San Diego or Austin ?

Member since 2022 · 8 posts · 5 votes

I have currently rental in San Diego, but the renters are moving. Currently the San Diego rental generates around 17K/ year cash flow. Does it makes sense to sell in and use the equity (~1 Mil) to buy more rentals in Texas (esp Austin / San Antonio). Given that the markets are hot and I need to do a 1031 seemed little bit risky. But also feel that the returns are not that great in SD.

Experts, please share your thoughts!

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Jordan MoorheadBusiness Member

Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes

@Vamsi Pan you would have $1M if it sold? We could get you 5 rentals in Austin for that using leverage. You'd pay down more debt, have more appreciation and more cashflow. No brainer IMO.

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James Cook
Real Estate Agent · Houston, TX · Member since 2016 · 17 posts · 8 votes
4y
Vamsi,
Where in San Diego is your rental? Is it single family residence? You could perhaps get into a duplex or even a fourplex in the Austin Market and get pretty decent returns. The Market is super competitive though but there are deals out there. I can give you a better answer with more information.
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Vamsi Pan
OP
Member since 2022 · 8 posts · 5 votes
4y
Yes, it's an SFR in A/A+ category. I have not done multi-family before and was always on SFR.
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Jordan MoorheadBusiness Member
Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
4y
@Vamsi Pan you would have $1M if it sold? We could get you 5 rentals in Austin for that using leverage. You'd pay down more debt, have more appreciation and more cashflow. No brainer IMO.
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Twana RasoulBusiness Member
Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
4y
@Vamsi Pan Hi There! Is there a reason that you want to sell other than your tenants moving out and you feeling like your returns are not that great?
More often than not, selling is not the best option in San Diego/not necessary. You are making $17,000 a year in cashflow, how much has your property increased in value, how long have you had it and how much did you put down to initially buy the property.
Without knowing more details, I'd have a hard time believing that your returns have not been great, especially if you have held for more than 5 years.
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Travis Primm
Real Estate Agent · Austin, TX · Member since 2019 · 5 posts · 7 votes
4y
Hi Vamsi,
My background is having personally lived in North County San Diego for 4 years, born and raised Dallas, and currently in Austin.
It would depend on what your goals are. It is not clear if you're trying to go for more value in appreciation vs cashflow.

Some of the points I'd consider once you define your goals, here are some things I'd keep in mind:
* Landlording in Texas will lead to more control as it's more favorable to landlords.
* San Antonio will have higher opportunities for cashflow than Austin.
* Austin will always be exciting, but Austin has the lowest cashflow (regularly) than the rest of Texas.
I'd be happy to help introduce you to more detailed analysis of Austin of any example properties that look interesting to you.
2 Reply
Harish V.
Investor · Fremont, CA · Member since 2015 · 209 posts · 124 votes
4y
Quote from @Twana Rasoul:

@Vamsi Pan Hi There! Is there a reason that you want to sell other than your tenants moving out and you feeling like your returns are not that great?
More often than not, selling is not the best option in San Diego/not necessary. You are making $17,000 a year in cashflow, how much has your property increased in value, how long have you had it and how much did you put down to initially buy the property.
Without knowing more details, I'd have a hard time believing that your returns have not been great, especially if you have held for more than 5 years.
@17k for a mil you are having cash flow of 1.7%. You can surely get better in Austin/San Antonio. Besides, considering that inflation is going higher. Rents will be higher while Rates can be locked. You may want to be net borrower in high inflation environment. Just be careful to keep some money aside for emergency. Choose better areas so you get both income and equity gain.
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Bruce Lynn
Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
4y
I don't know that your return is any better in Austin, but there are places in Texas where I think you could up your returns significantly.
Places like DFW, San Antonio, Lubbock, or Houston.
3 Reply
Michael Mendez
Real Estate Agent · Lubbock Tx · Member since 2020 · 77 posts · 44 votes
4y
Quote from @Bruce Lynn:

I don't know that your return is any better in Austin, but there are places in Texas where I think you could up your returns significantly.
Places like DFW, San Antonio, Lubbock, or Houston.

@Vamsi Pan I agree with Bruce, some areas of Lubbock saw 30% appreciation, while other areas saw a low as 17%.
1 Reply
Vamsi Pan
OP
Member since 2022 · 8 posts · 5 votes
4y
I have had for around 10 yrs, it was a primary and then became a rental. Based on zillow value, the property has increase ~ 4.6% till Jan 20 and after covid the increase is mind-boggling (unsustainable?) and did not use that. But around the same time a Round Rock (Austin suburbs) property has 7.2% appreciation. So I am getting more convinced with TX.
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Vamsi Pan
OP
Member since 2022 · 8 posts · 5 votes
4y
Quote from @Bruce Lynn:

I don't know that your return is any better in Austin, but there are places in Texas where I think you could up your returns significantly.
Places like DFW, San Antonio, Lubbock, or Houston.

Yes, I am definitely looking at San Antonio. Not familiar with Lubbock or DFW. What makes DFW better market than San Antonio?
Want to avoid Houston because of potential hurricanes.
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Bruce Lynn
Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
4y
Most people look at Austin today and when you compare rents vs price, it probably looks like San Diego is my guess.
I think DFW will get you better rent vs purchase price, so better returns as far as rents go.
Speculation for price appreciation is not a game most investors seem to want to play. Who knows where market will go, but I would suspect when you look at the past year Austin may have the best price performance/appreciation in Texas. As they say in the investment world though, past performance is not always an indicator for future returns.
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David SandvigBusiness Member
Real Estate Agent · Austin, TX · Member since 2018 · 63 posts · 48 votes
4y
The one thing I would be careful about: inventory is very tight right now in Austin which could make the timeline of a 1031 exchange difficult. That being said, I definitely think you can do better than $17k cash flow with $1M of equity in the Austin market. You could always diversify too; you could sell your current rental, and buy two less expensive properties (one in San Diego and one in Austin/San Antonio).
4 Reply
Loren Polito
Real Estate Agent · San Antonio, TX · Member since 2017 · 109 posts · 81 votes
4y
I’m not very familiar with the DFW market but in my opinion San Antonio still has a lot of room for growth and we are seeing solid monthly rent rate growth mixed with nice appreciation growth as well in most parts of the city. I am originally from the Bay Area and even though it’s getting harder and harder to find deals here you won’t have much trouble finding something that makes more sense number wise here in Texas.
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Bryan Wells
Oceanside, CA · Member since 2020 · 7 posts · 17 votes
4y
I am in the same boat, and have been pondering my options as well.

One of the problems with selling highly appreciated property in California (ha!, poor me!) is that you lose your artificially low tax base. If you sell in California, and then repurchase in California, don't forget to factor that in.

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Vamsi Pan
OP
Member since 2022 · 8 posts · 5 votes
4y
Quote from @Bruce Lynn:

Most people look at Austin today and when you compare rents vs price, it probably looks like San Diego is my guess.
You mean San Antonio? Agree about your comment on the future returns.
1 Reply
Vamsi Pan
OP
Member since 2022 · 8 posts · 5 votes
4y
Quote from @David Sandvig:

The one thing I would be careful about: inventory is very tight right now in Austin which could make the timeline of a 1031 exchange difficult. That being said, I definitely think you can do better than $17k cash flow with $1M of equity in the Austin market. You could always diversify too; you could sell your current rental, and buy two less expensive properties (one in San Diego and one in Austin/San Antonio).

Yes, thats my concern with the 1031. Will check this suggestion.
1 Reply
Morgan Scott
Member since 2022 · 17 posts · 10 votes
4y
Vamsi, I think San Diego is a wonderful place to own real estate. It has shown to have great price appreciation over time. The weather and location creates a consistent demand. For that reason, I know what I'm going to say may be unpopular. I think it depends on what you are looking to accomplish. There is a difference between asset appreciation and cash flow. Its hard to know what a market will do in the short term, but long term San Diego will likely continue to have good price appreciation. If we look at your cash on cash(Net Income/Equity originally invested) your return might look pretty good. But if you look at Return on Equity (Net Income/Proceeds after sale) it might illustrate a lesser return and could highlight opportunity costs of not investing in a different asset type or location. Based on everyone's feedback it looks like Texas would deliver a better cash on cash return. Does that fit your goals? Whether you stayed in San Diego and found a different investment or took it to the Texas market, I think its clear that you would hope to generate a better return on a million dollars of equity. This was a great thread to read. Thanks and Happy Hunting!
2 Reply
Celine Crestin
Real Estate Broker · Austin, TX · Member since 2022 · 89 posts · 93 votes
4y
A 1031 exchange could work well, but I would recommend you buy outside of Austin city limits. Depending on how much cash you'll have and how much you want to leverage, you could get into several SFRs with cash flow and high appreciation gains.
0 Reply
Aaron Gordy
Real Estate Broker · Austin, TX · Member since 2012 · 1k+ posts · 1k+ votes
4y
@Vamsi Pan A 1031 exchange is tricky especially if buying in a hot market such as Austin metro. I say the metro because even the suburbs are smoking hot! If you know of a good area in San Diego then go for it especially if its made you that much money but then again, I don't know how long you have held the property to compare it. As a side note, my son is moving to San Diego this summer and we will be looking for deals there too.
As for Texas, I look elsewhere all the time thinking I have a ton of equity but when I go look for yield, I realize that my best yield (thinking long term appreciation) is in my back yard, so to speak, as I know it exceptionally well. I have driven all over this state looking at apartment buildings and have put on over 10k miles looking at deals from west to east to north to south. On the plus side, I realize that the best bbq in Texas is in Austin. The negative side is that I have put on alot of mileage on my f150.
If you do a 1031 exchange into something in Austin metro then be careful of the broker or agent that you go with as that choice could cost you 10's of thousands of dollars in taxes. Why not do a cash out refi so that you don't have to be stressed as much?
2 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
I would take advantage of the opportunity if only because CA is severely tenant friendly and likely to become more so as they follow the path they're on. Plus you'll probably make more $$ in the long run...
0 Reply
Harish V.
Investor · Fremont, CA · Member since 2015 · 209 posts · 124 votes
4y
Quote from @Bruce Woodruff:

I would take advantage of the opportunity if only because CA is severely tenant friendly and likely to become more so as they follow the path they're on. Plus you'll probably make more $$ in the long run...

The Market in CA, more importantly bay area is messed up. I see properties with Zillow estimate of 1.5M+ with rental estimate of < 4K. Thats a 2% return before property tax and property tax will eat up 50% of it for sure, if purchase was made today. Dont think anyone can buy for investment anymore. Any existing rental properties are going to be neglected. Rental rates are going to sky rocket 2-3 years from now.

0 Reply
Nathan Weber
Member since 2020 · 38 posts · 15 votes
4y
Quote from @Travis Primm:

Hi Vamsi,
My background is having personally lived in North County San Diego for 4 years, born and raised Dallas, and currently in Austin.
It would depend on what your goals are. It is not clear if you're trying to go for more value in appreciation vs cashflow.

Some of the points I'd consider once you define your goals, here are some things I'd keep in mind:
* Landlording in Texas will lead to more control as it's more favorable to landlords.
* San Antonio will have higher opportunities for cashflow than Austin.
* Austin will always be exciting, but Austin has the lowest cashflow (regularly) than the rest of Texas.
I'd be happy to help introduce you to more detailed analysis of Austin of any example properties that look interesting to you.
Hi Travis,
can you elaborate on why Austin has the lowest cash flow in Tx?
Thanks
0 Reply
Travis Primm
Real Estate Agent · Austin, TX · Member since 2019 · 5 posts · 7 votes
4y
Quote from @Nathan Weber:

Quote from @Travis Primm:

Hi Vamsi,
My background is having personally lived in North County San Diego for 4 years, born and raised Dallas, and currently in Austin.
It would depend on what your goals are. It is not clear if you're trying to go for more value in appreciation vs cashflow.

Some of the points I'd consider once you define your goals, here are some things I'd keep in mind:
* Landlording in Texas will lead to more control as it's more favorable to landlords.
* San Antonio will have higher opportunities for cashflow than Austin.
* Austin will always be exciting, but Austin has the lowest cashflow (regularly) than the rest of Texas.
I'd be happy to help introduce you to more detailed analysis of Austin of any example properties that look interesting to you.
Hi Travis,
can you elaborate on why Austin has the lowest cash flow in Tx?
Thanks

Not to be flippant sounding or disrespectful, but that’s just the way the numbers lie. It’s always been that way. Just for some reason years ago, a 400k house in Austin would rent for the same as a 300k house in Dallas.
To speculate, it could have been that jobs in Austin (which was basically a small college city in 2010), didn’t have the jobs to prop up higher rent.
If you don’t live in Texas, it’s very normal to over estimate the size of Austin…
0 Reply
Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
4y
You are not going to see cash flow here in Austin. What you will see is appreciation, a lot of it. Investors are negative cash flowing to take advantage of the record breaking month to month appreciation.
1 Reply
Aaron Gordy
Real Estate Broker · Austin, TX · Member since 2012 · 1k+ posts · 1k+ votes
4y
In general, you won't see cash flow on sfh as the price points are too high compared to the rent, IN the first year. In subsequent years, if you buy right then that is not the story. In duplexes and fourplexes its a little easier but keep in mind that its more management intensive. Is it impossible to cash flow? No. There are exceptions of course. There are also some creative leasing that one can do too to create cash flow as there is a significant shortage of housing in the metro.

Zoning is much different in Austin than any other major metro in the state. The zoning hasn't really changed since the 80's. Every time a big rewrite of the zoning comes up for vote, the voters choose no. That is the real reason.
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