Should I sell or hold my Bay Area townhome?

Question

Hi

I have a townhome in bay area with 70% equity currently valued at 1million.

I am considering relocating to Sacramento area to expand my family. I have enough savings to buy another property in Sac without selling the townhome.

I need advice on what should I do with my townhome - sell it and invest in another property/ market or hold and take tax depreciation - how does depreciation recapture work when I eventually sell it?

What would be ideal to minimize taxes?

Note:- it can rent for about $3500/month and leave me with $400-500 cash flow/month.

thanks!

Joe Bertolino · Answer

$400/mo on $700K in equity doesn't excite me.  I am also thinking Bay Area townhomes are going to stay fairly flat for awhile.  I don't see a crash but I also don't see a lot of upside in the next few years.  If it is me I 1031 into 5 new builds in Natomas, West Sac or Rancho Cordova.  You will get more monthly cash flow and be in a position to capture more upside IMO.

Daniel Zapata · Answer

Another option would be to take advantage of low interest rates and do a cash out refi to put more of that equity to work. If you play around with the numbers you can try to maximize cash out and keep it cash flow neutral, assuming rents don't go much below where they are now.

Your tenants would be paying down the mortgage and you would potentially be making money on that equity.

Of course you want to be responsible and have ample reserves.

DJ Dawson · Answer

I'd suggest if you like the idea of a rental property then take your investment out of state, perhaps a high end 4 unit in Arizona or Las Vegas that could spread your risk over multiple units as well as being a rental owner in a much more landlord friendly location.

I am originally from the bay and recently moved to Sac 3 years ago (West Sac to be specific) I love it out here :)

Maria D'Aura · Answer

@Navjeet Singh

I think it depends on where in the Bay Area your town house is located, what your goal is for that investment, how it would affect you if rents went down or if tenants didn’t pay for some time. Is it in good condition currently? Consider what it could cost to rehab in 3-5-10 years after being rented and selling at a meter time.

I sold my Silicon Valley rental earlier this year and reinvested into a multifamily. No regrets. It was the right time for me to make the move and fit my goals better.

Brian Garlington · Answer

Sounds like subconsciously you already know what you want to do...... and I think you’re right.

Get some money out of it now while it’s your primary residence, then move to Sacramento while keeping the Livermore townhouse as a rental for cash flow.

Now if you want GUARANTEED rent you will also consider placing a Section8 tenant in there and that way you don’t have to deal as much with these crazy tenant friendly laws here in the Bay Area AND you also will not be restricted with rent control.

That is what I do.

Should I sell or hold my Bay Area townhome?

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