If you’re interesting in investing in real estate, you may have heard of the term “house hacking”. If you’re unfamiliar with the term house hacking, here is an overview of how to house hack in San Diego!
What is House Hacking?
House Hacking is a term that many investors use to describe an investment strategy in real estate. It involves purchasing a house or 2-4 unit property to live in one of the rooms (or units), with the intent to rent the other rooms (or units) to offset or potentially cover the entire mortgage. With the cost of real estate continually surging, many buyers feel like it’s the essential first step to taking to invest in real estate.
Why House Hack in San Diego?
As you may know already, there are numerous advantages to owning real estate (appreciation, tax deductions, leverage, etc). But, what makes house hacking specifically advantageous? Here’s just some of the benefits:
- Lower down payment requirement: With house hacking, you can acquire real estate with less money down because you are able to use owner-occupied loans.
- Maximize you buying power – When you house hack, you are generating income from the other units (or rooms). So you can presumably tolerate a higher payment and consequently be able to purchase at a higher price. Specifically in a 2-4 unit scenario, you can use the income of the other units to help you qualify.
- Home and a rental investment all in one – Wondering if you should buy a home to live in or invest in a rental property? You can do both at once through house hacking! This is especially beneficial if you’re already wasting money by renting where you currently live.
- Gain experience as a property manager- If you’re interested in gaining property management experience, you can manage a property first hand while living in it. Added bonus: you can essentially choose who your neighbors will be as you place new tenants in the rooms/units. Ultimately, if you find out you don’t like property management, you can eventually hire a property manager to manage the other units.
- Gain construction experience– If you plan to DIY renovations, it’ll be much easier living in the project you’re working on. If you choose to hire out the work, you’ll be able to monitor it all closely and learn through observation.
- Keep your eye on your investment – by living in your investment property, you’ll be able to keep an eye on it much easier than a rental property.
How does it all work?
Ideally, the goal with house hacking is to have the rental income meet or exceed your total monthly mortgage expense. Achieving these numbers will largely depend on two factors:
- How much money can you generate from rental income? You’ll want explore all the different ways you can generate rental income for your property. Successful house hacks can come from a multitude of scenarios. Here is a brief list of different ways to house hack:
- Buy a single family home and renting out rooms.
- Purchase a 2-4 unit property, rent out the other units and extra rooms.
- Buy a house with an ADU or granny flat, live in either the accessory unit or the house and rent the other space.
- Purchase a property and add bedrooms or units to rent out
- Rent out unused storage or parking (depending on the desirability for these items in your area)
- Buy a single family home and renting out rooms.
- How low can you get your mortgage payments/expenses? Most buyers aim to acquire a property with as little down as possible such as an FHA 3.5% down payment, or even $0 down through VA if you are eligible. However, you’ll want to keep in mind that a low down payment means a larger monthly payment, and the harder it will be to achieve positive cash flow.
San Diego House Hacking Example:
Let’s say you purchase a duplex in San Diego that has 2 bedrooms and 2 bathrooms in each unit for $650,000. If you qualify for VA, your payment with $0 money down could be about $3400/month. If you live in one of the units and only occupy one of the bedrooms, you can rent the other room. Let’s say you can get $900/month for that room. You would then rent the other unit for $2,500/month. The combined income would be $3,400/month, which would cover your monthly mortgage.
While it’s easy to give a hypothetical example of a successful househack, these numbers aren’t far off from real world examples we’ve help clients achieve in the past. Feel free to contact us if you’d like to discuss some real world house hack success stories.
How to get started house hacking in San Diego?
The first step is to contact a lender to get preapproved so you know what your options are financially. However, if you don’t know a lender that specifically understands investment properties, we’re happy to refer lenders who fully understand 2-4 unit lending. Many house hack buyers in San Diego usually start with the financing options that require the least amount of down payment like VA (as little as $0 money down) or FHA (as little as 3.5% down), assuming you qualify. Getting preapproved with a lender will help you determine what strategy makes the most sense for you.
After finding out what your financial and loan parameters are, you’ll want to begin assessing your needs as a buyer and investor. A few beginning questions are the following:
- How much space do you need to live in (bedrooms, baths, sq ft, etc)?
- What parts of town are you interested/not interested in living?
- How much construction, repairs, or improvements are you comfortable doing?
- What living situation are your comfortable with?
- How much risk are you willing to take?
- What are your short and long-term goals (financial and personal)?
These questions will help shape the search parameters for your ideal house hack in San Diego. As you start to answer these questions, you’ll be able to start exploring real world options on the market.
Start Buying Properties to House Hack!
Now that you are preapproved, know your financial parameters, and have asked yourself some important questions about your needs and goals, it’s time to start honing in on specific properties that make sense for you. This is the most challenging step. First, you’ll need to equip yourself with the knowledge to evaluate properties and determine if they are a good investment for you. You’ll want to really pay attention to the numbers, upside opportunities, potential costs, and risks.
If you’re new to the world of real estate and house hacking, it’s critical that you have the proper guidance in order to make theese decisions. This is where we are happy to help. We can help you assess the pros and cons of each property and evaluate if they are the right move for you. Sometimes, a property may appear appealing at first, but may actually have substantial flaws and should be avoided. Conversely, some properties may appear unappealing on the surface, but actually are excellent opportunities with unlocked potential.
Expert experience and consultation can be the difference between acquiring the right or wrong opportunity.
In conclusion, this is a subject that requires much more information than can be explained in a blog post. House hacking requires an in-depth analysis of properties and your personal situation and goals. We’re happy to provide a no obligation, free consultation to help you get started on your house hacking journey. Please don’t hesitate to reach out to us if you have any questions or would like to discuss in further detail:
Call us for more information! 858-449-1253
You can also email us at Lawrence@DuplexSanDiego.com or write us a message below and we’ll make sure to respond as soon as possible!
