Sell or rent investment property?
Member since 2018 · 32 posts · 11 votes
Sell or rent investment property?
Most Popular Reply
Paul MoorePro Member
Commercial Real Estate Fund Manager · Lynchburg, VA · Member since 2015 · 1k+ posts · 1k+ votesHi @Tecsia Evans. With California tax rates where they are and federal tax rates potentially going up, I would take that tax-free profit and reinvest it into a passive investment.
There are mobile home park or self storage or apartment syndications, as well as diversified funds, that will likely pay more than 6% annually and provide tax shelters in many cases. You won’t have to worry about vacancy or damage or property value declines.
On the other hand, you will be trusting someone else with your money and you will have no control over it if you go this path.
Another option - if you want more control - would be to take that $400,000 profit and buy two rental Airbnb‘s in prime locations with 20% down on each. Assume a price of $1 million. I have a friend who has done this multiple times and is cash flowing approximately $50,000-$75,000 annually on each home with very little effort. I wrote about this in a recent BP article in fact.
Happy Investing!
45 Replies
Originally posted by @Paul Merriwether:
>> main house and ADU we would profit $24k<<
What area of Oakland, CA? Profiting only $2k / mth seems low.
What are the numbers?
But let me say this ... selling Oakland property IMO is a NO-NO!!!
I say NEVER sell Oakland property. Refi always pulling cashout!!!At a min 10% appreciation / yr and that could be low. Use a future
calculator to determine it's value over the next 5 - 10 yr's just at 6%
appreciation. You'll be SHOCKED!!! NEVER SELL OAKLAND!!!
======After reading the other comments you are doing yourself a disservice by
not spelling out all your details. I live in Oakland, CA. the above comments
do not reflect Oakland's EXPLOSIVE appreciation rates. You mentioned
>> building another new construction project <<
So lets say this current property is worth at a min $1.5 million!!! You saidin a nice area of Oakland and it has an ADU. Using the future cal at only 6%
appreciation/yr. in 5 yr's it will be worth $2,007,338.37. 10 yr's 2.7 mil.
Yet last yr in nice areas it approx 15% appreciation. So lets do 10% over 10 yr's$3.9 million!!!
The money in Oakland real estate is NOT from rents!!! It is from appreciation!!!
I've owned 5 homes in Oakland over the yr's. I've learned the hard way NEVER
SELL OAKLAND real estate!!!
A small 1600 sqft home / ADU just sold in San Mateo for $2.5 mil. Be patient!Your property will get there. Location does matter.
Using the high point in appreciation as an expectation is a folly. Similarly using the high point in appreciation to derive an expected appreciation is also a folly.
The average appreciation this century for Oakland is just under 5% (Source NeighborhoodScout). This takes the good appreciation years and poor appreciation years into account.
For my pro forma, I would use even less than the 5%. This is not because I believe anything fundamentally has changed with regard to Oakland's expected appreciation, but because I want my pro forma to be conservative. If no fundamentals have changed and 5%/year is the expected long term appreciation rate going forward, I would use 4%. I am not stating Oakland will not achieve a long term appreciation of 5% (but I am stating Oakland will not achieve a long term appreciation of 10%), but that I want my projections to be conservative.
Run your numbers on the conservative side. Celebrate if you exceed your pro forma.
Good luck
- Member since 2021 · 7 posts · 3 votes4y
@Tescia Evans its a good profit. lets say sell the house get $800k($400k profit) try to split 400k so you can invest on 2 single family like($500k just an example) houses like downpayment($100k on each house, if you have W2 job you can take loan) for rent. If the property value increases either sell or rent it, but the thing is you have 2 properties here. Try to analyze about this.
- Member since 2018 · 32 posts · 11 votes4y
@Dan H. Thanks for providing the resource for neighborhood scott. I just check and it mentioned that for the last 10 years the average appreciation rate is almost 10%. Oakland is a unique market and the appreciation that occurs here in the Bay Area (at least in the past years) has been higher than many other places. Considering that it’s a brand new home in a high demand market in which we are in, we chose not to use the 50% rule but definitely accounted for other expenses. @Pravalika Gokulakonda Thank you for your suggestion and the idea of using the profit to invest in 2 other properties. I am so appreciative of everyone’s feedback, it has been very helpful and enlightening!
- Investor · Oakland, CA · Member since 2015 · 141 posts · 84 votes4y
@Tecsia Evans
All you have to do is use Zillow for neighboring homes. Look at what they sold for as back as you can.
Start with recent SOLD's. Then calculate the appreciation using the calculator I shared with you.
I'd KILL MYSELF if it's only 5% !!!! Let alone a claim of 4%. It's Montclair!!!
It doesn't matter if you have zero cashflow or even a negative!!! A negative means you take A tax write off.At %5 appreciation on $1.5 mil = $75,000. Where can you get an easy $75,000 over the next year if you sell?
Your profit won't make you that in any investment. I expect if you sell you'll build again in Oakland .... but where???I don't know but I'm betting you've owned this current property for many yr's. Building in the hills can't be easy on those
very narrow roads. Permitting could have changed a lot since you first started this project.
A friend sold 7029 Pinehaven in 2020 for $919,000. Purchased around 1992 for $96,000. FutureVal overthe 29 yr's is approx 9.2% in appreciation. Over just the last 2 yr's it is approx 15% appreciation.
At just 10% in 2022 you'll earn approx $120,000 just for owning ... no matter what the cashflow is!!!
If you need cash for another project & can't refi ... get in touch with Point or Unison ... sell equity.
I think point will go up to $350,000 with no payments.NEVER SELL OAKLAND PROPERTY!!!
- Investor · Oakland, CA · Member since 2015 · 141 posts · 84 votes4y
>> I am not stating Oakland will not achieve a long term appreciation of 5% (but I am stating Oakland will not achieve a long term appreciation of 10%) <<
You are equating All of Oakland vs just the Montclair area of Oakland. Oakland has many properties at A $300,000valuation in the very worst areas of Oakland. Her property is in one of the very best areas of Oakland. That should be the focus.
I live in the middle of the road area in terms of valuation in Oakland. The very first home I bought in 1973 in Oakland for $32,500 I sold in 1978 for $65,000. That equates to 15% appreciation / yr back in the 70's. Today's Zillow value is approx $1.3 mil or 8% appreciation/yr. That takes into account 2008 financial crisis. 5% appreciation is way too low for most areas of Oakland.
$400,000 now vs $75,000/yr in appreciation is EASY money no matter the cashflow. And that is @ your 5%. :)
- Member since 2018 · 32 posts · 11 votes4y
@Paul MooreThank you for your advice and for your ideas of how I could invest my return if I were to sell, much appreciated. @Paul Merriwether Yes I agree Montclair in comparison to other parts in Oakland is very unique in how it’s appreciated over the years.
- Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes4y
@Tecsia Evans @Paul Merriwether I'm also a fellow Oakland Investor!
- Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes4y
P.S. Everyone keep in mind that to invest in a mobile home syndication or a self storage syndication you will find that most require you to be an accredited investor.
- Investor · Oakland, CA · Member since 2015 · 141 posts · 84 votes4y
@Brian Garlington What is your opinion on Montclair appreciation?
Do you think Zip code 94611 is the same as 94603?
Chime in on @Tecsia Evans home.
- Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes4y
Paul I am guessing you are very new to the area because in general 94603 is literally the exact opposite of 94611.
94603 is more up and coming, working class blue collar neighborHOOD.........I used to live there for a while in fact.
94611 is A-/B+ properies, period.
- Member since 2018 · 32 posts · 11 votes4y
@Brian Garlington Nice to connect with another Oakland investor! Thanks for your input. Based on his last post I believe @Paul Merriwether has been in Oaktown for quite a bit of time. Over the last 20 years I have really seen a transformation in certain neighborhoods in Oakland that were seen to have less value really come up and be booming again. Oakland is definitely a unique place in deed for both buy/hold and selling. For the both of you, how much (percentage) do you recommend putting aside from your rental income to account for things such as repairs, vacancies, etc? The 50% rule of thumb really doesn’t seem to work for this area.
- Investor · Oakland, CA · Member since 2015 · 141 posts · 84 votes4y
@Brian Garlington
It appear you haven't read all the posts. I was pointing out to another posterthe many areas of Oakland all have different appreciation rates.
My family has been in Oakland for more than 110 yr's.
I use to sell for Mason McDuffie on Grand Ave back in the 90's. I didn't likebeing a realtor. So much easier today with all the technology.
- Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes4y
Yep....guilty as charged.....I did not take the time to read all 35 previous posts on this thread that were not addressed to me :-) I saw what you said directly to me about 94603 compared to 94611 and responded directly to that :-)
Originally posted by @Tecsia Evans:
@Dan H. Thanks for providing the resource for neighborhood scott. I just check and it mentioned that for the last 10 years the average appreciation rate is almost 10%. Oakland is a unique market and the appreciation that occurs here in the Bay Area (at least in the past years) has been higher than many other places. Considering that it’s a brand new home in a high demand market in which we are in, we chose not to use the 50% rule but definitely accounted for other expenses. @Pravalika Gokulakonda Thank you for your suggestion and the idea of using the profit to invest in 2 other properties. I am so appreciative of everyone’s feedback, it has been very helpful and enlightening!
Neighborhood Scout has Oakland, like virtually all coastal CA cities, 10/10 for appreciation this century (Oakland is 9/10 for the state, both are the same as my market). Definitely very good appreciation. The issue in using the last 10 years is that 10 years ago was 2011 which was very close to the low point from the Great Recession. So the period starts at a local minimum and ends at an all time maximum.
I do expect Oakland and all coastal CA to have continued good long term appreciation, but I would not use 10% as an expectation (because of the starting point being near the low of the Great Recession). There has been no significant RE depreciation cycle in the last 10 years. Note what happens if you start in 2007 prior to bulk of the RE depreciation from the Great Recession? That 10% number would be significantly less. Using the year 2000 as the start includes the depreciation cycle from the Great Recession as well as is fairly long duration. Note I would be less adverse to using a 10 year period if it were not starting near the local minimum after a depreciation cycle the scope of that from the Great Recession.
Good luck
- OH (ohio) · Member since 2016 · 63 posts · 43 votes4y
@Tecsia Evans sell and get your $400,000 and invest in a S&P fund and get 8% a year on that.
- 4yCory CarlsonBusiness MemberReal Estate Broker · OR · Member since 2018 · 311 posts · 226 votes
If your expense load is correct and you really do cashflow $24,000 a year, your invested equity is $900,000. ($1.65M value - $750k) mortgage. That is a low cash on cash (1.3%) and even lower After-tax do to nominal tax benefits from the minimal interest expense deductions. Plus, you're under leveraged. Take your lucky break in appreciation and put your $800k (+ or -) into a better performing 5+ unit multifamily or commercial building. The 4 engines that drive return on investment will be working together. You will get better return on your equity, tax benefits, equity paydown and be able to buy a higher value property when properly leveraged. Buying, holding and hoping (appreciation) is not a real estate strategy. Appreciation is the cherry on top. You should be able to achieve and After-tax + Principle pay down on a turn-key apartment building in the 8.5-10% range realistically and that is BEFORE appreciation.
Constant Commercial Real Estate Inc543 Reviews - Member since 2018 · 32 posts · 11 votes4y
Thank you @Sam Hopkins and @Cory Carlson, I appreciate your insight. The property that we are in is our primary residence and so once we do sell it we would need to use some of the return to find or build another home. For @Cory, I am curious how you arrived at the cash on cash number and if there is a rent analyzer you use that you would recommend? Thanks again for your help!
- Investor · Oakland, CA · Member since 2015 · 141 posts · 84 votes4y
@Cory Carlson
>> Buying, holding and hoping (appreciation) is not a real estate strategy. <<
We became Bay Area millionaires because of appreciation!!!
>> Take your lucky break in appreciation <<
Please take time to pull up 2621 78th Ave. 94605 A rental home I use to own. I purchased it in1980 for $50,000 in a high crime area. Before the drop in properties values of 2008
it had reached a value of approx $450,000. Over those 28 yr's it appreciated at a rate of
approx 8%/yr. After the huge price drop in values ... I said to myself ... Paul this home will never reach those levels again,
far too much crime. I let it go back to the bank as I had cashout many times over the yr's and now I
owed $180,000. It sold at auction for $90,000 in 2012. Today's value $500,000+ A 21% appreciate rate over the last 9 yr's!!!
In A crime ridden area of Oakland!!!Buying apartments with low cap rates of 3-5% that isn't any real money!!! And apartment buildings
don't appreciate like Bay Area homes.
If she only earns 5% on 1.6 mil that equates to $80,000 in more wealth for doing nothing but collecting rent!!!
My buddy sold his home 7029 Pinehaven Rd, Oakland 94611 in her area for $919,000 in 2/2020. In less than 2 yr'sit has appreciated to $1.3 mil 21%/yr!!! A neighbors home 12%/yr from $560k in 2014 to being sold for $1.225 mil.
over the last 7 yr's. My parents old home over the last 61 yr's from $19,500 to $1.5 mil 7.45%/yr!!!
This is the Bay Area ... all we know is EXPLOSIVE APPRECIATION rates!!!
- 4yCory CarlsonBusiness MemberReal Estate Broker · OR · Member since 2018 · 311 posts · 226 votes
I concur in recent years and on average over time seeing those high single digit appreciation during the right hold periods is doable. But from equity management & wealth building perspectives single family properties are not the wealth growth ticket... You're talking about appreciation from a property you owned in 1980. Your equity could have go so much further with active money management as opposed to 40 years of buying, holding and hoping.
Forced appreciation exists in apartments? Your single family homes I would bet are seeing lesser CAP rates than apartments? Buying a 20 unit building with rent upside and/or unrealized "other income" at a 5.25% CAP, then re-selling following a 4-7 year hold period will undoubtedly yield higher returns than buying and hoping a single family goes up in value. I close on one next month for $3.2M and minimal rent bumps to market at the same 5.25% CAP forces a new value of $3.85M. That can be done in 12 months. $500k of forced appreciation expected in 12-18 months or 40 years?
Active money management and positive leverage is what you do in appreciating markets - like the one we have now. If your after-tax return is higher then the cost of the money you're borrowing, you've properly leveraged your money.
I use a conservative 3% appreciation for all my apartment analysis and realistically see TOTAL RETURNS (After-tax + Principle pay down + Appreciation) in turn-key apartment buildings in the 18-20% ranges, depending on leverage. In the current market to realistically realize annualized double-digit returns on smaller income-properties would require strong year-over-year appreciation (minimum 3%) plus some level of structured leverage (loans in place). The math is straightforward. With smaller income-properties, investors usually must make a strategic choice whether cash-flow OR growth of capital/equity is the primary goal, it is just not arithmetically probable to optimize/maximize both at the same time. Moreover, since future appreciation is always somewhat subjective first evaluate any investment real estate holding-s on the objective return metrics first. That is; cash flow, income tax implications on operating income and the effect on yield of any loan in place (leverage).
Constant Commercial Real Estate Inc543 Reviews
Join the conversationCreate a free account to reply, vote on answers and follow this thread.