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Buying & Selling Real Estate

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Tough Decision whether to sell my one unit and buy more

Brian Cassanego
Posted May 6 2022, 14:07

Hello,

Brand new here and would love anyone's input on this. I own a condo in San Francisco. Bought it in 2004 and it has appreciated quite a bit. I have a little over 1M in equity and I am currently renting it and cash flowing a little over 1K per month. Thanks to prop 13, my property tax is only around 12K, my mortgage rate is 3% but my HOA is now 1K per month. But still, I am cash flowing and I have a prop manager in place (as the rules in SF are clearly geared towards tenants rights and didn't want to screw anything up) and I have never once even talked to my tenants (they pay rent on time every month). This is as passive income as I can get. So, it's not a bad situation. And in SF, building new residential units is very difficult, and the fact that SF is a peninsula (finite space to build) and there are great jobs here, it should always be a great market.

However, I keep on thinking if my 1M in equity can be better served in a different market buying multiple properties that may appreciate more and generate better cash flow. I did recently take a 400K HELOC out in order to start buying in other states. I am def interested in Cash flow as well as appreciation. I recently sold my businesses (bars in SF) and will have a bit of money from those to bring towards the investing table. But now, my income is sporadic (Im a mortgage loan officer---got my license in 2020 when the pandemic hit and my bars were shut down--- in CA and business is pretty dry at the moment to say the least). My wife makes good income, but I would like to take the equity I have to generate nice cash flow and future appreciation. Just wondering if I should sell SF to generate a lot more money to invest in multiple properties and markets. I am not afraid of Long distance investing (reading David's book as we speak) and wondering what are people's favorite markets. And what people would do in my shoes. Thanks! and sorry for the long post!!

Cheers,

Brian

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James Hamling#3 Real Estate News & Current Events Contributor
  • Real Estate Broker
  • Twin Cities, MN
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James Hamling#3 Real Estate News & Current Events Contributor
  • Real Estate Broker
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Replied May 11 2022, 14:37
Quote from @Brian Cassanego:

@James Hamling  Well, there you go!  That's what I was thinking for sure and yes, you are correct that I am emotional about the property.  My wife and I moved north of SF about an hour to wine country (love it) and I have sold both my bars in SF and once I sell my condo (which my wife and I lived in for 12 plus years) I will be completely out.  And if you have heard what's going on in SF with the crime and homeless (pretty much all true), its a real good time to get out, while prices are still high.  And there are so many things I hate about SF right now, but that is/was my home and selling the condo, I know I will more than likely never have any interest in SF ever again.  So, yes, it's a bit emotional, and yes, I should leave that out when investing.  Now the great question is WHERE TO INVEST?  I have been looking at numerous markets and everyone of them has it's positives and negatives and I know I won't get it 100% right, but I really want to make the best decision I can here.  Thanks again!!!  And I really like getting an A plus property in a great market/neighborhood with A plus tenants while netting 7K monthly.  Really like the sound of that!


 Yeah, my spidy senses were tingling that this property probably held more value then just the brick and wood of it all, and know what, that's a-ok, it is, it's when we can't be honest about such that we get into trouble. It's a process and sounds like your working through it very well. I sold a company that I was very glad to be out of but still, it held a lot of history, a lot of nostalgic value and took my almost a year to liquidate my shop and 90% of the assets, because i just couldn't do it all at the once, it was a process, for myself. 

On the AAA strategy, I was not joking or exaggerating, those were literal CONSERVATIVE numbers of live-time results I am producing right now this very time. And truth be told, many can brag of way bigger cash-flow with that capital BUT, and i stress the BUT, at what risk, oh so much more risk, maintenance, drama, headaches etc.. Myself, I HATE risk, hate hate HATE risk, I am super risk averse and that's why i am so strong into the higher class of properties and tenants. Not to mention the equitable gains we make blow peoples mind's. 1 acquisition I did last early fall, that 100% could have done with your capital position, i just helped those client's clear that position and made a $480k profit in 12 months. That's the power of equitable returns when compounded by multiple properties. No, not A multi property, multiples, as in a package deal of SFR's.

I could of course speak the value of my main market I am in now, because it's obviously the best from all i know as i have and do work all over the country and I am headquartered here, there is obviously darn good reasons for that, right. But being "Honest Abe" about it, I'd say DON'T look for a market because your head will spin with the various potential strategies. START with a chosen strategy, then DEFINE the specific targets within that strategy, get VERY definitive. For example, i spoke of AAA Strategy I devised and coined, it's ultra specific down to the exact age, type, area setting for property and the specific demographics of tenancy, so to "find" where those are becomes rather easy because the strategy is so well defined. 

So start with strategy, then get very specific in your defining of it, and then seek out the best fitting market for that, cross referenced by resources available in market to empower the performance of that defined strategy. 

And hey, you can always look me up here as well right. 

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James Hamling#3 Real Estate News & Current Events Contributor
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James Hamling#3 Real Estate News & Current Events Contributor
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Replied May 11 2022, 14:51
Quote from @Brian Cassanego:

@Account Closed

THanks Blaise.  I have considered it, but it is something I don't know as much about.  I was always interested in Self Storage, however, I would much rather be closer to that so I can run it more efficiently.  You have any takes on that?


 Self-storage is a whole different beast unto itself. Many tend to promote the book-highlights, as in "according to what I read...." and not mention from real-world experience as the on-the-ground reality has some unique intricacies. For starter, the biggest item is are you stepping on someones toes with where want to do one? Oh yes, people get very territorial in SS industry, intensely so, and it makes a major difference. Aside from that, it's not passive, not at all, a person can make it passive but it is far from passive onto itself, it is a business, no different then owning a Subway, and requires to be actively managed and ran as such. You can make a Subway passive also, with proper systems and staffing, just like SS. 

As for NNN Commercial property investments, it's great IF and WHEN you get a well performing long term tenant who is decent. It's a living hell when you get a nightmare tenant who decides it's better to keep you bombarded with legal fillings and attorneys over disputes rather then living within there lease. Or the 2-4yr vacancy times. Or if stumble into the wrong property purchase and find it has illegal dumping and get's labeled a super site, or or or. NNN Commercial property investing is something ONLY a very well versed person should ever dare touch, think on just this 1 fact alone, your tenants all have $ and resources for ready legal actions and attorneys, ALL OF THEM. So disputes rarely process without some legal aspect, you will need attorneys on retainer to dip toes in the commercial property space.

For self-storage, a person all but always needs an experienced consultant or a JV partner to get the financing to clear to develop a site because there betting more on the performance of the business then on the infrastructure, so they need to see various studies to support viability but also operations write-ups to equally show capability to perform. Took me 6 months to nail down how to do my first one correctly.

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Paul Moore
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Paul Moore
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Replied May 19 2022, 09:54

Hi @Brian Cassanego. Congratulations on your success so far! As was pointed out above, you are in a great position but not maximizing the use of your equity. The 1031-exchange would be a great option, but it would still mean you are active as an owner and property manager. If I was in your shoes, after investing in real estate for a few decades, I think I would sell the asset and spread your money across several syndication deals. If paying the capital gains tax on that is too painful however, you could sell it and do a 1031-exchange into a Delaware Statutory Trust. A vehicle like this will maintain your 1031-exchange but allow someone else to take over the headaches, hassle, etc and provide you a moderate and stable return. Another option would be to sell your property and invest in a syndication with a very steep depreciation curve. We have invested with mobile home park operators who provide huge paper losses in year one and that could help you a lot if you decide not to do a 1031-exchange. My two cents. Happy investing!

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Chelsie Runnings
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  • Sonoma County
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Chelsie Runnings
  • Real Estate Agent
  • Sonoma County
Replied May 25 2022, 14:39

Hi @Brian Cassanego, I saw you also are in Sonoma county now, I split my time between Sonoma County and Shasta County. I work with many investors who got into STR in the Russian River area, unfortunately, the County has cracked down on STR's in the area. I helped a client secure one of the last permits available for the Forestville area earlier this year. They capped the permits for Russian River last year, and just last month put a 45 day moratorium on issuing any permits outside of Santa Rosa City limits. This cap is for now only set for 45 days,however, I would not be surprised if it goes on longer as home owners are pushing to prevent any future permits. in 2020 I started investing up North in Shasta and Tehama Counties. I am doing Long Term Rentals, using the BRRRRR method however they don't have many regulations on STR yet, with quite a few destination areas that make STR there desirable. I chose this area because the cost of entry is far lower than the cost of Entry for the Bay Area, and the growth over the last few years has been exceptional. With business such as Chick Fil A, Whole Foods, Trader Joes, Etc opening up shop. Redding was also just named 4th best economic small city in America.

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Brian Cassanego
Replied May 25 2022, 16:45

Hi @Chelsie Runnings. Funny you should say that as I was definitely looking into an STR in the Russian River area before this am moratorium. And, knowing Sonoma County as I do, I am sure it's going to be almost impossible to enter the STR realm now (well, besides the coast). Was also for a hot minute looking at Shasta as well! Obviously fire danger and insurance companies raising premiums or pulling coverage all together scares me up there (or anywhere in CA now). I have a friend who recently purchased a property in Twain Harte to do an AirBNB and he's been doing well on it. I helped him secure the financing, but the insurance part was difficult and expensive. Whenever you are around Fountaingrove if you have time, maybe we can go get a cup of coffee. DM me if you would like as I am interested in the STR space in CA, as, IMO, eventually CA will put a hard cap on that space and the only people left would be the one's grandfathered in. So it can be a good time to get in that market.

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Matt K.
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Matt K.
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Replied Jun 3 2022, 02:27

This kind of money has some good weight behind it in other markets....granted you might not see the same $ in appreciation, but you'd see far far far more cash flow.

I went to KC, could make a long list of logical reason why and happy to if you wanted to chat....but have some creative ideas for you.

You could do some multi family or portfolio, like everyone does...or scale it down a bit and add in some STR. I'm in the process of converting a long term rental and doing nice remodel to make it stand out. The short term numbers make sense and worse comes to worse I could always convert it back...

You could do the above and balance it out with some REITs to lessen the landlording.

But here's the crazy idea, you could probably do a full B&B or botique hotel. I mention this because seems like you enjoy hospitality having owned a bar. There's some pretty cool ones in KC and they wouldn't be terrible to replicate cost wise.