Sell, Rent, Short-Term/Vacation?

Question

SFR in Orange County with approximately 100k in equity. Monthly PITI is $4,500.

Do I sell? Cash out and take the 100k, invest OOS.

Do I rent? Comparable rents are $3,500-$4,000

Do I short-term (Airbnb) due to my close proximity to year round destinations like Disneyland, Beaches, SoCal? Comparable nightly rates are $200-$300.

Dave Foster · Answer

@Andrew Lee, some good advice from @Nick Elg.   You won't break even with an annual renter.  It will take you 270 (75% occupancy) nights of air bnb to break even on piti alone before expenses of rental.  sell!

And if you have lived in it for 2 out of the previous 5 years then the profit will be tax free -- so the answer then is sell now!!

the 1031 exchange will be fine for you if that property is an investment property,  It will let you defer indefinitely all tax.  And you can take the proceeds and invest anywhere in any type of investment property.

Andrew Lee · Answer

@Nick Elg

Thank you for your advice. You are right, it does “depend”.

Being in SoCal, I can confidently bank on eventual appreciation. My fear is that the markets here are so overheated we may see a flattening of appreciation if not an outright decline. During that time, I may be left holing on to a losing property waiting for it to rebound. At the end of it all, I could be wasting 5, 6, 10 years.

I do not have systems in place for short term so that seems to be the longest shot considering the lack of upside.

I am not liable for capital gains on this property so that’s the biggest draw as well as freeing up the capital. I am definitely leaning in that direction.

Nick Elg · Answer

@Andrew Lee,

I bet you will get a lot of answers that say: "it depends". I agree, it depends on your situation and what you want out of it. Do you want cash flow each month(OOS), are you fine losing money each month hoping for appreciation(rent), or do you have systems or can you set up systems to make airBnB work(AirBnB)?

What I would do:

-Sell and pay no taxes.

If I had lived in the property for 2 out of the last 5 years I could sell and not pay any taxes then I could invest oos. Anyone wanting to do it should consult the proper authority like an attorney, of course.

or

If I hadn't lived in the property then I would figure out a way to do a 1031 .

-Find a market/people you want to invest with OOS.

OOS would provide cash flow, debt reduction/equity build up, depreciation, etc on multiple properties and all of which would support you buying more properties.

Hope that helps! Good luck on your decision.

Andrew Lee · Answer

@Dave Foster

Thank you for your input! Seems pretty straightforward.

Ashley Obasi · Answer

Hi Andrew,

Definitely a good idea to weigh your options. I wouldn't suggest renting as you wouldn't even break even. Unfortunately it is hard to find a good rental in Orange County that cash flows. People who buy negative cash flow properties buy it to wait for appreciation, but seems like you already have seen good appreciation so selling might be a good option.

If your thinking of selling keep in mind the market has shifted a bit. Homes are not selling as quickly as they did in the beginning of 2017 and homes are slightly cheaper then they were in beginning of 2017. The orange county market is shifting to a more even market instead of the seller's market which is has been for years. That doesn't mean its a bad time to sell because it definitely is.

There isn't going to be an outright decline as we saw when the market crashed before. Employment hasn't gone down and there isn't any major issues that would cause the market to crash. If you are thinking of selling it would be good to think about prepping to sell now before the spring hits as that is a hot time to buy. Buyers are going to be looking earlier this year as the interest rate is going up so they will want to buy before the interest rate increases more. If you want to know more about the Orange County market feel free to ask me.

Airbnb is a good option as you can make some serious money. You would need to calculate what places go for in your area and how many days do you need to rent it to break even. Orange County is a very good destination so you won't have any problem renting it out if you have a good system in place. BUT keep in mind running an Airbnb is a job. You would have to have a flexible schedule and know that having an Airbnb isn't exactly passive income.

Nick Elg · Answer

@Andrew Lee

Good luck. Let us know how it goes!

Sell, Rent, Short-Term/Vacation?

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