Newbie from San Diego, California and in need of advice

[Vinh Hoang]

Hello everyone.  

Short intro: My name is Vinh and I have been practicing as a pharmacist in San Diego for the past 3 years. I work in corporate retail and do not see myself doing the same thing 10 years from now.  I also do not find security  that my source of income is entirely dependent on the paycheck of my employer.  I want financial independence. I am also not content with the fact that I am at the pay ceiling already.  If I give 110% at my job, I'm given marginal raises to adjust for inflation.  I would like to do something where my time and effort directly rewards myself instead of just my company.  This how I was drawn to real estate investing.  I have absolutely zero experience in real estate.  In fact prior to my interest in investing I knew less than the average adult about houses and how they were bought/sold.  And so I listened to many bigger pockets podcast episodes and read many of their books in order to prepare myself for my eventual first buy.  

Would appreciate it if I can get some insight on what's the best move for my situation and location.  Thank you in advance for reading through it all.

Short term goals/plans : Multi family home property rentals                                                                                                                          Long term goals/plans: Apartment complexes 

Current situation: I just finished my student loans earlier this year so I am thankfully debt free.  I am planning to get married in June 2020 and hopefully we will keep the wedding at budget.  Taking into account everything (wedding, savings,income, etc).  I should have about $50,000 for investing by the end of 2020. There are 3 options that I am considering taking with my first buy.      

1. 1. My family,friends, and the status quo is telling me to buy my first home first with that money. But homes in San Diego are so pricey and for a $650k home, I would need to save at least $130k for a 20% down to avoid the PMI. I could possibly also do 10% cash & 10% HELOC on my parents house (it's under my name). But then after this, I would be stuck spending 2/3s of my monthly post tax earnings ($4,000) on just the mortgage, taxes, and insurance each month making it difficult to build more capital quickly for other investment properties.
2. 2. I house hack a Multi-family home in SD around the same price $650k and same finance 10% cash/10% HELOC. An example home I found for that price was a 3Bd/3Ba. My fiance and I could live in the master bedroom and rent out the other two rooms. Prices for single rooms with private baths in that area range between 700-1000. So assuming that I am able to rent out both rooms for $800 each. I would only have to pay $2200/month towards my home.
3. 3.  Because of the high house prices in San Diego and the not poor price to rent ratio, I've ventured my real estate interest into other states. I read David Green's book on Long distance real estate investing to get an idea of how to start.  An example situation is a $125,000 duplex (3Bd/2Ba and 3Bd/1Ba) in Indianapolis.  I can fully fund the 20% down on this and have monthly payment of ~$700.  Rentometer shows that I can rent out the two rooms for about ~$750 each.  That would net me $1500-700-100 (property manager)= $700.  I'll assume that I'll lose half of that on repairs, expenses, vacancies, etc.  This'll leave me with $350/month positive cash flow while building equity on the property.  It'll also allow me to keep more of my monthly income to save and purchase more out of state properties like this.  So instead of saving money for a better deposit on a home in San Diego I would instead by buying out of state property and building equity to later on trade in for a home in San Diego when it is time.  The issue with this route is... where am I going to live? My fiance and I would plan to rent a 1 bedroom apartment for about $1400/month.  Unfortunately our privacy is much needed and so living at home with our parents is not a possibility for our relationship even though I understand that it would save us a lot of money.  But the hope is that with this route, I would scale faster and get more positive cash flow properties to cancel out the apartment costs.  In fact with this route I've only spent $25,000 so far for the deposit on one home.  Leaving me with enough money in my investment budget to immediately try to replicate the process.  This would hypothetically leave with with a positive cash flow of $350 x 2= $700 right at the start cutting my net cost on living down to $700($1400 (apartment rent) - $700 cash flow from the 2 homes). Assuming I put away $3,300/month of my income towards real estate investing.  I could look to buy another $125k property within a year after this.  And after a year of this I would have accumulated approx $12k of equity ($6k each) on the two properties and saved $25k for another home.  
4. In summary
5. With option 1, I would spend $4,000/mo on real estate investing & my cost of living.  After a year of mortgage payments I would accumulate approximately $29k ($2,400/mo mortgage) . But I would still need an additional $15k for the 10% deposit.  I'll use $4,000/mo spending as a universal budget for all 3 options to compare the options. Total net wealth gained in a year: $29,000 (equity) - $15,000 (additional need for deposit)= $14,000
6. With option 2, after a year of mortgage payments I would accumulate approx $29k ($2,400/mo mortgage) in equity on the property. But since I'm only spending $2,200/mo on the house that'll leave me with $1,800/mo more than Option 1 and $21,600 after a year. But I would still need an additional $15k for the 10% deposit.  Total net wealth gained in a year: $29,000 (equity) + $21,600 (12 month savings) -$15,000 (additional need for deposit)= $36,600 
   With option 3, after a year of mortgage payments I would have accumulated approx $12k of equity two properties ($6k each $500/mo mortgage).  And because I'm spending $700/mo on my apartment after accounting for the cashflow, that's $3,300/mo less than Option 1 and is $39,600 after a year. Total net wealth gained in a year: $12,000 (equity) + $39,600 (12 month savings) = $51,600.  With this option I wouldn't even need to save much more money to make the deposit.  Only downside with this is that I am investing out of state and not able to see the properties as much myself.  There may be even more expenses and issues down the line that I am unable to foresee.  

So what do you guys think of these 3 possible routes?  I'm leaning towards route 2 and 3 much more than 1.  I feel like option 1 would get me stuck in the rat race much longer and make me feel like I'm stuck and chained to my house mortgage.  

Thanks again if you made it through all that text.  I hope to get in touch with many more of you guys and share/discuss ideas.  Please let me know if you are a realtor and and know of Multi-family homes in your area that'll make good investment properties! I would love to link up.  

Regards, 

Vinh.