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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Jacob Pereira
Real Estate Agent · Austin, TX · Member since 2014 · 636 posts · 486 votes
4y
Hi Vamsi,
I was born in San Diego and have lived in Austin for the last 15 years. I love both cities, and as I always tell my clients, you can make money everywhere, given the right resources and motivations. As others have stated, Austin is a very hard market to cashflow purely with a purchase. Generally you'll have to either find something off market yourself (even the wholesalers are asking a premium these days; sometimes for more than it would go for on the MLS), or do a moderate amount of value-add (moderate to heavy remodel, change in rental type, etc.)
The thing that it seems like everyone is glossing over is the difficulty you'll run into with a $1M+ exchange. If you go above the 3 property limit, You'll HAVE to close each property, and it's a very strong seller's market, so your offers will need to be strong. You'll never cashflow a $M+ single-family rental in this market, so keep that in mind. You're in a great position; just be careful.
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Emy Bernardo
Investor · San Diego, CA · Member since 2017 · 112 posts · 92 votes
4y
I don't know how many units your property is, but $17,000 sounds like a great return to me and that type of cash flow would not make me want to sell. That said, 1 million quite a bit of equity to be sitting idle. With interest rates are on the rise, it might not make sense, but if the numbers worked, a cash out refi or a heloc might be a way to take out some of the equity and purchase more properties in another market. Or, maybe look into adding an ADU or JR ADU to your existing rental in San Diego to generate more cash flow..
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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
4y
Your return is terrible due to your high equity position. What would have been your return if you had maintained LTV between 70% and 80%?

We own quite a few San Diego properties. Some were purchased with poor timing and some were purchased with great timing. They each have appreciated between $2k and $10k per month over the hold period.

Rents go up as properties appreciate.

The outstanding San Diego appreciation does not factor if comparing to Austin as Austin has also had outstanding appreciation. however, both San Diego and Austin have historical appreciation greater than the other Texas markets that have been mentioned.

What does factor in is the prop 13 advantage in CA. The property taxes in Austin will go up at a similar rate to the value. In CA the property tax increase is capped at 2% annually. You currently pay a prop 13 based lower property tax that can be significant. On one of our units the prop 13 tax savings equates to over $1k/month.

Good luck

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Vamsi Pan
OP
Member since 2022 · 8 posts · 5 votes
4y
Quote from @Harish V.:

Why do you think the rental properties will be neglected ?
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Vamsi Pan
OP
Member since 2022 · 8 posts · 5 votes
4y
Quote from @Travis Primm:

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…

With Samsung and Tesla coming to suburbs in Austin, would not that help with cashflow ?
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Jordan MoorheadBusiness Member
Real Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
4y
@Vamsi Pan long term rents continue to rise but nowhere close to the appreciation of homes in the area. You're right that in the future rents my rise to a point that you have good cashflow!
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