Rent or sell home in California?

Question

I have a home that I am currently renting for $2100 per month. Tenants pay all utilities. The mortgage on the home is $1230 per month including all insurance and taxes. The home would sell right now for $425,000. I bought the home for $195,000 in 2016. Should I continue renting or sell? Thank you for any feedback!

Nathan Gesner · Answer

Consider 10% of the rent for maintenance, 10% for capex, and 10% for vacancy. That's $630 a month that should be set aside for expenses. Deduct your mortgage of $1,230. That's $240 cash flow, which isn't bad if the numbers are correct.

However, you're in a state that is increasingly unfair to Landlords. Can you keep it and do well? Yes. But there's also a pretty good chance you'll run into problems down the line, due to unfair regulations and a bad renter, that could easily eat up that cash flow and any benefit to owning property in California. It's a risk you have to be willing to take.

I think the market is in a peak. It would be a good time to sell and invest in another state where your cash flow is stronger and you're better protected. With approximately $200,000 in equity, you could buy four $200,000 homes with $40,000 down on each, keep about $20,000 in reserve, and cash flow $200 each or $800 per month.

Of course, that takes some effort to research markets, develop a team, find the properties, etc.

Tyrus Klasovsky · Answer

Thank you for the educated feedback Nathan, this is excellent info! I had ran the numbers as well and came out with a similar number. I am definitely leaning towards selling. I had not considered purchasing in a different market but this definitely gives me some great ideas and encouragement to rethink my strategy. Thank you!