House Hacking In San Diego?

Question

Hey All,

This is my first post on here and I am relatively new.

My girlfriend and I are looking to move in together in San Diego California at the end of August. Rather than throwing money at rent, I figured I would look into house hacking.

I am a Financial Advisor and have seen first hand the amount of wealth it has created for several of my clients.

The issue is, it seems inventory in San Diego is extremely low and even with the high interest market, prices are not moving much leaving very little opportunity.

Has anyone had any recent success in the San Diego area, and if so what strategy did you use, and how did you approach it?

Ideally I am looking at a 2unit townhome or SFR, with 2b2ba in each unit with a budget of around 1mm and 3.5% -5% down.

Dan H. · Answer

In various blue collar areas in San Diego county, your budget will suffice to purchase a duplex of a SFR with an ADU.

The issue is at the LTV you describe (combined with current interest rates) the property would be cash flow negative even if renting both units. This implies when accounting for all expenses, your cost will be greater than if you were renting. This is likely to be the case for at least a few years. However, the bulk of your expenses will be fixed (P&I) or near fixed (property tax) while rents traditionally go up faster than inflation (as they should when RE prices are going up faster than inflation). this implies at some point in the future your cost as owner will be less than your cost to rent. The tenant will be helping you pay down your debt.

If you plan to keep the property 10 years or longer, you should buy. If your intent is to keep the property less than 5 years you should continue to rent as the initial negative cash flow and selling costs will likely make purchase a financial mistake. Between 5 and 10 year hold, it depends on the market. A purchase between 2010 and 2021 would have done fine with a 5 year hold. I am less confident saying that for a 2022 or a 2023 purchase (YOY prices in San Diego are ~1.5% (down slightly)).

Good luck

Scott Raitt · Answer

Hi Van, currently seeing the properties that are on the market a little longer than the well priced options are ones asking for top dollar. Those ones that are on for 30-90 days in SD County and are dropping prices to gain interest. Creative financing can get you into these homes at low rates for an initial period. Using the price cut or even a further credit from the seller... could secure you a 3,2,1 temp buydown which would get you high 3's low 4's rate for first year.

if you'd like to ask questions or talk more plz DM

Ryan Thomson · Answer

@Van SchillingerI would get connected with a house hacking realtor in your area.

What do you mean by very little opportunity? I'm taking that to mean the numbers dont' work out how you are expecting them too. If so, I would look at reframing how you think about the numbers.

House hacking is tough to cashflow in year one (with current house price run-ups and interest rates) for a couple of reasons:

1. You are living in one of the rentable units

2. You are only putting 5% down so your loan amount is much larger and therefore your mortgage payment.

I would consider your net worth ROI. What I mean by this is considering how much your down payment returns to your net worth (appreciation, loan paydown, tax benefits, AND rent avoidance). Don't forget to include rent avoidance in your numbers! You have to live somewhere.

You may need to lower your return or cashflow expectations so you can get into a house hack that will allow you to avoid throwing rent money away every month. You know this, but don't forget all the other ways real estate makes you money. Paying down your mortgage and owning an asset that will appreciate over the long term.

Also, whenever running ROI calculations you have to consider the alternative. In this case it is "throwing your money away on rent every month". What's your ROI on that? It is very negative. When you consider all of these things and start with the assumption that you need a place to live, House Hacking often comes out as a clear winner even if your "cash flow" is actually negative but you are paying less towards a mortgage than what you would be paying towards rent.

Nathan Holt · Answer

Welcome to the Biggerpockets community!

I am also pretty new here, less than a year. I don't have a lot of information for you because I am new myself and I am also in Ohio which is a far cry from San Diego in both distance and market relevance, but if you haven't already I would definitely check out the find an agent section and get in touch with some of them in your market. They should be able to help you answer just about any question and maybe even set you up for automatic MLS listing alerts that fit your criteria for finding a house!

House Hacking In San Diego?

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