Sell or hold in California?

Buying & Selling Real Estate
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Sell or hold in California?

Brandon Leffler
Rental Property Investor · Stockton, CA · Member since 2020 · 35 posts · 22 votes

I have a property in Stockton, CA that is worth 420k and I owe 260k. It has really solid family renting who do not want to purchase ever, so they will never leave. I can sell this year and not get hit with capital gains. It currently cash flows $600/Mo.

-I’m not sure if I should stick with the solid renters or take the $$ and invest in other markets out of state?

I own 2 other properties and they’re all in this city close to each other.

What is the best move?

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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
5y

@Brandon Leffler, Crossroads for you.  No bad choices.  Just shades of different.  My basic rule of thumb of life is "if it's not a world beater then always always take the first tax free off ramp".  This goes triple in CA.  If you don't keep it out of their hands today.  It will end up in theirs forever.  

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  • Aaron W.
    Rental Property Investor · Northern Virginia · Member since 2019 · 793 posts · 620 votes
    5y

    @Brandon Leffler Congrats on having those rentals with solid renters!

    What are your goals in investing in real estate?  Are you investing for cash flow or appreciation? Would selling or keeping best help advance you toward your goals?

    Have you thought about where you want to re-invest the money if you sold the property?  This will go back to the goals you have with investing.

    Taking the capital gains tax break on the home will allow you to use the proceeds for anything you want in the future. I did the same for a property in California a couple years ago. I ended up putting some of it in the stock market and some in real estate.

    Even if you held on to it longer, you can still defer the taxes indefinitely through the 1031 exchange or reduce/eliminate it through opportunity zone investing.

    In short, you'll want to figure out what your goals are with investing and then act accordingly.

    Good luck!

    4Reply
  • Scott WolfPro Member
    Lender · Boca Raton, FL · Member since 2014 · 1k+ posts · 957 votes
    5y

    @Brandon Leffler, if you can get out with no capital gains, I'd take that money and deploy it elsewhere.  You're current ROE is 4.5%, or you can try to get a cash out refinance.  You need to run the numbers, talk to a CPA to make sure there is no capital gains, and do what's best for you and your goals.

    3Reply
  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    5y

    @Brandon Leffler I would agree with @Aaron W. on his questions with what are your goals, you have a lot of options with the equity and what you want to do with those properties.

    You need to see what you want to do in the next 3-4 years of investing and your career, and what you want your portfolio to look like as well. There are a lot of options, going out of state will get you the cashflow play, but your application will be capped considerably. The other option is stay within the state of California and watch that application grow along with having good cashflow.   

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  • Hobie Day
    Realtor · Lodi, CA · Member since 2019 · 33 posts · 23 votes
    5y

    @Brandon Leffler just echoing what the previous 3 people have said, the best move is what fits your goals. For me, the best move would be to keep it as a rental since my main goal is cash flow but that may be completely different from your needs and wants. If you want to invest out of state for higher ROE then you can sell it or just do a cash-out refinance and take around 50k out and put it into another deal. 

    Specifically in Stockton during 2020, we saw median home prices for sold units rise 15.5% YOY so you can also continue to get your high cash flow as well as partake in the appreciation of the Stockton market. Who knows if it will continue at that rate going forward, but with low interest rates, low supply, and high demand I don't see it slowing down much. 

    6Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    5y

    @Brandon Leffler, Crossroads for you.  No bad choices.  Just shades of different.  My basic rule of thumb of life is "if it's not a world beater then always always take the first tax free off ramp".  This goes triple in CA.  If you don't keep it out of their hands today.  It will end up in theirs forever.  

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    6Reply
  • Zachary Beach
    Specialist · Los Angeles, CA · Member since 2018 · 291 posts · 231 votes
    5y

    @Brandon Leffler A few things to weigh.

    Is the capital gains savings more than the selling costs?

    Can you get a good deal for buy? equity at buy and or way to force equity from value add.

    Do you want to focus more on cashflow or appreciation or what I do Both.

    How active are you looking to be?

    Only you can answer this question. the potential for ROI is higher with selling no question but the work risk and cost is also higher.

    1Reply
  • Michelle Phimmasone
    Member since 2021 · 18 posts · 3 votes
    5y

    I'm almost in same situation, have a 5-bedroom SFR being rented out, owe $215K and cash flow about $700 a month. But, tenants are currently not paying rent due to Covid. If I can evict them in June, it's 6 months of lost rent that I may or may not get back in small claims court. I think the house is worth at least $500K, a comp in same neighborhood sold for $535K but with tenants not leaving or willing to let us in to get the place move-in ready, we have limits on our options.

    2Reply
  • Alex Olson
    Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes
    5y
    Originally posted by @Brandon Leffler:

    I have a property in Stockton, CA that is worth 420k and I owe 260k. It has really solid family renting who do not want to purchase ever, so they will never leave. I can sell this year and not get hit with capital gains. It currently cash flows $600/Mo.

    -I’m not sure if I should stick with the solid renters or take the $$ and invest in other markets out of state?

    I own 2 other properties and they’re all in this city close to each other.

    What is the best move?

     Have you considered an out of state investment? You could exchange into a Midwestern city with great growth and cashflow more and still appreciate. David Greene of this site has a great book on out of state investing.

    2Reply
  • Chase Macherzak
    Rental Property Investor · San Diego, CA · Member since 2021 · 17 posts · 10 votes
    5y

    @Michelle Phimmasone

    If you really need them to leave you could try offering cash for keys or pay for their move. Just a couple options.

    0Reply
  • Brandon Leffler
    OP
    Rental Property Investor · Stockton, CA · Member since 2020 · 35 posts · 22 votes
    5y

    @AJ H.

    Thx brotha

    Good advice

    1Reply
  • Brandon Leffler
    OP
    Rental Property Investor · Stockton, CA · Member since 2020 · 35 posts · 22 votes
    5y

    @Hobie Day

    I can see prices maybe running up until the end of the year in Stockton

    0Reply
  • Brandon Leffler
    OP
    Rental Property Investor · Stockton, CA · Member since 2020 · 35 posts · 22 votes
    5y

    @Zachary Beach

    I’m hoping selling will make me more active. I want to turn this one house into 2 or 3 doors

    0Reply
  • Brandon Leffler
    OP
    Rental Property Investor · Stockton, CA · Member since 2020 · 35 posts · 22 votes
    5y

    @Michelle Phimmasone

    And now you’ll have to start paying their utility bills as well with new CA rental law.

    What are you thinking of doing??

    0Reply
  • Brandon Leffler
    OP
    Rental Property Investor · Stockton, CA · Member since 2020 · 35 posts · 22 votes
    5y

    @Alex Olson

    I actually just bought the book

    0Reply
  • Herbert Lewis
    Real Estate Agent · Baltimore, MD · Member since 2016 · 45 posts · 34 votes
    5y

    @Brandon Leffler

    I was in the same situation in California in 2017. My property was in Manteca, Ca, and I brought the property in 2011 when the market was still low. I decided to sell the property and use the money in Maryland, where I purchased a 4-plex and two SFH. In the end, the decision was better to sell and reinvest the money in a different market where I achieved better returns. In the last real estate crash, Stockton, CA, was struck hard and the city filed for bankruptcy.

    1Reply
  • Delbert Standifer
    Rental Property Investor · Carson, CA · Member since 2019 · 185 posts · 74 votes
    5y

    @Brandon Leffler

    I say keep the property that cash flow 600 a month. If you sale and buy again you'll be chasing the 600 a month cash flow just to break even. You can try a HELOC.

    2Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    5y

    Simple. If you think you still live in the same area (Stockton) for the next 10 years. Do not sell. Maybe never sell. The house may be useful for your later generation.

    Think Stockton home is the same like having house that has nice 9% interest from the bank.

    1Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    5y

    If it is winning the race in terms of total profits which includes appreciation or lack of YOY as if you were going to sell minus taxes and fees, then it may be harder replace with other run of the mill rentals. 

    For example Austin TX is hot and has been for awhile. Turns out hot Austin is about average for CA. That's a long way to go for same profits. To make it worthwhile you may have to find something hotter than Austin Texas. 

    Good luck!

    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    5y

    What people don't realize:
    Stockton appreciation ranges from 6-9% historically, median is 7%
    Austin TX median is 5%.

    If one moves asset from CA to TX, mathematically you will lose money. The median income in Austin: 80k, stockton is 67k. However in Stockton there's interesting data that the household income is still parallel with home value for this year while in Austin they're no longer in parallel line which basically telling moving asset from Stockton to Austin is almost similar like selling Stockton and buy in San Francisco (more expensive market that's more unaffordable to common folks).

    1Reply
  • Michelle Phimmasone
    Member since 2021 · 18 posts · 3 votes
    5y

    @Chase Macherzak @Brandon Leffler 

    definitely want to get them out, just don’t know how to go about offering cash for keys. Our property manager says it’s illegal, he’s no help. Do we send them a certified letter? I was going to ask a realtor that we’ve worked with before. I don’t know if I can have someone negotiate the offer to them and not us directly? They won’t communicate with us and are putting us through hell because we mentioned in December that we were going to sell the home. 

    0Reply
  • Melody R.
    Real Estate Agent · Los Angeles · Member since 2018 · 80 posts · 75 votes
    5y

    @Brandon Leffler which new utility law are you referring to?

    0Reply
  • Account Closed
    Member since 2020 · 20 posts · 4 votes
    5y

    You could wind up having to pay utility bills too? Sheesh

    0Reply
  • Michael C Williams
    Real Estate Agent · San Francisco · Member since 2018 · 42 posts · 13 votes
    5y

    You'll have to estimate appreciation gains over the next few years in Stockton vs other markets you are looking at. For example, many East Bay cities gained 12% YoY and we are continuing to see limited supply. For many cities in Northern California, negative cashflow is expected and balanced with 6-9% YoY appreciation. A few of my investments fall into this category. 

    0Reply
  • Sattir Bitti
    Member since 2020 · 56 posts · 24 votes
    5y

    @Brandon Leffler you dont lose anything keeping it. What will you do with the appreciation is what's going to drive you. Now interest rates are so low, if you lock that, you only has potential appreciation in future and of course you continued cashflow. Dont chase cents dropping the dollar.

    0Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    5y

    @Brandon Leffler, @Willie Marquez, Runs a Stockton area RE Investors group.  I just presented for them.  He probably has some good Stockton perspective for you.

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