Seeking Advice on House Hacking Opportunities Near San Diego

[Allan Pan]

I've been residing in San Diego for 15 years and am currently exploring options to house hack. My ideal scenario involves acquiring a 2-4 unit property or a single-family home with an ADU, enabling me to leverage rental income to qualify for a larger mortgage. I'm prepared to make a down payment of around $70,000, and without factoring in rental income, I can qualify for properties priced between $650,000 and $700,000. The inclusion of additional units could potentially increase my qualification for higher-priced homes, contingent on the rental income they generate. (BTW, I've created a spreadsheet to estimate the rental income required to qualify for specific properties and am happy to share it with anyone interested).

After conducting some research and attending open houses, I found very few properties that meet my financial criteria within San Diego. However, by extending my search to areas beyond, such as Riverside County, I found that $700,000—or perhaps even less—could secure a 4-plex. After about 1 year or so, I could consider buy another 4-plex, using it as primary to take advantage of the lower down payment. This strategy could be repeated.

However, in San Diego, a 4-plex will be 1.5M above and the same strategy would not be feasible. It takes much longer time to save and more difficult to financing the purchase.

Given my remote work situation and the necessity to visit clients in San Diego approximately twice a week, a commute is manageable, albeit not ideal. I am considering relocating to areas within a 1.5-hour drive from San Diego, like Hemet, CA, and am open to suggestions or feedback on suitable locations around San Diego within this driving distance.

[Allan Pan]

I just saw that someone had a similar question 2 months ago...

https://www.biggerpockets.com/forums/922/topics/1162421-stro...

[Kenneth Donaghy]

Hey @Allan Pan, A lot of times my clients and myself included have a hard time setting realistic expectations, and/or accepting "ideal scenarios" don't exist. A Lot of us want to hit a homerun, before we learn how to swing. And if we don't hit a homerun at our first at bat then we failed. With limited resources, our goal should be to get on base. Play a little Moneyball, base hits score runs too. Many of us with limited resources move forward buying condos, townhouses, taking advantage of a lower barriers of entry, taking advantage of appreciation, and leveling up with each purchase. The advantage you have living in SD for 15 years is knowing neighborhoods,which ones are improving, where you will like to live, and which will attract good tenants. 

[Noah Laker]

What's up Allan, props to you for exploring this strategy. It's a classic and probably the easiest way to get into the game with a leg up, and set yourself up for future exchanges. 

The first step is to get pre-approved for a loan to determine your max budget. It sounds like you may have already done that, and with rental income included you should be in a good position. If you use the property (one unit) as your primary residence, you can put as little as 3.5%-5% down payment, depending on the type of loan (FHA vs Conventional).

I'm a broker and investor here in California, my San Diego team recently completed a similar transaction for a young buyer. I myself house hack up in Sacramento. It's 100% possible and I can't wait to hear about your victory!

[Ryan Thomson]

@Allan Pan I wonder if your criteria may be a little unrealistic for the current market. Although I'm not sure bc you didn't share it. 

I'm guessing you are trying to find something that cash flows. House hacking is tough to cashflow in year one (with current house price run-ups and interest rates) for a couple 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.

[Twana Rasoul]

@Allan Pan It is very exciting to be looking into your first purchase...@Kenneth Donaghy made some great points and there are countless individuals who waited for "a deal" and ended up not buying and being completed priced out of the market with simultaneous price and interest rate escalation.  First deal does not have to be a home run, a base hit is what I've usually aimed for and thats how I got started with condos and single family homes and as those properties appreciated over time I utilized the equity to purchase multifamily properties that I could not initially afford.

Cheers