. Let me know what yall think, if you need any more information about my situation, and suggestions or other things to think about. Thanks!

[Dan H.]

@David Singyee

San Diego house hack cons: Cash flow: 1) initial cash flow in San Diego is worse than almost everywhere else. Note I stated initial cash flow because long- term cash flow is better but probably still not great (see rent appreciation and prop 13 below) 2) related to the first is the high price of property  

Those are my only cons but they get many people to choose to invest elsewhere. 

San Diego house hack pros: 1) appreciation which is both rent and property appreciation. San Diego has a long history of long term appreciation. This includes both property appreciation and rent appreciation. This appreciation has made San Diego one of the top ROI locals in the nation for financed buy n hold properties. 2) oportunity for sweat equity is better than cheaper locals. I can purchase a property and rehab it using contractors and achieve close to 50% over cost appreciation (I.e. A $20k rehab I expect at least $30 of equity for a $10k positive equity gain). 3) prop 13. Prop 13 basically virtually guarantees taxes will not go up faster than rents. In addition with San Diego historical property appreciation it basically means the rental owned long term will be producing better cash flow than the recently purchased like rental. I have a rental that I pay prop taxes at ~$2k/annual that would cost a new purchaser ~$6k annual. This is a great benefit for long term buy n hold. 4) because of the higher costs it takes less units which requires less management. Example if I purchased somewhere where unit price is $60k I need to purchase 10 units to get $600k of property but if I purchase somewhere where unit costs are $300k then I only need 2 properties That is 1/5 as many tenants, kitchens, roofs, yards, foundations, walls, etc

I suspect you know the general benefits of house hack anywhere including experienced gained, supplemented residence costs, benefit of principle pay down,  ideally appreciation, etc.  

Good luck