The case for multiunit home purchase in San Diego, CA
You may have heard that multiunit properties are all the rage in 2022. This rather “new” trend actually got its start years ago for 2 primary reasons which we will investigate as the premise for why you should purchase a multiunit property in San Diego, CA in 2022.
Reason #1. To address the housing shortage and decrease of available land that’s developable, the County of San Diego launched an ADU (Accessory Dwelling Unit) program that allowed homeowners to add a unit to their existing lot provided the lot met pre-defined criteria. For properties that met these requirements, pre-approved floor plans, reduced fee, and quicker permitting processes were provided to entice homeowners to add a secondary unit to their existing property.
For more information on building an ADU on your San Diego home, please visit: https://www.sandiegocounty.gov/pds/bldg/adu.html
To view the complete list of ADU requirements, please read: https://www.sandiegocounty.gov/content/dam/sdc/pds/zoning/formfields/PDS-PLN-611.pdf
Reason #2. The real estate landscape has shifted vastly over the recent years. Just take the advancement of short-term rentals like Airbnb and VRBO as examples of real estate experiences vacationers can have simply because an owner makes the associated property available for such occupation. It’s not just a shift in investment strategy, it’s complete shift psychology of vacationer’s hand in hand with the psychology of property owners. In the same vein, multiunit properties have seen an increase in popularity as a beneficiary of this similar mindset, which we will discuss in more detail below. Regardless of your own personal appetite to hold real estate in this fashion, the trend suggests that this type of accommodations have made their place in the hospitality sector as compared to vacation stints in a hotel/motel.
Given the nature of the multiunit property in today’s real estate landscape, here is a compilation of the Top 4 reasons we believe you should buy a multiunit property in San Diego in 2022.
Housing demand (rent and homeownership) in San Diego has been strong for years. That trend continues into 2022 despite increasing interest rates and lower supply. The appetite for multiunit properties is at an all time high at the same time rent rates in San Diego have his all-time highs. Thus, leaving few options for people other than pay that high rent or find a place to purchase. In addition to this physical demand locationally, the 2020/2021 housing surge nationally treated San Diego rather kindly with the county consistently ranking as the #2 highest appreciating city on the nation for more than a year (second only to Phoenix, AZ). The lost cost to borrow money (mortgage rates) coupled with the low supply of existing homes on the market have been a match made in heaven for San Diego home prices. As a result, real estate holders have benefitted from the biggest equity gains of all time. Which in turn, whips up demand for those who are having “FOMO” (fear of missing out).
Although a multiunit property purchase will be for your own occupancy, the ability to generate income from renting out the 2nd (or 3rd and 4th units) is highly attractive these days. Since demand is pushing more and more people into real estate with smaller inventory pools to select from, some buyers are resorting to multiunit properties even if they initially didn’t consider it. Add to that, the ability to collect monthly income from additional units on the same lot, and you’re catching buyer’s attention these days.
Additionally, the migratory nature of younger generations is shaping how property is viewed these days, there is a great propensity for income generation to be a driver for multiunit purchasers in 2022. Tenants who fit this mold of hoping from place to place with frequency creates rental turn over that demand still confirms.
The monthly mortgage payment on a multiunit property may be higher than that of a Single Family Home; however, when you have monthly income coming in, the ownership costs are being contributed to by the tenant(s). Even if your total monthly payment including taxes and insurance is $4,000 a month, a $1,500 a month rental payment from your tenant(s) offsets your personal obligation. In this example alone, your net cost is only $2,500. Compared to a single-family home where you are the only one paying $4,000, the multiunit option becomes quite attractive.
When qualifying for the mortgage loan on your multiunit purchase, you may or may not be able to use the proposed rental income as part of your underwriting approval. This depends on a variety of factors, and it’s best you review this with your local mortgage expert before you begin looking at multiunit properties with your real estate agent.
We are seeing the emergence of owning a multiunit property as part of your long-range personal plan. Recently, home buyers are accruing these homes specifically so they can create a real estate portfolio for the long run and eventually rent out all the units on the lot when they move up or out of the area. We know that your multiunit purchase today will likely not be your “forever home.” For families that aspire to accumulate real estate holdings over the course of the next 5, 10, 15 years or more, buying a multiunit property in San Diego is a fantastic decision. Not only are you benefitting from historically appreciating home values in San Diego, but you are expanding the number of properties you have in your holdings, and by default, the number of income streams you are creating in the long run. Whether you choose to eventually make these units short term experiences like Airbnb or VRBO or choose to have these units leased out to renters, you should find yourself in a lucrative position over the course of time.
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Rates & Fees Disclosure:
‡ The payment on a $300,000 30-year fixed-rate VA loan at 3.000% with a 80% loan-to-value ratio is $1,292.01 with 0 (zero) origination points due at closing. The annual percentage rate (APR) is 3.235%. Payment does not include tax and insurance premium impounds. The actual payment amount will be greater. By refinancing your existing loan, the total finance charges may be higher over the life of the loan. Some state and county maximum loan amount restrictions may apply. Appraisal fee of $600, Processing Fee of $895, Underwriting Fee of $795 included in APR calculations with borrower paying 0 (zero) loan origination points.
‡ Based on Mortgage Heroes internal data.
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