Househacking in South OC??

Question

Hi everyone,

Complete newbie here who just discovered the world of BiggerPockets and real estate investing. The past few months I've been trying to learn and absorb everything RE related on my journey to financial independence. I've decided the best way for me to start is to find a duplex/MFR to househack, but as you all know, Orange County and Southern CA in general is a completely different animal than anywhere else (excluding maybe the SF Bay area) when it comes to values and finding deals.

Am I kidding myself to expect to find a decent deal for a duplex for my first purchase and househack in South OC (Irvine, Mission Viejo, Lake Forest) area? To be honest, I'm thinking I should keep my floor at $350k+ to even start with, up to maybe a max of $600k, even if it's a fixer-upper that needs some work. In this market, I don't expect to cashflow or even break even each month, but if I can cut a big chunk of my rent from the $2200/mo for a 2ba/2br apartment by renting out a unit, that would be awesome. Is this even realistic?

I'm not in a hurry so I'm patient enough to wait until I find a good deal down the road, have a decent down payment, and steady job history. How should I proceed? Thank you all in advance for your help and looking forward to getting out there!

Aaron K. · Answer

@David Le Always keep an eye out for something otherwise you'll just put it on the back burner.

Peter Hanson · Answer

david,  Hi, I live in North OC by Anaheim.  "I'm thinking foreclosures/REOs might be another option, but I don't know how many REOs pop up in South OC."  your idea of foreclusures/reo might be misguided because reo's dont sell for much less than regular/standard sale homes.  You might get a 5-10% discount on REO/foreclosures in OC if you are lucky but you might have to pay cash or use hard money to close quickly.   Maybe look for a 4-5 Bedroom house near jobs or a university, the more bedrooms you have the more income you can create.  i'd guest you can get $$600-$800 per bedroom if you are close to jobs or a college.  You can house hack in OC it's just more expensive than other places. good luck!    the cheapest 4 bedroom homes in those cities range from $670-$700,000 so do the math, at $800 per extra bedroom you bring in $2400 per month (not counting your bedroom). If you put down 20% ($140,000) you would have a mortgage of $560,000 or about $3800/month. So best case your monthly house expenses would be $1400 (but that's not counting any vacancy, maintenance, cap ex, etc)

you'd live in a $700,000 for $1400-$1600 per month and hopefully get some decent appreciation but that's not a guarantee.

CRMLSM

4

OC18236794

A

SFR/D

24152

Hurst DR

LF

LS

STD

$730,000

$347.62

4/2,0,0,0

2100/A

1972/ASR

4,335/0.0995

119/119

N

2.5

09/27/18

David Le · Answer

I totally agree! Thanks for the input!

David Le · Answer

Wow, I'm a total mess on this forum, sorry Aaron!

I guess finding quality roommates depends on how well your vetting process is, I've had both good and bad experiences in the past. I'm thinking in this market, it's better to just wait and see what better deals come up later down the road as opposed to jumping in too early. Thanks for the input!

Daniel Siapin · Answer

@David Le take into consideration the tax savings you'll get as an owner in comparison to renting.  It will be significant.

David Le · Answer

Ray - Thanks for the reply. Wow, you're definitely in my neighborhood, I work right near the Spectrum as well. Due to personal family reasons, I actually need to stay around Mission Viejo/Lake Forest so I already know positive cash flow will be non-existent. If I didn't have a family that needs to stay in the area, I'd most definitely explore a little further north in search of a better deal. But for now, my best case scenario is getting rental income that will help put a dent in my monthly housing expense. I'm thinking foreclosures/REOs might be another option, but I don't know how many REOs pop up in South OC.

Aaron K. · Answer

@David Le an SFR may work but it is tougher to estimate what a room will rent for as opposed to an entire property.  Do the math and see what you can find; not everyone is comfortable with roommates but if you are then go for it.

Also poor Aaron Kinney keeps getting pinged and that isn't me

Ray Johnson · Answer

@David Le I live in Irvine, a few blocks South off the 405fwy near Irvine Spectrum, You're not going to be able to execute your plan in South Irvine at the price point you're targeting, I think there are some options as you go North or further inland which I'm sure that's not as desirable for you.

If you prefer to stay in South OC, Mission Viejo may be an option in the older neighborhoods away from the Lake, other options are Lake Forrest, Laguna Niguel, and maybe Aliso Viejo, the problem I'm seeing is most of these neighborhoods have seen a run-up in prices as most people that got priced out of Newport, Laguna, and South Irvine have travelled further South to these cities.

One of my first OC properties was a Condo near South Coast Plaza which I got as a short sale, It was a two bedroom and I rented out the other room while I lived there for 16 months to satisfy the 12 month Owner Occupant period.

As a newbie, your first property may not be in a Class A neighborhood like South Irvine if you want to be profitable on the first deal, and not prepay your cash flow by putting a very large down payment on a deal. Most recently I was looking at an REO in Placentia, that's how far inland I had to go to find something in OC that wasn't Santa Ana, or Anaheim.

David Le · Answer

@Aaron Kinney My apologies, I meant to write PURCHASE (not rent) a SFR and rent out the rooms, so subletting would be a non-issue. At the moment, with job and family close by, staying in the local area is more important so I know my options are limited. I would certainly consider long distance investing later down the road as I get more experience, but from what I've read, that isn't the recommended first step for a newbie just starting out. Thoughts?

Aaron K. · Answer

@David Le No subletting is against the terms of most leases, so don't do that.  You have to balance not overpaying with being realistic.  If you set your standards at a 10% cap rate in the OC you will never buy anything, so what do you want more a certain return or a certain location?  Is house hacking a must or are you okay with long distance investing?

Househacking in South OC??

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