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Dalton Thornsberry
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  • San Diego, CA
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Sell To Acquire Multiple, Better Cash Flowing Properties?

Dalton Thornsberry
  • Contractor
  • San Diego, CA
Posted Jul 7 2022, 22:43

I'm in a bit of a unique situation here, but maybe not so unique as I'd imagine many investors are in something similar right now with recent appreciation, inflation, etc. 

Situation: 

I currently own one rental property in the Bakersfield, CA market that I purchased in 2017. Made some minor improvements and house hacked basically until I relocated for work. I now live in San Diego (my market here is impossible right now imo). The property is now worth almost double what I paid for it. 

Access to the equity in the property is extremely hard to come by right now as HELOCs on investment properties are suspended from any lender I've contacted. I want to gain some working capital to acquire additional real estate in a neighboring market. Cash flow is around $200 a month right now (rent is slightly below market rate as I've had a long term tenant in place). 

I could cash out refi this property but with the rates being what they are and lenders charging pretty ridiculous closing costs, the amortization schedule would not make sense and it would destroy the cash flow I do have in the property (I've worked with multiple lenders and brokers to run the numbers). 

Question:

Do I sell the property, take my $120K in capital and 1031 exchange that capital into multiple, higher cash flowing properties with slightly lower appreciation potential? 

A note: I do have a business partner willing to match that and all together we'd be in control of around $250k liquid capital. With that I do believe we could acquire 4-5 much cheaper properties outside of the existing Bakersfield market (ideally multi-family) and produce a real income to scale much faster (velocity of money and all that jazz). 


HELP!?

Also, I understand this may be the best dilemma ever to have but I want to maximize my use of this equity in one way or another, if the market in CA does cool it would be a great selling point as well. I do think the existing property has more long term potential for appreciation as the area is an up and coming hub in Bakersfield, also close to the University there. 

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Joe Villeneuve
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Joe Villeneuve
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  • Plymouth, MI
Replied Jul 8 2022, 04:38

You may not believe this, but you're actually losing money.  The higher the equity percentage a property has, the more it is losing money.

The true value of the equity isn't the face value of the equity.  The true value is what that equity represents in property value and cash flow.  In a very rel sense, your equity is what you are buying the property for, and your PV & CF is what it is buying.

Here's an example:  Typical property worth $200k at the time of purchase
A)  Purchase
  1 - PV = $200k
  2 - Cost (DP) = 20% = $40k
  3 - CF = $8k/year

...property value increases to $240k doubling the original equity

B)  Selling property, and accessing $80k in equity (now cash).  Buy new property  
  1 - PV = $400k
  2 - DP (cost) = $80k
  3 - CF = $14k/year.

...you would have lost $160k in PV...not gained $40k...

...and, if either choice is repeated, that gain/loss is exponential with each repetition.

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Steven Foster Wilson
  • Rental Property Investor
  • Columbus, OH
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Steven Foster Wilson
  • Rental Property Investor
  • Columbus, OH
Replied Jul 8 2022, 05:17
Quote from @Dalton Thornsberry:

I'm in a bit of a unique situation here, but maybe not so unique as I'd imagine many investors are in something similar right now with recent appreciation, inflation, etc. 

Situation: 

I currently own one rental property in the Bakersfield, CA market that I purchased in 2017. Made some minor improvements and house hacked basically until I relocated for work. I now live in San Diego (my market here is impossible right now imo). The property is now worth almost double what I paid for it. 

Access to the equity in the property is extremely hard to come by right now as HELOCs on investment properties are suspended from any lender I've contacted. I want to gain some working capital to acquire additional real estate in a neighboring market. Cash flow is around $200 a month right now (rent is slightly below market rate as I've had a long term tenant in place). 

I could cash out refi this property but with the rates being what they are and lenders charging pretty ridiculous closing costs, the amortization schedule would not make sense and it would destroy the cash flow I do have in the property (I've worked with multiple lenders and brokers to run the numbers). 

Question:

Do I sell the property, take my $120K in capital and 1031 exchange that capital into multiple, higher cash flowing properties with slightly lower appreciation potential? 

A note: I do have a business partner willing to match that and all together we'd be in control of around $250k liquid capital. With that I do believe we could acquire 4-5 much cheaper properties outside of the existing Bakersfield market (ideally multi-family) and produce a real income to scale much faster (velocity of money and all that jazz). 


HELP!?

Also, I understand this may be the best dilemma ever to have but I want to maximize my use of this equity in one way or another, if the market in CA does cool it would be a great selling point as well. I do think the existing property has more long term potential for appreciation as the area is an up and coming hub in Bakersfield, also close to the University there. 


 It sounds like you need to get the rents up first. I had a long term tenant and I informed the tenant of current market rates and inflation and he was willing to pay market rent, no problem. Have you considered OOS investing? Your money would go further, you could get more properties, and you would build cashflow/appreciation right away. That is in the Columbus Ohio market. I help clients everyday from California find killer deals. I would be running numbers more so that you really know when a good deal is there. https://www.calculator.net/ren... Here is the calculator I like to use. 

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Dalton Thornsberry
  • Contractor
  • San Diego, CA
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Dalton Thornsberry
  • Contractor
  • San Diego, CA
Replied Jul 8 2022, 09:15
Quote from @Joe Villeneuve:

You may not believe this, but you're actually losing money.  The higher the equity percentage a property has, the more it is losing money.

The true value of the equity isn't the face value of the equity.  The true value is what that equity represents in property value and cash flow.  In a very rel sense, your equity is what you are buying the property for, and your PV & CF is what it is buying.

Here's an example:  Typical property worth $200k at the time of purchase
A)  Purchase
  1 - PV = $200k
  2 - Cost (DP) = 20% = $40k
  3 - CF = $8k/year

...property value increases to $240k doubling the original equity

B)  Selling property, and accessing $80k in equity (now cash).  Buy new property  
  1 - PV = $400k
  2 - DP (cost) = $80k
  3 - CF = $14k/year.

...you would have lost $160k in PV...not gained $40k...

...and, if either choice is repeated, that gain/loss is exponential with each repetition.


 I appreciate this perspective, Joe! Sorry, I guess I'm turning this around. I thought I understood and then I read it three more times, haha. I guess I saw it as an investment of $26,000 having turned into $120,000. Your alluding to the idea that if I were to sell out of this existing property, and utilize that $120,000 to purchase say 5 properties all at $100,000 PV with good cash flow I'm actually losing money in that situation? Or the flip side? 

This is a hard one to grasp because I've been conditioned to see it as currently having control of around $240,000 in PV v. taking the cash down and using that to control $500,000 in PV. 

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Dalton Thornsberry
  • Contractor
  • San Diego, CA
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Dalton Thornsberry
  • Contractor
  • San Diego, CA
Replied Jul 8 2022, 09:24
Quote from @Steven Foster Wilson:
Quote from @Dalton Thornsberry:

I'm in a bit of a unique situation here, but maybe not so unique as I'd imagine many investors are in something similar right now with recent appreciation, inflation, etc. 

Situation: 

I currently own one rental property in the Bakersfield, CA market that I purchased in 2017. Made some minor improvements and house hacked basically until I relocated for work. I now live in San Diego (my market here is impossible right now imo). The property is now worth almost double what I paid for it. 

Access to the equity in the property is extremely hard to come by right now as HELOCs on investment properties are suspended from any lender I've contacted. I want to gain some working capital to acquire additional real estate in a neighboring market. Cash flow is around $200 a month right now (rent is slightly below market rate as I've had a long term tenant in place). 

I could cash out refi this property but with the rates being what they are and lenders charging pretty ridiculous closing costs, the amortization schedule would not make sense and it would destroy the cash flow I do have in the property (I've worked with multiple lenders and brokers to run the numbers). 

Question:

Do I sell the property, take my $120K in capital and 1031 exchange that capital into multiple, higher cash flowing properties with slightly lower appreciation potential? 

A note: I do have a business partner willing to match that and all together we'd be in control of around $250k liquid capital. With that I do believe we could acquire 4-5 much cheaper properties outside of the existing Bakersfield market (ideally multi-family) and produce a real income to scale much faster (velocity of money and all that jazz). 


HELP!?

Also, I understand this may be the best dilemma ever to have but I want to maximize my use of this equity in one way or another, if the market in CA does cool it would be a great selling point as well. I do think the existing property has more long term potential for appreciation as the area is an up and coming hub in Bakersfield, also close to the University there. 


 It sounds like you need to get the rents up first. I had a long term tenant and I informed the tenant of current market rates and inflation and he was willing to pay market rent, no problem. Have you considered OOS investing? Your money would go further, you could get more properties, and you would build cashflow/appreciation right away. That is in the Columbus Ohio market. I help clients everyday from California find killer deals. I would be running numbers more so that you really know when a good deal is there. https://www.calculator.net/ren... Here is the calculator I like to use. 


 I appreciate the recommendation on looking OOS. I've considered it for sure but never pulled the trigger. I do have family who is in real estate in markets near Little Rock, AK...etc. Overall, I think buying in the markets I know and understand really well is the first step for me and OOS could be a good opportunity for further on down the road. 

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Leo R.
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Leo R.
  • Investor
Replied Jul 8 2022, 10:21

@Dalton Thornsberry based on your research, how much of your money would you need to spend to acquire these hypothetical MF properties, and how much would those hypothetical MF properties net per month?  ...those numbers are key if you want to find an answer to your question...

I'm in a similar situation, and most of the models I've run don't make sense for me (mainly because the properties I own are all locked in at around 3-3.5%, but the hypothetical new properties would be at around 6%, which typically kills the deal)...but, your mileage may vary...

Good luck out there!

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Dalton Thornsberry
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  • San Diego, CA
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Dalton Thornsberry
  • Contractor
  • San Diego, CA
Replied Jul 8 2022, 10:33

@Leo R. this is my major hang-up! That's why the Cash Out Refi doesn't really make sense right now. I'm locked in at 4.125%. The properties would be expensive to borrow on but they'd still produce a significant amount more cash flow than I'm currently seeing. The answer might just be raising rents, keeping the cash flow rolling and sit tight until February/March 2023 when I'll have a little influx of capital without pulling anything out. 

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Leo R.
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Leo R.
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Replied Jul 8 2022, 11:20

@Dalton Thornsberry  yep--I also ran models with cash-out refis, and ran into the same problem...we're stuck between a rock (high rates) and a hard place (high prices) at the moment, and because of that, I think a lot of folks are struggling to figure out their next move.

The good news is: having low interest debt locked in during an inflationary surge is a good position! (You're paying the bank back with dollars that are of less value than the ones you borrowed from them; it's like borrowing gold and paying the lender back with gravel...maybe not that extreme, but you get the point).

I think the plan of sitting tight and re-visiting the market in 6-12 months could work, but it could also backfire if property values don't go down significantly in 6-12 months....if prices hold steady, and rates increase even more (which seems likely), we could be in an even tougher position in 6-12 months (but, that's pure speculation...at the end of the day, nobody knows what will happen, and it's totally possible that prices are lower in 6-12 months...we're already seeing a notable uptick in days on market and price reductions, and a noticeable decrease of demand in many markets--but who knows how far that will go).

Strange days, indeed.

Good luck out there!

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Joe Villeneuve
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Joe Villeneuve
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  • Plymouth, MI
Replied Jul 8 2022, 12:20
Quote from @Dalton Thornsberry:
Quote from @Joe Villeneuve:

You may not believe this, but you're actually losing money.  The higher the equity percentage a property has, the more it is losing money.

The true value of the equity isn't the face value of the equity.  The true value is what that equity represents in property value and cash flow.  In a very rel sense, your equity is what you are buying the property for, and your PV & CF is what it is buying.

Here's an example:  Typical property worth $200k at the time of purchase
A)  Purchase
  1 - PV = $200k
  2 - Cost (DP) = 20% = $40k
  3 - CF = $8k/year

...property value increases to $240k doubling the original equity

B)  Selling property, and accessing $80k in equity (now cash).  Buy new property  
  1 - PV = $400k
  2 - DP (cost) = $80k
  3 - CF = $14k/year.

...you would have lost $160k in PV...not gained $40k...

...and, if either choice is repeated, that gain/loss is exponential with each repetition.


 I appreciate this perspective, Joe! Sorry, I guess I'm turning this around. I thought I understood and then I read it three more times, haha. I guess I saw it as an investment of $26,000 having turned into $120,000. Your alluding to the idea that if I were to sell out of this existing property, and utilize that $120,000 to purchase say 5 properties all at $100,000 PV with good cash flow I'm actually losing money in that situation? Or the flip side? 

This is a hard one to grasp because I've been conditioned to see it as currently having control of around $240,000 in PV v. taking the cash down and using that to control $500,000 in PV. 

Banks used to give you free checking, as long as you kept $5k in your bank account.  Those checks weren't free, and as long as you had to keep that $5k in your bank, that $5k wasn't your money...it was the bank's, and it was a cost to you. 

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Jacob Trogan
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  • Kansas City, MO
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Jacob Trogan
  • Lender
  • Kansas City, MO
Replied Jul 8 2022, 14:06
Quote from @Joe Villeneuve:
Quote from @Dalton Thornsberry:
Quote from @Joe Villeneuve:

You may not believe this, but you're actually losing money.  The higher the equity percentage a property has, the more it is losing money.

The true value of the equity isn't the face value of the equity.  The true value is what that equity represents in property value and cash flow.  In a very rel sense, your equity is what you are buying the property for, and your PV & CF is what it is buying.

Here's an example:  Typical property worth $200k at the time of purchase
A)  Purchase
  1 - PV = $200k
  2 - Cost (DP) = 20% = $40k
  3 - CF = $8k/year

...property value increases to $240k doubling the original equity

B)  Selling property, and accessing $80k in equity (now cash).  Buy new property  
  1 - PV = $400k
  2 - DP (cost) = $80k
  3 - CF = $14k/year.

...you would have lost $160k in PV...not gained $40k...

...and, if either choice is repeated, that gain/loss is exponential with each repetition.


 I appreciate this perspective, Joe! Sorry, I guess I'm turning this around. I thought I understood and then I read it three more times, haha. I guess I saw it as an investment of $26,000 having turned into $120,000. Your alluding to the idea that if I were to sell out of this existing property, and utilize that $120,000 to purchase say 5 properties all at $100,000 PV with good cash flow I'm actually losing money in that situation? Or the flip side? 

This is a hard one to grasp because I've been conditioned to see it as currently having control of around $240,000 in PV v. taking the cash down and using that to control $500,000 in PV. 

Banks used to give you free checking, as long as you kept $5k in your bank account.  Those checks weren't free, and as long as you had to keep that $5k in your bank, that $5k wasn't your money...it was the bank's, and it was a cost to you. 

 I started following Joe because when I first read his comments I had no clue what he was talking about. I figured either he was crazy or I was missing something. I now understand 70% of what Joe says. Listen to Joe, I would personally sell the house! Cash out while the going is good and reinvest that capital. As for the other 30% of what he says I still learning if he is crazy or if I just have more to learn.

Good luck! Maybe look at it this way too, what do you want in your life more? Does that $200 a month materially impact your life? How could the profit realized from selling impact your lifestyle? Which impact is more of what you want in life?

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Nick Robinson
  • Rental Property Investor
  • Murrieta, CA
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Nick Robinson
  • Rental Property Investor
  • Murrieta, CA
Replied Jul 8 2022, 22:16

@Dalton Thornsberry
When did you move to SD for work? If you lived in the house for two years of the last 5 years you could sell the property and not pay taxes on the sale which means you do not even have to worry about a 1031. If you're looking for an opinion, I am selling this property all day, especially if it is tax free. You can get out of a tenant friendly state and move into more rentals that should CF better. I would be careful with a 1031 exchange. There are rules that you have to follow. If you do a 1031 you should check out the areas and have everything set up before you sell Bakersfield. Good Luck with your investing. As long as the property is CF+ you should be ok.  

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Joe Villeneuve
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Joe Villeneuve
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Replied Jul 9 2022, 00:15
Quote from @Jacob Trogan:
Quote from @Joe Villeneuve:
Quote from @Dalton Thornsberry:
Quote from @Joe Villeneuve:

You may not believe this, but you're actually losing money.  The higher the equity percentage a property has, the more it is losing money.

The true value of the equity isn't the face value of the equity.  The true value is what that equity represents in property value and cash flow.  In a very rel sense, your equity is what you are buying the property for, and your PV & CF is what it is buying.

Here's an example:  Typical property worth $200k at the time of purchase
A)  Purchase
  1 - PV = $200k
  2 - Cost (DP) = 20% = $40k
  3 - CF = $8k/year

...property value increases to $240k doubling the original equity

B)  Selling property, and accessing $80k in equity (now cash).  Buy new property  
  1 - PV = $400k
  2 - DP (cost) = $80k
  3 - CF = $14k/year.

...you would have lost $160k in PV...not gained $40k...

...and, if either choice is repeated, that gain/loss is exponential with each repetition.


 I appreciate this perspective, Joe! Sorry, I guess I'm turning this around. I thought I understood and then I read it three more times, haha. I guess I saw it as an investment of $26,000 having turned into $120,000. Your alluding to the idea that if I were to sell out of this existing property, and utilize that $120,000 to purchase say 5 properties all at $100,000 PV with good cash flow I'm actually losing money in that situation? Or the flip side? 

This is a hard one to grasp because I've been conditioned to see it as currently having control of around $240,000 in PV v. taking the cash down and using that to control $500,000 in PV. 

Banks used to give you free checking, as long as you kept $5k in your bank account.  Those checks weren't free, and as long as you had to keep that $5k in your bank, that $5k wasn't your money...it was the bank's, and it was a cost to you. 

 I started following Joe because when I first read his comments I had no clue what he was talking about. I figured either he was crazy or I was missing something. I now understand 70% of what Joe says. Listen to Joe, I would personally sell the house! Cash out while the going is good and reinvest that capital. As for the other 30% of what he says I still learning if he is crazy or if I just have more to learn.

Good luck! Maybe look at it this way too, what do you want in your life more? Does that $200 a month materially impact your life? How could the profit realized from selling impact your lifestyle? Which impact is more of what you want in life?

Does this mean I'm now only 30% crazy?  LOL

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Dalton Thornsberry
  • Contractor
  • San Diego, CA
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Dalton Thornsberry
  • Contractor
  • San Diego, CA
Replied Jul 10 2022, 12:32

@Nick Robinson nah, I've been renting the place for some odd 4 years or so. 1031 would really be my only option at this point. I think I'll just raise rents. 

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Jake Rodriguez
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  • San Diego California
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Jake Rodriguez
  • New to Real Estate
  • San Diego California
Replied Jul 10 2022, 19:47
Quote from @Dalton Thornsberry:

I'm in a bit of a unique situation here, but maybe not so unique as I'd imagine many investors are in something similar right now with recent appreciation, inflation, etc. 

Situation: 

I currently own one rental property in the Bakersfield, CA market that I purchased in 2017. Made some minor improvements and house hacked basically until I relocated for work. I now live in San Diego (my market here is impossible right now imo). The property is now worth almost double what I paid for it. 

Access to the equity in the property is extremely hard to come by right now as HELOCs on investment properties are suspended from any lender I've contacted. I want to gain some working capital to acquire additional real estate in a neighboring market. Cash flow is around $200 a month right now (rent is slightly below market rate as I've had a long term tenant in place). 

I could cash out refi this property but with the rates being what they are and lenders charging pretty ridiculous closing costs, the amortization schedule would not make sense and it would destroy the cash flow I do have in the property (I've worked with multiple lenders and brokers to run the numbers). 

Question:

Do I sell the property, take my $120K in capital and 1031 exchange that capital into multiple, higher cash flowing properties with slightly lower appreciation potential? 

A note: I do have a business partner willing to match that and all together we'd be in control of around $250k liquid capital. With that I do believe we could acquire 4-5 much cheaper properties outside of the existing Bakersfield market (ideally multi-family) and produce a real income to scale much faster (velocity of money and all that jazz). 


HELP!?

Also, I understand this may be the best dilemma ever to have but I want to maximize my use of this equity in one way or another, if the market in CA does cool it would be a great selling point as well. I do think the existing property has more long term potential for appreciation as the area is an up and coming hub in Bakersfield, also close to the University there. 


I have a similar question. I bought a house in SD California for 490k and the current Zestimate is 715k. I still live in it but I would like to get into REI. I cant imagine selling a home in San Diego CA , but if I can maximize the amount of equity Ive made in a different market i would be open to it. I still will live in SD though, so even if i sold i would have to find housing for myself and my daughter on the weekends. Since housing is so expensive i dont know if i could get into another property so i would then end up renting. I need help to figure this out. I was thinking of getting a HELOC to capitalize on the equity and invest in a market with lower purchase prices.

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Replied Jul 10 2022, 22:10

It's very simple. Whatever the replacement would be, the IRR of replacement property must be higher than California IRR in terms of absolute dollars.

If you trade a high-appreciation house with cash-flowing property but lower appreciation, it's like selling 1 Mercedes into 5 Kia's. You don't want that.

Everyone in CA is facing the same problem as our IRR is > 28%.

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Sanjeev Advani
  • Investor
  • Bakersfield, CA
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Sanjeev Advani
  • Investor
  • Bakersfield, CA
Replied Jul 11 2022, 13:28

@Dalton Thornsberry - definitely a good problem to have!  

Being that access to equity is much harder than it used to be, and that the fees on the loans are higher, if your amortization doesn't work out then, that doesn't seem to be a viable idea to me.  

If this was me, I would either keep the property and let it get paid down further and put together outside funds to keep purchasing more for yourself, or I would sell this property and exchange into something that makes more financial sense, like a multi.  

Given that, I would focus on selling currently, but then the problem is trying to find something new to purchase that will work for you, especially that rates are higher, and therefore, cash flow lower.  If you are able to find something, then I think that is a great way to go as you can get maybe the same cash flow, but have a higher principal amount paid off in time.  

If you just sell the property, it sounds like you have stepped outside of the capital gains timeline, and therefore would pay regular tax on the sale, which would leave you with around 2/3 of the original amount, and then you can wait for the market to come down (if that is what you think will happen) and purchase at that time because if the market comes down, then you should have lower rates as well as lower prices.  

Best of luck either way!

Feel free to PM to chat further as well!

Best

Sunny

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Replied Jul 11 2022, 14:07
Quote from @Dalton Thornsberry:

@Nick Robinson nah, I've been renting the place for some odd 4 years or so. 1031 would really be my only option at this point. I think I'll just raise rents. 


You have better options than 1031->Direct ownership.
You could always move to your rental, live there for 2 years and sell.
At least you will be taxed in pro-rated basis when it's during-rental in percentage (if it's purchased as rental).

Or you could 1031 to Sf Portfolio, so you could timing your sell(eg: rather than taxed at one time so you would be taxed serially at different year) which portfolio that still having  US property appreciation..

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Dalton Thornsberry
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  • San Diego, CA
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Dalton Thornsberry
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  • San Diego, CA
Replied Jul 11 2022, 15:36

@Carlos Ptriawan W-2 job has me in the San Diego area for the foreseeable future. It allows me to invest freely and compound wealth a bit faster. If I ever had back to Bakersfield I'd probably keep this rented and find a new spot to purchase and live in, anyway as RE is cheap up there, relatively speaking hahah. 

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Dalton Thornsberry
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Dalton Thornsberry
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  • San Diego, CA
Replied Jul 11 2022, 15:38

@Sanjeev Advani I don't think I'm going to sell, I have other ways to snag some capital I'm just having to get a bit more creative. Also, I need to chat with you further in the multi-family space. I get your property updates and emails all the time and recently I've seen some solid deals but wasn't in the position to reach out just yet. I'll keep you in the loop if something that works for my BP and I's criteria pops up. 

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Dalton Thornsberry
  • Contractor
  • San Diego, CA
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Dalton Thornsberry
  • Contractor
  • San Diego, CA
Replied Jul 11 2022, 15:40
Quote from @Carlos Ptriawan:

It's very simple. Whatever the replacement would be, the IRR of replacement property must be higher than California IRR in terms of absolute dollars.

If you trade a high-appreciation house with cash-flowing property but lower appreciation, it's like selling 1 Mercedes into 5 Kia's. You don't want that.

Everyone in CA is facing the same problem as our IRR is > 28%.


 This is perhaps the best way to put it. I sort of came to this conclusion after a LOT of thought. This property is really high appreciation and imo has a LONG way to go over the next 10 years+. Since I'm in this for the long haul no reason to rush out of the property. 

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Replied Jul 11 2022, 19:37
Quote from @Dalton Thornsberry:

@Carlos Ptriawan W-2 job has me in the San Diego area for the foreseeable future. It allows me to invest freely and compound wealth a bit faster. If I ever had back to Bakersfield I'd probably keep this rented and find a new spot to purchase and live in, anyway as RE is cheap up there, relatively speaking hahah. 


 Yeah, Bakersfield is actually affordable and worth to invest rather than OOS. For from Bay Area it has similar cap rate with Modesto/Manteca. With Bakersfield MF actually, you may get cash flow and appreciation at the same time.

Over here in South Bay Area, the MF syndication has 2% cap rate haha with per door cost of 600k-700k and renting of "only" $4k per door lol

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Joe Villeneuve
Pro Member
#4 All Forums Contributor
  • Plymouth, MI
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Joe Villeneuve
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#4 All Forums Contributor
  • Plymouth, MI
Replied Jul 11 2022, 22:20
Quote from @Dalton Thornsberry:
Quote from @Carlos Ptriawan:

It's very simple. Whatever the replacement would be, the IRR of replacement property must be higher than California IRR in terms of absolute dollars.

If you trade a high-appreciation house with cash-flowing property but lower appreciation, it's like selling 1 Mercedes into 5 Kia's. You don't want that.

Everyone in CA is facing the same problem as our IRR is > 28%.


 This is perhaps the best way to put it. I sort of came to this conclusion after a LOT of thought. This property is really high appreciation and imo has a LONG way to go over the next 10 years+. Since I'm in this for the long haul no reason to rush out of the property. 

Simple math would tell you otherwise.

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Replied Jul 11 2022, 22:58

This is my actual modest return. Many other investors generate > 10% CF through various syndications.

CA-buy and-hold unlevered ......

buy 2009  $350k   2022 price: $1,2 mil (We cash-out refi from this and reinvested)
buy 2012 $500k   2022 price: $1,1 mil (We cash-out refi from this and reinvested)

CA BRRR Project #2
Buy Jan 21: $510k
Rehab cost: $25k
Rental income: $25k
Sell Jul 21: $630K
Net: $120k for 6 months investment (actually even three months, actual rehab days only 4 works days)

For Cash flow:

Indiana Class C Property, Invest $20K, net return after expense: $5760/year (without repair, with repair expect $2K-$3K year)  Time to manage: 9999 hours , this is only in base case scenario.

private REIT, invest $25K , $2000 CF per year. Time to manage: 0
accredited-investr non-RE funds, invest $25k/year , $1600 CF. Time to manage: 0
debt income funds: invest $50k,  $5k/year

My summary:
- for direct investing , CA is always the best
- investing for cash-flow doesn't generate wealth, it could only pay some restaurant bill
- If you can, do more BRRRR than buy-and-hold
- if you really want CF, just invest at public/private REIT/funds/syndication, at the end of the day the time wasted is not worth it especially if it's low priced home out of California.

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Replied Jul 12 2022, 13:51

How about this? Sell now high (and quickly as the market has begun to soften). Hesitate for a moment and sit on the capital as the market turns to a buyers market in the next 6-12 months (you could earn 25-100K+ in purchasing power of your money depending on the market you are in). If the rates are still high then pay cash for as much rental return as you can find. At the very least you will have increased your net worth significantly and increased your monthly cash flow 4 times or more. I recently divested my rentals in CA and am waiting for the turn in the market which has begun as you know.