House Hacking in San Diego w/FHA Loan

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House Hacking in San Diego w/FHA Loan

Ryan Knapp
Member since 2019 · 31 posts · 9 votes

Hey BP,

My wife and I have been attempting to luxury house hack (add an ADU onto SFR) in my hometown and are feeling a little worn down. I've read quite a few BP books and believe it's a strategy that works. I want to provide a tangible path to advancement for my wife and little 6 month old. We both work full time and don't make a ton. We've been approved for a 420k FHA loan, VERY entry level for SD.

The last house we put an offer on we were essentially ghosted by the selling agent after his loan officer called to "cross check" our loan and I didn't bite on switching over to his non-FHA loan product. We've looked at 20ish homes in person, I analyze and check the MLS and real estate apps every day (hourly, honestly) and we've been looking for four months or so. In this time we've only found two homes that would potentially work and we put offers on.

It's hard to put my wife through the emotional toll of looking at so many properties and getting our hopes up to find out it won't work. I'm beginning to wonder if I should continue or if it's just foolish to put my family through the ups and downs. Don't want to quit of be a quitter, but am trying to be wise and realistic.

Have some question's that I need some advice on...

-What's a realistic number of homes to put offers on before finding something when you're very entry level in the market?

-Do agents discriminate against FHA loans? Is it a loan product that's worked for other to house-hack with at the lower end of the market?

-What's a better way to find FHA approved style deals?

-Do most agents play games or are they being honest when they tell us they "Have multiple offers and more to come, so please get your's in soon"?

-Any creative strategies for funding ADUs? Or specific loans?

-What are some way besides offering more to make our offers more appealing? 

-What's a realistic amount under asking to offer in a hot market like SD?

Best,

Ryan

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  • Barbie Steele
    Real Estate Agent · FRESNO, CA · Member since 2016 · 60 posts · 42 votes
    6y

    Hi Ryan!

    I'm a Realtor and Loan Officer in Fresno who specializes in ADUs. First of all, let me congratulate you on seeing what an opportunity the new ADU laws will bring for homeowners who want to be investors in CA.

    For those on the lower priced end of the entry market my advice would be to double down your efforts the next few weeks. Traditionally homes sell for less during December. Unfortunately, you are competing with investors on the lower priced nice homes, so you will have to be prepared to make a lot of offers. I'm sure I don't have to tell you that considering other areas and lower grade neighborhoods than you are currently will help your chances. Remember, you only have to stay 1-2 years before moving on to your next deal.

    There are a lot more hoops to jump through when working with FHA loans than conventional. Using FHA loans from an investor standpoint is good if you like to leverage because of the low amount you have to put down. Money is so cheap right now though most people would rather go conventional.

    Were you working with a buyers agent when you made the offer where the selling agent ghosted you? A good buyers agent could have at least found out what happened and that your offer was presented to the seller. 

    As in any profession, there are good and bad agents. Some will use the multiple offer statement as a ploy, while others are being honest. Agents who have been around a while know who the B.S.ers are. (Another reason to have a buyers agent).

    With what little I know about your financial situation, my advice for financing an ADU would be to start out with a JADU. I know ADUs are more comfortable when you're doing the house hacking, but JADUs are MUCH cheaper to build. Doing a garage conversion or finding a home whose floor plan is conducive to splitting up is going to cost you less money.

    Financing this could be done with either a second on the property or an FHA 203(k) loan. A portfolio renovation loan from a regional bank is another option and has greater flexibility in loan-to-value (LTV) ratio and/or credit than government loans offer. If all else fails, you can finance through a company that co-invests in your home. They loan you the money, then after a period of time you buyback. The buyback cost is the amount originally received plus a portion of your home's appreciation since partnering. There are other companies who will loan you money for a share of your equity when you sell, or a portion of the rent you receive from the ADU or JADU.

    To make your offers more appealing I would write a heartfelt letter to the seller. I  know it sounds old fashioned, but some Californians are selling because of the high cost of living here and they may be sympathetic to those who are trying to figure out a way to stay.

    With rent prices increasing at a rabid pace, investors are gobbling up real estate as fast as they can to get their piece of the pie, causing a lack of inventory and appreciation and sales prices to soar. I don't proclaim to be an expert in the SD market, but around here if the property is priced fairly according to market and condition, I wouldn't offer below 5% off of list price.

    Hang in there Ryan! If there is any way I can help you, don't hesitate to reach out!





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  • Ryan Knapp
    OP
    Member since 2019 · 31 posts · 9 votes
    6y

    Thanks @Barbie Steele that’s all really insightful and helpful.

    Yeah the new ADU laws really do seem like an unprecedented opportunity!

    Garage conversions and JADUs is the direction we’ve been looking. A portfolio loan from a local bank also seems viable. A personalized letter is also a really good idea. We did that with one property but not the next.

    We’ve seen wildly different estimates for cost. Looking for garages with plumbing and electric and floors that are in good shape. Do you know of any good resources for calculating conversion costs?

    Best,

    Ryan

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