House hacking an $899k triplex in San Diego
Do the numbers pencil out?
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Happy Sunday! This week we’re looking at a triplex house hack in San Diego, and evaluating whether it’s a good investment.
Here’s the triplex we’re looking at - it’s currently on the market for $899k and has one 3bd/1ba unit and two 1bd/1ba units.
Situated in the Grant Hill neighborhood of San Diego, this property is in close proximity to downtown San Diego and Balboa Park. We’ll assume that we purchase the property for its listing price. We don’t have pictures of the interior, but two of the units were renovated in 2014. The remaining unit is a detached ADU in the backyard, but it’s unclear when it was built. We’ll assume we won’t allocate any money upfront for renovations.
We’re going to make the following assumptions:
20% down with a 30-year fixed mortgage at 7% interest rate
1.25% annual property tax rate (based on San Diego’s current rates)
$300/mo home insurance
5% reserve for vacancy
10% reserve for capex and repairs
2% annual rent and expense increase
We’ll assume we live in the backyard 1bd/1ba unit and rent out the two units in the main house. Based on rental comps in the area, it looks like we’ll be able to get $3.5k/mo for the 3bd/1ba and around $2.4k/mo for the 1bd/ba (it’s fairly large at 1,100 sqft).
Plugging the numbers above into our trusted house hacking calculator (reply to this email and I’ll send you the link!), we get the results below.
Each month, we're paying $6,021 for mortgage, insurance, and property taxes, and we're bringing in $5,900 from rent. Including the $885/mo expense for capex, maintenance, and vacancy, our net monthly loss is $1,006/mo. Our equity buildup in year 1 is $7,306 - if we add that to our total loss, our year 1 net loss comes out to $4,766. Not bad!
These results aren’t terrible - we’re losing about $1k/mo on the property. There’s a couple of different things we could do to bridge this gap. The first would be to live in a bedroom in the 3bd unit and rent out the 1bd/1ba cottage. It seems like we could rent out the cottage for $2k/mo. If we rent out the additional 2 bedrooms for $1.2k/mo each, we’ll have made $900/mo in incremental revenue. That almost puts us at breakeven!
We could also look into Airbnb and medium-term rentals. San Diego is a major west coast travel destination, and it’s also a popular location for travel healthcare workers, which makes medium-term rentals worth looking into. We could live in a bedroom and rent out the cottage on a short/medium-term basis.
Would I buy this property? I’d need to take a closer look at the numbers, but I think there’s definitely some opportunity here. The numbers could work out if you utilize some of the strategies mentioned above.
Thanks for reading until the end. Catch you next week!