House Hacking in San Francisco

[Jimmy Jarjour]

Hi Everyone,

This is my first post! I've been enjoying listening to Bigger Pockets podcasts for a while and read a couple Bigger Pockets intro books to real-estate/house-hacking. I am trying to house hack a 4 unit multifamily (FHA 3.5% down, owner-occupied, rent other rooms) in San Francisco or Los Angeles and could use a bit of help starting out!

I have created a spreadsheet for quick analysis (with the 2% rule, 12% cash on cash, total ROI of 15% per year, etc) and have just been analyzing any Zillow deals that pop up. It seems that with house-hacking, it's possible to cover my mortgage living in 1 unit and renting out the other 3. I'm trying to avoid analysis-paralysis so I figured the first step was to start communicating with the real-estate community! Attempting to absorb as much as I can to eventually buy my first house-hack by the end of the year.

I would really appreciate some advice on the following topics:

- Finding a good loan officer

- Finding a good realtor

- Any local networking events

- General advice on where to start

- SF is primarily old constructions (a lot under 1920s). Since SF is a special case, this risk is pretty common. Should I stay away from these old SF properties? Advice/Recs on a good inspector for old properties?

If you are also trying to house-hack in the San Francisco/Los Angeles area, I’d love to connect! It will probably be helpful to share our knowledge and work towards the same goal.

I’m also open to helping out in other areas to gain experience/knowledge in the field so if you need a hand please don’t hesitate to reach out.

Looking forward to meeting you all and excited to join the Bigger Pockets Community!

Best,

James Jarjour

[Joseph Chiofalo]

Hi Jimmy, 

Welcome to the community- 

There are a lot of good resources here on bigger pockets to learn and grow. 

FHA will allow up 96.5% financing on a 1-4 unit property for a primary residence purchase.

[Jake Andronico]

@Jimmy Jarjour

Congrats on your pursuit! I've house hacked twice in Reno, NV and it's changed my life. 

I would talk to a lender about the 3.5% FHA rules and regulations as far as the self-sufficency test goes.

It may make more sense to go conventional, but you'll just have to see. 

Best of luck to you! 

[Matthew Kwan]

HI Jimmy,

Indeed, you can definitely  househack in a multifamily by living one unit and renting out the other vacant units. The good thing about househacking a legal multifamily unit is that lender allows you to use the vacated units of 75% market rent as an income to offset the potential current mortgage. You can put a little as 5% down payment for conventional or 3.5% for FHA.

Alternative way, is to acquire the 2nd property as an investment property with conventional, while putting 15%-25% down payment. Down payment can be higher than primary, but the good thing is that you won't need that much income to qualify because lenders can you 75% of the market rents for the units of the property. Imagine the 2nd property is a 4plex, each unit can be rented $1500/unit of 75% =$1125 x 4 units =$4500 worth of income to offset your that 2nd property.

@Albert Bui @Carlos Valencia

[Jimmy Jarjour]

Quote from @AJ Wong:

HI James, coincidentally just wrapped a convo with a community member about the exact strategy (and oddly location!). We work with investors on 1-4 units throughout CA & OR and would be happy to support your search or refer you to a friend. As for lending options definitely check in with @Joseph Chiofalo we've worked closely for 20+ years and he is an FHA mortgage savant. Good luck with the search and reach out with any questions. Good luck!

Hi AJ, thanks for reaching out and appreciate the lender rec! I'd love to connect and dive deeper about my search. Looking forward to it!

@AJ Wong

[Jimmy Jarjour]

Quote from @Joseph Chiofalo:

Hi Jimmy, 

Welcome to the community- 

There are a lot of good resources here on bigger pockets to learn and grow. 

FHA will allow up 96.5% financing on a 1-4 unit property for a primary residence purchase.

Hi Joseph, thanks for the reply! I will be sure to utilize the bigger pocket resorces.

[Jimmy Jarjour]

Quote from @Jake Andronico:

@Jimmy Jarjour

Congrats on your pursuit! I've house hacked twice in Reno, NV and it's changed my life. 

I would talk to a lender about the 3.5% FHA rules and regulations as far as the self-sufficency test goes.

It may make more sense to go conventional, but you'll just have to see. 

Best of luck to you! 

Hi Jake, thanks for the reply and I congratulate you on two successful house hacks! I'm also looking to change my life in San Francisco haha. I will definitely consider a conventional loan but the higher down-payment might not be what I'm looking for with the property values in the bay area.

[Jimmy Jarjour]

Quote from @Matthew Kwan:

HI Jimmy,

Indeed, you can definitely  househack in a multifamily by living one unit and renting out the other vacant units. The good thing about househacking a legal multifamily unit is that lender allows you to use the vacated units of 75% market rent as an income to offset the potential current mortgage. You can put a little as 5% down payment for conventional or 3.5% for FHA.

Alternative way, is to acquire the 2nd property as an investment property with conventional, while putting 15%-25% down payment. Down payment can be higher than primary, but the good thing is that you won't need that much income to qualify because lenders can you 75% of the market rents for the units of the property. Imagine the 2nd property is a 4plex, each unit can be rented $1500/unit of 75% =$1125 x 4 units =$4500 worth of income to offset your that 2nd property.

@Albert Bui @Carlos Valencia

Hi Matthew, appreciate the response! This 75% rule is something new to me. I'd love to connect and learn a bit more about how to utilize this in my house-hacking journey.

[Rick Albert]

Hey Jimmy,

2x Los Angeles house hacker here (and a case study in the BP book, The House Hacking Strategy).

In terms of age, it can make a difference but it comes down to what work has been done. I would take a 1920s property that has all new systems over a 1980 property that hasn't been touched. 

Keep in mind with the FHA loan on 3-4 units, there is a self sufficiency test as part of the qualifying portion. Basically 75% of the current or appraised rents (whichever is lower) has to cover 100% of the mortgage. That is where the challenge is because the prices tend to be much higher. My understanding is the workaround is putting 5% down. Most of my clients (including myself) work with duplexes or houses with ADUs.

[Wilson Lau]

@Jimmy Jarjour House-hacking is a great way to start! Happy to connect you with some lenders and help look over your analyses.

[Jimmy Jarjour]

Quote from @Rick Albert:

Hey Jimmy,

2x Los Angeles house hacker here (and a case study in the BP book, The House Hacking Strategy).

In terms of age, it can make a difference but it comes down to what work has been done. I would take a 1920s property that has all new systems over a 1980 property that hasn't been touched. 

Keep in mind with the FHA loan on 3-4 units, there is a self sufficiency test as part of the qualifying portion. Basically 75% of the current or appraised rents (whichever is lower) has to cover 100% of the mortgage. That is where the challenge is because the prices tend to be much higher. My understanding is the workaround is putting 5% down. Most of my clients (including myself) work with duplexes or houses with ADUs.

Hey Rick, thanks for reaching out! And the self sufficiency makes sense appreciate the tip. I am looking at properties (with a rough estimate) where the 75% of rent doesn't have a problem of covering mortgage.

I enjoyed reading The House Hacking Strategy and have a few questions on fixing up the place you are currently house hacking. Looking forward to connecting!

[Jimmy Jarjour]

Quote from @Wilson Lau:

@Jimmy Jarjour House-hacking is a great way to start! Happy to connect you with some lenders and help look over your analyses.

Appreciate you reaching out and can't wait to connect!

[Rick Albert]

Quote from @Jimmy Jarjour:

Quote from @Rick Albert:

Hey Jimmy,

2x Los Angeles house hacker here (and a case study in the BP book, The House Hacking Strategy).

In terms of age, it can make a difference but it comes down to what work has been done. I would take a 1920s property that has all new systems over a 1980 property that hasn't been touched. 

Keep in mind with the FHA loan on 3-4 units, there is a self sufficiency test as part of the qualifying portion. Basically 75% of the current or appraised rents (whichever is lower) has to cover 100% of the mortgage. That is where the challenge is because the prices tend to be much higher. My understanding is the workaround is putting 5% down. Most of my clients (including myself) work with duplexes or houses with ADUs.

Hey Rick, thanks for reaching out! And the self sufficiency makes sense appreciate the tip. I am looking at properties (with a rough estimate) where the 75% of rent doesn't have a problem of covering mortgage.

I enjoyed reading The House Hacking Strategy and have a few questions on fixing up the place you are currently house hacking. Looking forward to connecting!

 I'm happy to answer any questions you have. I'm an open book.

[Anthony Swain]

Hey @Jimmy Jarjour

It sounds like you are crushing the education game. Their books and podcasts are loaded with great material.

House hacking can be beneficial for soooo many reasons as many in here would chime in with.

If you're already looking to connect with a rockstar agent and loan officer/lender, then you're going to be on the right track. Networking will give you some people to lean on for questions and to fill in the other blanks i.e. contractors, insurance agents, inspectors, property management, etc. 

I'd definitely agree with @Rick Albert. I am not necessarily scared of the age, but more so weary of the cap ex age and building materials. For example, brick homes can last hundreds of years if taken care of compared to some new stick built development homes. A 1920s home with new plumbing, updated electric, and a new furnace might be in a better position than something from the 1990s. That 1990-2000s home might be reaching the last leg of all it's cap ex items.

Lastly, in HCOL cities, house hacking may give you the opportunity to live in an area to enhance your quality of life. For example, maybe a house hack where you are offsetting your housing expense allows you to live in the heart of three key quality of life factors (Where you work, where you leisure, and where you shop). This is compared to if you bought a standard residence 1-2 hours from where you do those three things. I know for many in the Bay Area this has become pretty standard unfortunately.

Good luck with your HH endeavors. I'm happy to connect to provide any helpful insight.

-Ant

[Rick Albert]

So I have a great example from a recent client of mind.

I helped him buy a property back in 2021 that was built in 1990. By Los Angeles standards, this is considered "newer construction." Since then, he has had to replace the windows (the seals got old) and now he has to install all new plumbing. The builder put in the thinnest copper piping at the time and as it gets used, it moves and then breaks. There was no way to know during inspections because you can't see behind walls and everything was working at the time.

Versus I had another client buy a home built in the 70s. Because there was so much remodeling done, everything inspected well and should last many years.

[Sarita Scherpereel]

Hi @Jimmy Jarjour definitely ask your lender and realtor about 5% programs. In Chicago, that is now becoming more of a standard to a low down payment program. The FHA loan has an inspection requirement and the self sufficiency test that scares a lot of sellers. 5% is more common here at the moment.

[Haoyang Luo]

Hi @Jimmy Jarjour, 

Fellow aspiring house hacking investor in SF Bay Area here! I just started my property search and hopefully make a purchase by the end of this year. 

May I ask what is the down payment percentage you are planning to put in? I find it hard for the numbers to work if I only put 3.5% or 5% for down payment as the monthly payment will be through the roof. If you are doing a low down payment strategy, have you identified any specific region in the Bay Area where the numbers work?

[Haoyang Luo]

Quote from @Rick Albert:

Hey Jimmy,

2x Los Angeles house hacker here (and a case study in the BP book, The House Hacking Strategy).

In terms of age, it can make a difference but it comes down to what work has been done. I would take a 1920s property that has all new systems over a 1980 property that hasn't been touched. 

Keep in mind with the FHA loan on 3-4 units, there is a self sufficiency test as part of the qualifying portion. Basically 75% of the current or appraised rents (whichever is lower) has to cover 100% of the mortgage. That is where the challenge is because the prices tend to be much higher. My understanding is the workaround is putting 5% down. Most of my clients (including myself) work with duplexes or houses with ADUs.

 Hi Rick,

Thanks for the insightful information on loan programs. I just started The House Hacking Strategy and looking forward to reading your case study! 

I have a pretty good idea about the 3.5% down FHA loan program. However, I did not know about the 5% down conventional loan option until seeing your post and have a couple questions:

Does a 5% down conventional loan also consider current or appraised rents as part of the income qualification? If so, is the percentage also 75%? Will this percentage be lower for first time buyer?

[Rick Albert]

You will need to double check with a lender but my understanding is yes, they will look at current or appraised rents, whichever is lower, and factor in 75% of the rents. They don't care if you are a first time buyer as the risk is all the same.

[Leah Miller]

Living in Los Angeles, looking to start house hacking and putting the high rent toward building equity. Can someone help me with the basics of the difference of the 3.5% vs. 5% loans?

Thanks in advance!

[Leah Miller]

One more question, can you use the 5% for 5 units+ or is it subject to the same 1-4 limit?

[Jimmy Jarjour]

Quote from @Haoyang Luo:

Hi @Jimmy Jarjour, 

Fellow aspiring house hacking investor in SF Bay Area here! I just started my property search and hopefully make a purchase by the end of this year. 

May I ask what is the down payment percentage you are planning to put in? I find it hard for the numbers to work if I only put 3.5% or 5% for down payment as the monthly payment will be through the roof. If you are doing a low down payment strategy, have you identified any specific region in the Bay Area where the numbers work?

Hi Haoyang,

It's pretty difficult to find, but just with the resources available to me I was able to spot a few fourplex listings that were somewhere around $1.25M. Quite a steal and they get snatched up pretty quickly but if you crunch the numbers, even with the high interest rate you get pretty close to cutting even on your rent (after you allocate X amount to unforeseen property costs)

[Jimmy Jarjour]

Quote from @Leah Miller:

One more question, can you use the 5% for 5 units+ or is it subject to the same 1-4 limit?

Hi Leah,

The 5% is referencing the conventional loan which is a residential loan. Any property with 1-4 units is considered residential but once you start going above that I believe its considered a commercial property which requires a different loan. A great question for any loan officers out there!

[Becca F.]

Hi Jimmy. I don't house hack in S.F. but one suggestion an investor had for me was to do one of the units as an MTR (I was thinking travel nurses but now I'm hearing that they aren't getting that great COVID pay but people displaced temporarily for insurance reasons, moving for some other reason). Mine is SFH, an LTR and my tenants are amenable to other people living on the property and I may consider building an ADU for that. The MTR was to get around the SFH becoming a 2 unit and under rent control with an LTR. Then someone said I could only MTR/STR if I'm living on the property have it qualify as a SFH with an ADU - I'm confused. I haven't researched this further since I'm dealing with my out of state properties right now.

The rental laws in S.F. are a huge maze to get lost in. If you house hack a 2 to 4 unit, I would assume your rented out units fall under rent control?