First time home buyer in SD with 150K down- what would you do?

Question

I'm hoping to get some advice about my situation.

I will be moving to San Diego in the near future. Within the next 1 to 2 years, I would like to buy a house.  I plan on living in it for at least a few years, so I'm not looking to do a flip.  I'm also not handy at all, so any improvements would require hiring a contractor.

I qualify for an FHA loan. I also have good credit and can put 150K down if need be, so I can probably qualify for conventional loans for properties 600K or under. However, it should be noted that if I put down 150K, I will have exhausted my entire savings except my 401K/emergency savings. Basically, with 150K down I will have no money for renovations until I save up.

I'm willing to buy a multifamily home or a single family distressed home in need of rehab- whatever makes financial sense.  If you were in my shoes, what would you do?

Joshua J Cawthorn · Answer

What's a 5-7 buy-hold plan?

Tom Kastorff · Answer

@Tiffany Hoffman where would you recommend the OP buys a duplex/triplex in SD with $150k cash? Honest question. IMO you would have to go pretty far east county to get that sort of cost. If she can only reach up to $600k purchase price, that is pretty limiting in this town for a SFH. And since she stated it would take all her available funds, I would not recommend that either. Proverbial "putting all your eggs into one basket" and pretty risky.

I'd offer two scenarios that have somewhat been mentioned already:

a/ rent for a while, get to know the town (it is large, huge difference in neighborhoods 30m east, 30m north, 30m south, etc.), and while doing that, save more money and understand what you can afford and what you want to buy. Most homes in SD are old, meaning you need to truly have your capex/maintenance fund ready just in case. Determine what neighborhood(s) first, and that will help determine if you can afford a SFH or multifamily type property.

b/ wait and refine your answer to Kris' question of your goals - you stated "But right now I'm not sure what my goals are, other than that I want to make a financially smart move.  I don't want to go the conventional home-buying route if it means I lost the opportunity to get more value for my money." Often the smartest move, when your first reaction is "not sure what my goals are" is to do nothing. Be patient. Buying property in SD is not a cheap decision. Nothing here is cheap. There are lots of great contractors, lots of bad ones. We cannot really answer the "best contractor" question until you know where you will buy and live and who services that area. Often neighbors or nextdoor.com are the best resources for any and all contractors/services for a specific neighborhood. That's how I found the GC that remodeled our backyard this summer (nextdoor).  To me, your original post and responses don't scream that you have a true set plan yet, so keep revising and doing homework. The best homework you can do is move here, rent, understand where your job is located, and what proximity and neighborhoods mesh best with what you want to do.

Final alternative is just move here and buy the best property in the best location your money can buy. Hold long term. That approach has worked well for many people in this town.

@Tiffany Hoffman would love to connect on multifamily property. I am mostly looking out of state, but always interested in local opportunities.

Tiffany Hoffman · Answer

Hi @Sara T.! If i had $150k to invest, I would buy a duplex or triplex. At that price you wouldn't have to use an FHA loan (therefore avoiding the insane PMI) & would be able to seriously off set your out of pocket cost. It obviously is dependent on where you want to live, but there are still some great properties in San Diego county that fall under $650k. Please feel free to connect if you have any questions!

Anthony Schmitt · Answer

@Sara T. I'd say it's more about connecting with the right realtors, property managers, or investors that can refer contractors. Once you decide which path you are most likely to take (single family, duplex/triplex) then meet with people who have done the same here in town. Contractors here are so busy that I'd guess the best of the best don't have time for networking.

Odie Ayaga · Answer

@Sara T. why wouldn't you just get an FHA 203K loan? Then the loan would cover the rehab.

Sara T. · Answer

Thanks Anthony Schmitt- I will definitely be networking in the area prior to making any sort of decision. I've heard that the right contractor can make or break you, and it sounds like you agree.  How does one go about networking with contractors?  Do they have a big presence on this site and show up to the Bigger Pocket meetups?

Thanks to you too Wyatt Franta. 5 to 7 year buy and hold sounds like something I'd be interested in.

Kris Wong:  I'd like to live in the property (or part of the property in the case of a duplex/triplex/fourplex) at least in the short term (minimum of a few years).  But right now I'm not sure what my goals are, other than that I want to make a financially smart move.  I don't want to go the conventional home-buying route if it means I lost the opportunity to get more value for my money.  I'm basically open to anything if it's a good option financially in the long-term.  House hacking, buying a distressed property, or buying a distressed multi-family property are all on the table.  So I'm hoping to get a sense of what other people would do.  (Re distressed properties- in my scenario, I guess I'd need a hard money loan to finance the purchase - is that something that you or others suggest?)

The only thing that's I've pretty much taken off the table is an out-of-state property because of the additional research involved.

Kris Wong · Answer

I don't see any mention of your goals. Do you want passive income from this property? If so, you need a tenant. That lends itself to a house hack. Do you want to build up a lot of equity, quickly? That lends itself to renovating a distressed property. Do you want both? Well, then you may want to buy a distressed multifamily. Since you will be living in this property, you also need to factor in what areas you would like to live in, and what kind of properties are available in those areas. I'll throw in another scenario as well - you could rent something in your desired area, and use that $150K to buy an investment property that aligns with your goals, in whatever the best area is for that. Of course, in that scenario you'd need 20 to 25% down, depending on the property type.

Wyatt Franta · Answer

Hi Sara,

As a Realtor who works in the San Diego market, I believe I can provide a recommendation.

Just buy a house.

San Diego is becoming a major hub for tech, and developers have been pouring money into the city/county to get in on it. New hi-rise condos have popped up, North Park has been declared an Opportunity Zone by the city, and even the VA recently bumped up their loan amounts in SD county, so now veterans are absorbing a portion of the market as well.

It seems you have a 5-7 buy-hold plan. At the end of that hold period, you should already have a decent amount of equity due to CA's average annual growth rates, and if San Diego continues to flood with new residents (it was ranked the 8th fastest growing city in 2018), that decent amount of equity could grow to a sizeable chunk of change. And all you had to do was buy and hold.

Best of luck! Feel free to connect with me if you have any questions.

Wyatt Franta · Answer

@Joshua J Cawthorn

Good catch, 5-7 *year* hold plan.

I'll edit my post

Anthony Schmitt · Answer

Hello Sara, My first step would be determining where in San Diego you need to live depending on a commute and desired location. Median prices can vary drastically within just a few miles across town. For example, I'm based in San Marcos, CA where north of the 78 freeway the median home price is roughly $60k - $70k less than south of the freeway. Schools, shopping, infrastructure, and other factors play into this. What would be most important to you?

If you aren't planning or prepared to do the rehab work yourself, you could be in for a long road if it truly is a "fixer" with structural or system-related problems. The cost of labor & materials here in San Diego is among the highest in the country and you will need a very good contractor you trust to take you down that path. It might be most valuable to establish those relationships before you decide to buy so that you'll be better prepared and that person can be there before and after the purchase.

It sounds like you have time, so I would wait until you are closer to consider terms and financing. In general, though, it sounds like you'd be best served looking into a 5-10% Conv loan so that you can save that emergency fund and have some room for repairs. FHA is great, but putting down that little increases your risk in a very high market.

Let me know if there are any other questions you have.

First time home buyer in SD with 150K down- what would you do?

Most Popular Reply