Sell to buy appreciation or to buy cash flow? what do you think?
I'm curious to know what you think?
We have a rental condo collecting very little cash flow ($200 per month).
The reason why we kept it, was bc it used to be our primary home and we can sell it until the end of 2023 and NOT pay capital gains on the profit.
We have about $200k sitting in it (equity). I have done the numbers back and forth and my debate is:
1. Do I take the proceeds and go buy 5 rental properties at 20% down- in lower priced markets where I would be cash flowing about $350 per property or about $1500 per month?
or
2. Buy here in CA where I can buy a home for $800k then improve the home and add an ADU with the same amount of money and end up with about $1k per month in cash flow (net after expenses) and increase the value of the home by around $200k (purchase for $800k put $200k in improvements: $1 million total and home's ARV would be $1.2)
Then refinance it and get back about $150k of my total investment and go do it again.
I have done this already, so I know it works, but it does require a lot more time and effort.
I do want to start building more 'Passive' income and start enjoying profits from it, but I know that buying in appreciation markets now can help dramatically in the future when I sell to buy in less expensive areas.
What would you do?
Thanks
Quote from @Dan Heuschele:
quick questions and I don't mean this to be a Dig at all…
When do you think you will start "using" the cash flow from properties to improve your quality of life? (Unless you already are or you have a job that pays you well outside of real estate).
Just curious.
I work as a realtor: so it is all commission based. I like it and building a business that could grow and sustain itself without me having to sell, but not there yet and why I would like to build the passive income arm of investing.
The short answer is obviously it depends on your investment goals.
The more in-depth answer would be to take a look at the time and return on just the 1 property vs investing in 4 to 5 others in different markets. Depending on the market, you can get great cash flow and have fantastic appreciation. This is especially true in one of the markets I work in (Minneapolis).
Without knowing too much of the numbers my suggestion would be to find 3 to 4 properties in markets that have good/decent cash flow and have a really high appreciation rate. Find some opportunities for value add potential without having to do a big renovation. Next, find an agent in that market that knows what they are doing and specializes with out of state investors and investment properties.
Hope that info helps
I would put it on the mkt. immediately,
watch Gammon on YouTube for why,
then move to a no income tax state,
where opportunities will appear
soon if there's a housing crash
before the date on the 1099-S...
you'll only come across a few
opportunities in your life by
Charlie Munger