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.

[Dan H.]

I think your option 3 uses poor estimates that make it appear to be the best option.  I also think it is the hardest with the most risk.  Building and maintaining an OOS team is not as easy as the books may imply.  The local investors have advantages over the OOS investors  

If instead of using your numbers I use the 59% rule (which I think is aggressive in low rent markets): $1500/2-$700=$50/month.  As I indicated, I believe the 50% rule is aggressive in low rent markets so I would calculate this as cash neutral.  Now recognize that this is in a Historically zero appreciation market (meaning appreciation is not greater than inflation) so in 10, 20, 30 years the cash flow will be the same as it is today. 

I am a fan of house hacking, but having roommates after marriage is difficult.  I propose a different option.  House hack a detached duplex.  You likely will start with payment on par with renting so initially do not have high expectations.  However each rent increase will improve your situation.  5 or 10 years from now, a significant portion of your home costs will be getting paid by the other tenant. 

Good luck

[Robert Comstock]

I think you should talk to your future wife and align on goals.  You need to consider how much pain your each willing to take and for how long.  your choice may be clear after that conversation.  You need to know if and how she is willing to help...etc..

[James Wise]

Originally posted by @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.

 Welcome aboard Vinh.

[Vinh Hoang]

Originally posted by @Dan H.:

I think your option 3 uses poor estimates that make it appear to be the best option.  I also think it is the hardest with the most risk.  Building and maintaining an OOS team is not as easy as the books may imply.  The local investors have advantages over the OOS investors  

If instead of using your numbers I use the 59% rule (which I think is aggressive in low rent markets): $1500/2-$700=$50/month.  As I indicated, I believe the 50% rule is aggressive in low rent markets so I would calculate this as cash neutral.  Now recognize that this is in a Historically zero appreciation market (meaning appreciation is not greater than inflation) so in 10, 20, 30 years the cash flow will be the same as it is today. 

I am a fan of house hacking, but having roommates after marriage is difficult.  I propose a different option.  House hack a detached duplex.  You likely will start with payment on par with renting so initially do not have high expectations.  However each rent increase will improve your situation.  5 or 10 years from now, a significant portion of your home costs will be getting paid by the other tenant. 

Good luck

 Hi Dan, thanks so much for reading through all of that text and giving me some advice.  Yes, I figured that I probably had on rose-colored glasses with my OOS estimates.  I just needed someone like you to knock the glasses off and get me back to reality.  Having all the risk and headache with an OOS property definitely would not be worth it for a non appreciating cash neutral property.  Looks like I'll have to revisit the possibility of option 3 only after I've done more extensive research on areas that may have historically appreciating positive cash flow homes.  As for option 2, you are right about the difficulty of sharing a unit with strangers right after marriage.  I will be on the hunt for duplexes/triplexes with detatched units.  If I'm able to find one this option will probably be best for me to learn the process before trying to do things like venturing out of state.  By the way I enjoyed reading your bio!  Your bio and advice is greatly valued to me as a fellow Socal resident.

Thanks

[Vinh Hoang]

Originally posted by @Robert Comstock:

I think you should talk to your future wife and align on goals.  You need to consider how much pain your each willing to take and for how long.  your choice may be clear after that conversation.  You need to know if and how she is willing to help...etc..

Hi Robert, thanks so much for taking the time to read through my long post. Yes, my fiance and I have discussed my goals and plans to go into REI and she supports my decision to go into it. I am fortunate that her salary is also around the same as mine so she is not financially dependent on me giving us some room to invest our earnings. Dan definitely touched on something that I didn't give enough thought or discussed with her though. Option 2 was just recently drafted up and he is right that having a shared home with strangers after marriage would be tough on the relationship.

Thanks again for replying!

[Vinh Hoang]

Originally posted by @James Wise:

Welcome aboard Vinh.

Hi James!  Thank you.

[Michael Swan]

Hi Vinh,

This is Swanny.  I live in Mira Mesa in San Diego.  #3 all the way!!!  In 2011 I started investing in single family rental properties and told my story on Podcast 238.  I leave my phones available mon-Fri 3:15-6:15 pm weekdays to talk to BP members etc...

The most I ever made w2 combined family income was $80,000 before taxes and I now am a principal owner in 200 units.  We now have $180,000 cash flow coming in each year and rising.  

If I can do this, anyone can!!

Reach out to me ASAP.  I am local and a school teacher.

Swanny

[Vinh Hoang]

Hi Swanny,
thank you for the words of encouragement! Also, what a coincidence. I also live in Mira Mesa on the west side of town by Maddox park. I'm so glad that I'm able to get in touch with you since you can relate with what I am trying to achieve while also coming from the same geographic background. I will start with listening to the podcast episode #238 first then reach out to you with my questions!

Thanks again for reading through my post and responding!
Vinh

[Michael Swan]

You got it Vinh,

I have lived in Mira Mesa since 1978.  That offer goes out to all member on BP that want to learn or want more info on how I became financially free and you can too.  I was also featured in the first chapter, pages 25 and 26 of Brandon and Josh’s book written and published in October of 2018 a year after they had me on as a guest on Podcast 238. The book was called How to invest in Real Estate, The ultimate beginner’s guide to getting started. Seriously!! I love this stuff and I am financially free and am a straight shooter.

My phones are open for all BP members that want to talk from 3:15-6:15pm Mon-Fri. PST. 

Swanny 

[Steve Rozenberg]

@Vinh Hoang Congrats on your taking the first step of many into the real estate world. My father was a pharmacist and from seeing what he went thru growing up and the industry changing and evolving I would agree that you do need to make sure you are positioned better for your future and for your family. 

I think you ask some great questions and this is what this is about, asking questions and having indepth conversations. Yes San Diego can be a tough area to use the buy and hold cashflow strategy. While there are many great areas that can provide you better cashflow if that is What you are looking for I think you may want to first think about why you are buying real estate and What you want as an end result of owning it. Meaning if you want cashflow now because your job is not providing it then it would make sense to own the Indy duplex, However also remember that normally you are not going to realize cashflow and appreciation. So a decision has to be made as to What is more important, if you have a job which you do and you do not need to live off the cashflow immediately then you may want to think about whether this does or does not fit your strategy to get you to a goal. Just becuase something is spinning off cashflow does not always ensure its the right type of investment for your goals. It could be taking you further away from your goals if it is a time intensive property, area has high tenant turnover, or excess maintenance due to the age of the properties.

My point is that owning a property is simply the strategy to get you to a goal, owning it is not the goal / end destination. It is like saying you want to go to Disneyland as your final end destination and the freeways to get you there are the strategy. This needs to be mapped out before you leave the house, just like buying a property needs to be mapped out with relation to your goal before you buy.

The challenge with asking multiple people What is your best strategy is unless they have a clear understanding of where you are going you will get completely different answers and none of them or all of them can be correct.

Take the time to sharpen your mental axe before you take that swing, be as detailed as you can with end destination (What your life looks like in 30 years as a result of owning real estate) and then work it backwards. That will help you to stay focused. Then when you see all these deals pop up you can ask yourself does this get me closer or further from my destination. 

That is how you decide What city and type of property makes sense for you

Just my opinion

[Jennifer Sarmiento]

Hello Vinh & Swanny! Thank you both for sharing your journeys & expertise. I'm new too, just happened to log onto BP now after a long time since I first signed up months ago, and read your posts. Vinh, it sounds to me like no matter what route you take, you will reach your success in this given the time you have already taken to research & take action. Best of luck to you and your fiancé, I wish I could offer more advice. I just moved to Mira Mesa from Hawaii over the summer, and would love to link up with you/anyone in the area to talk REI strategy in San Diego anytime. Swanny, thank you for offering your time to talk about how you did it! I will definitely listen to your podcast, and I need to get that book. Congratulations on all your success! I would love the opportunity to pick your brain sometime on what route I should take as well :) have a sunny SD day!

[Lane Kawaoka]

I started with out of state rentals in 2012. I went turnkey because I had no time being an engineer at my day job. Many people on here will disagree but it worked for me. Let me know if you have specific questions.

[Yonah Weiss]

@Vinh Hoang good luck with whichever route you choose to take, as long as it's bringing you closer to your goals. You should hook up with @Ellis Hammond, he hosts a number of networking events throughout the month for real estate investors in SD.

[Vinh Hoang]

@Steve Rozenberg: Hi Steve, thanks a lot for reading through my post and replying with your advice.  I will take it to heart and I also went ahead and listened to the podcast episode you appeared on where you expanded further into it.  I'm going to reflect and go back to the drawing board and reconfirm my concrete goals then come up with a set criteria of what I'm looking for.  From there I'll determine if certain options/deals even fall into those criteria before spending more time on them.

@Jennifer Sarmiento: Hi Jennifer. Thanks for reading through and replying to my post.  Best of luck to you as well as we get into RE while living in a high market.  I'm sure we'll be able to learn a lot from guys like Swanny and others that have posted in this forum. Have a happy sunny week in San Diego as well and happy holidays.

@Yonah Weiss: Hi Yonah, thanks for reading through and replying. I will definitely shoot @Ellis Hammond a message to see if there are any events coming up to attend.

[Molly Ivey]

Another option could be to amend #2 and purchase a home and convert an extra space into an ADU or build one above a garage since CA just made it a lot easier and cheaper to build ADUs. That way if the roommate situation doesn't pan out, you can still be generating income from your personal residence.