Sell or keep renting? How to decide?

Buying & Selling Real Estate
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Sell or keep renting? How to decide?

Lenore C.
Investor · Cardiff By The Sea, CA · Member since 2015 · 14 posts · 5 votes

Hi All,

We own a 2 bd/2ba condo in a luxury high rise in downtown San Jose. We purchased it when we lived up there, and then have had it rented for about 5 years.  We are living in San Diego now.  San Jose has a ton of new high rises being built (5000 high rise condos or apartments are in the process of construction, or have been approved for construction, etc).  

Obviously developers think that the downtown of San Jose is worth investing in.  We have about $150K of equity in our condo (after taxes etc if we sell).  We essentially break even on the unit right now. Monthly cost to maintain unit runs about $4k. My concerns are that they could over build, and rents and property values would go down until it the units fill up again.  We could face vacancies and/or have to lower the rent and carry a loss for a while.

it seems that property values should eventually go up, if the downtown gets nicer, busier, has more jobs, restaurants, retail, etc.  Silicon valley needs more housing and jobs are in abundance.  The downtown of San 

I am not sure how to decide on whether to rent again (lease is coming up for current tenants and they are moving out) or sell now?

Any thoughts would be appreciated!

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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
9y

$4,000 a month in expenses? You've rented it for five years and are just breaking even?

We are experiencing one of the hottest rental markets in history and you are only breaking even. Others are familiar with the neighborhood and say it's a bad place to invest. You're basically holding onto a really expensive pig hoping the California government will make the right choices and improve the community. Those are some terrible odds.

Dump it and move your money to a more affordable, Landlord friendly state that is on an upswing.

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  • Leslie Pappas
    Professional · San Francisco, CA · Member since 2014 · 876 posts · 301 votes
    9y

    The San Francisco Bay Area reached its peak acceleration in the velocity of sales price increases last year.  Prices are still going up, but at a lower rate.  There's still time to get out, but as a local real estate broker, I would take the money to a different market.  There is still good money to be made in AZ, FL, GA, TX and other states, however, picking the right submarkets is key.  Hence I recommended looking at DSTs, if you are qualified as an accredited investor.  DSTs can help you diversify into many markets with your gains, and 1031 exchange will help you defer taxes as you diversify for more safety.  That's not a sales pitch- it's just the truth.

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  • Leslie Pappas
    Professional · San Francisco, CA · Member since 2014 · 876 posts · 301 votes
    9y

    BTW, I neglected to mention a very good source of local analysis, rereport.com.  

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  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    9y
    Amit M. If you have been at SJ downtown, day or night, you will know exactly what I said and why I said it.... Even OP used the word "weird" and "strange"... By the way, I gave OP ton of credit for keeping a clear head and see the location for what it really is...Lots of home owners could only see good with their locations... With newer business all moving up north, SJ downtown lost its window of opportunity, building tons of new property does not help...Eliminating the homeless problem would.. In my view, Jury is already out on SJ downtown.... jury is not yet out on East Palo Alto... but again that is a big gamble that I would use my own money on..
    0Reply
  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    9y
    Would not ****
    0Reply
  • Dominique Van Ryckeghem
    Real Estate Agent · Palo Alto, CA · Member since 2016 · 16 posts · 6 votes
    9y

    Hi Lenore,

    You're right that there is lots of construction going on in San Jose (on W. San Carlos in particular) but the genesis of that goes back a few years after some rezoning was done. I know a couple of the developers of some projects on W. San Carlos St and it's been interesting to look at some of the details of some of those (e.g. waivers of the affordable housing impact fee, etc.)


    In your particular case though, I think you'd be fine selling, in fact, looking at the data (and also from experience), sales have picked up since the beginning of the year and days-on-market is less than 2 weeks. My opinion is that it could be sold very quickly especially if the tenants have moved out, the property becomes vacant and therefore the ease of showing it goes up dramatically. Realtors tend to be lazy when it comes to 'showing hassle'. (I know my people ;-) )

    Whether to do a 1031 exchange or some other method of deferring taxes (one alternative was mentioned already), I think a cost-benefit analysis would be appropriate (since there is no free lunch). For a 1031 exchange you will definitely need a plan, i.e. figuring out where you're buying a replacement property after you've set the exchange timelines in motion is not a good idea.

    If you're leaning towards keeping it rented, perhaps see if there's any loan products out there that could give you a better cash flow? Breaking even right now doesn't sound that great.

    Let me know if you have questions.

    Dominique

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  • Lenore C.
    OP
    Investor · Cardiff By The Sea, CA · Member since 2015 · 14 posts · 5 votes
    9y

    Hi @Dominique Van Ryckeghem.  Thanks for this response.  I would be interested in talking with you if you are available and have time.  

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  • Dominique Van Ryckeghem
    Real Estate Agent · Palo Alto, CA · Member since 2016 · 16 posts · 6 votes
    9y

    Hi Lenore,

    Sent you a connection request via BP. I included my phone number and email address.
    I have some time to talk this afternoon. Otherwise afternoons during the week are best for me.

    Dominique

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  • Arlen Chou
    Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes
    9y

    @Lenore C. in my humble opinion, I don't think you are giving enough information to the community to get an answer of any real value.  It would be extremely helpful to know what you paid for the unit, where in DT SJ the unit is located and the condition/amenities of your unit.  I personally feel $4000 a month is a GIANT nut for a 2/2 condo in a crappy old complex.  It is a completely different story if you are on a top floor unit with great views.  The fact that you think you only have $150k of equity and your reply to @Nathan Gesner that you think the property value increased by $300k in 5 years, throws more confusion into the mix.  

    Was the refi that you did a large cash out refi?  It sounds like it was... If that is the case, did you buy another asset with that money or did you blow the money on liabilities?  Sorry if this sounds harsh, I don't mean it to be a smack down, I am just trying to better understand your situation before addressing your question.

    On another note, before you commit to the idea that weird and strange are not good traits, just keep in mind places like: The Mission District in SF, SoHo in NY, and countless other places around the globe.  Even though they were once thought to be weird and strange the values in those areas have blown up over time.  I personally think looking for "weird and strange" before it becomes "hip and cool" is not a bad use of time...  But the idea of SJ being weird and strange moving to hip and cool is a totally different topic as is the topic of condos as good investment properties or not.

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