Rental Property Investor · Moreno Valley, CA · Member since 2019 · 42 posts · 11 votes
Hello BP Fam,
My lady and I own a rental in Moreno Valley, CA that we are in a dilemma of hold or sell - and I am hoping for some guidance or insight!
We currently owe $266k on the loan and the property is worth between $460k - $480k. It was built in 1980 and will need a new roof in the coming years. The monthly payment is $1,600 at 4.5% interest.
The property has been rented for two years, and before that, it was our primary home for many years. As such, we could benefit from the capital gains exception if we sell.
While it’s been rented for the past few years, it hasn’t been profitable because we had some large repairs to make (A/C change out, plumbing issues, etc.) that ate up everything we earned.
Since I am in the process of re-marketing for new tenants, I'm going to increase rent to market rent at $2,500 a month, which will provide a cash flow of $700 with Property Management (no including CAP EX, etc.).
My question to you all, do you continue renting and take the $700 with the expectation of future repairs, or take the $170k in profit and re-invest elsewhere?
Property Manager · St. George, UT · Member since 2020 · 47 posts · 37 votes
3y
Not sure in other regions, but in Southern Utah, we see the rental season slow down once school starts & almost stops during the holidays. Then comes back in full stride around President's Day. So, if you can wait it out a few more weeks, you will likely find a good renter if your rent isn't over-priced.
If you took that 150K profit you could put it in a CD to get 5% that would provide you with $625 a month in interest. Risk free and hassle free. Of course you would loose the equity you pay down and and the tax benefits of real estate.
You also need to consider that you are paying down your mortgage at a very low interest rate plus you are cash flowing and hopefully some appreciation. Your total ROI is going to be hard to beat elsewhere.
@Vicente Terán interesting! Are you a real estate agent?
I’m not! I’m a local investor only and contractor… if you are in the phx area and interested I’d be happy to meet up with you and introduce you to a few investor friendly agents I’ve used.
My lady and I own a rental in Moreno Valley, CA that we are in a dilemma of hold or sell - and I am hoping for some guidance or insight!
We currently owe $266k on the loan and the property is worth between $460k - $480k. It was built in 1980 and will need a new roof in the coming years. The monthly payment is $1,600 at 4.5% interest.
The property has been rented for two years, and before that, it was our primary home for many years. As such, we could benefit from the capital gains exception if we sell.
While it’s been rented for the past few years, it hasn’t been profitable because we had some large repairs to make (A/C change out, plumbing issues, etc.) that ate up everything we earned.
Since I am in the process of re-marketing for new tenants, I'm going to increase rent to market rent at $2,500 a month, which will provide a cash flow of $700 with Property Management (no including CAP EX, etc.).
My question to you all, do you continue renting and take the $700 with the expectation of future repairs, or take the $170k in profit and re-invest elsewhere?
No-brainer.
I'd take the $, redeploy into 2 solid rentals, in path-of-progress, new built. Getting BETTER depreciation "rewards", clearing same or more net cash-flow, with a whole lot MORE equity gain potential, and removing the entire risk factor of maintenance / cap-x.
It's just that simple, no joke. In what I am talking about, it's not theory, this is from deals I am doing now today. So it's knowing what you could have, and it's not even a close comparison.
Property Manager · Indianapolis, IN · Member since 2022 · 150 posts · 59 votes
3y
The biggest piece is avoiding capital gains. You won't have that option forever. That would lean me towards selling and investing in another area that would provide more cash flow.
I would put a lot of weight into what James says. He has the experience and knowledge to back it up. He proposes a general, very balanced smart approach of mitigating risk while maximizing potential, with reasonable exposure. I have read many other posts talk about # of units desired, monthly $ goals, high return %'s, etc., but few consider the other "costs" associated with some strategies. Some of those costs are intangible, like time and stress of managing multiple rentals. Example: 10 rentals netting $100/mth each vs 2 rentals netting $500/mth each. And there are other real considerations. Like, If your 10 rentals appreciate moderately ($10k/each) and you decide to sell 5 of them to exchange into 1 better rental - you have to line up the timing of selling all 5 in order to exchange into 1. It's a lot easier to sell 1 well appreciated property and exchange into 1, or more, well positioned rentals. Or....those 5 properties in relatively stable markets will most likely appreciate less (if at all) then those 1-2 rentals in a growing market. Ok, I am a little off the main topic, which is Sell or No
I was in a very similar position (minus the tax exclusion potential) prior to the '08 downturn, and I chose to exchange 1 very well appreciated rental into multiple rentals in TX to preseve my gains and hopefully increase them at a reasonable pace. I am very happy I did that, especially when the local (SoCal) rental I sold, resold for ~22% less than I sold it for, about 3 years later, and my TX rentals continued to increase moderately.
And I diversified my TX purchases, between a few market areas and a couple different property types and classes. I purchased a couple in better cashflow areas, and others in better growth areas (appreciation potential). Of course looking back multiple years later, I would've rather had all of them in better growth areas. But, in either case, I was happy I tfr'd out of my SoCal rental when I did.
I did an analysis of my actual SoCal rental vs TX purchases a few months ago, and my synopsis of that analysis is: After 16 years, the TX properties I bought are worth 31% more than the SoCal rental I sold and current rents are about 33% higher (in aggregate) with the TX rentals than the SoCal rental. And that includes one bad apple in my TX portfolio.
Generally, we (CA) are at historically low affordability. This is typically when the affordability is poised to start reversing course. Affordability is a fxn of price, payment,and income, and in today's environment, it is likely prices will soften, since income is not likely to keep pace and rates don't appear to be significantly decreasing anytime soon. We don't have the same situation as 2007-08, but it is still unsustainable in the short-medium run. Not to mention the 100k's of people exiting the state! There are still areas that are growing and will have good growth potential that you can benefit from (outside of CA). And also, Moreno Valley took huge hits in the last downturn - I viewed many potential foreclosure buys there. Again, we don't have the same circumstance as the '08 downturn, but, if your value goes down 5% ($23k) or 10% ($46k) or ?, that could've been helpful in acquiring rentals somewhere else, in a better positioned market. And also, you have the fortune of tax free gains now, so you can have the advantage of not having to rush into a new deal, to preserve an exchange.
So, I think you need to look at the time horizon for your goals to help dictate the direction and moves you make today. The longer the time horizon, the more growth potential you may want. There are other factors to consider, like your income, expenses, etc. But there's too much info to pack in here. Feel free to contact me if you want to hear more about my experience.
Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
3y
It's incredible how much you can get for your money in the real estate market today. Investing in an out of state multifamily property for $650k is a great way to generate more than $700/mo in cash flow, and potentially good appreciation if the market remains strong. It's worth considering this option as part of your portfolio diversification strategy. Real estate investing has been proven to be a reliable form of long-term wealth building, so it pays dividends to research and invest wisely.
Great question. It depends. Do you have any place to reinvest the capital? Do you like the market that the asset is in?
It really comes down to your goals and what you intend to do with the capital. If I could repurpose the money and get a better return, then I would sell. You said something interesting. Its going to need work down the road. May be the time to sell before those cap ex items become a reality.
You always hear that you make money when you buy. Actually, you make the bulk of your money when you exit real estate, whether through a refi or sale. You can make around 9,000 a year cash flowing or 170,000 from an exit.
I am frequently asked this question, but unfortunately, there is no simple answer. Many of our clients who did 1031 exchanges were from California, Seattle, and Portland. Some exchanged because they were losing money, while others did not see a significant future upside.
The most common concerns I hear from our California clients include:
Rent control and future expected rental regulations - California is a tenant friendly state, which usurps the property owners ability to make money. Such regulations make it very difficult to remove non-performing tenants.
High operating costs - California insurance, property tax, state income taxes are among the highest in the nation. Unless the property is generating significantly more cash flow than a property in a low operating cost state, you are not maximizing your investment dollar.
Decreasing population - Many people are leaving California. The reasons vary, but the long-term result will be reduced demand for rental properties.
Undesirable living conditions - We have several clients who do not wish to remain in California once they are financially secure or retire. What many clients do is purchase an investment property in Las Vegas today, rent it out for several years, and then move into that property in the future to reduce their tax burden and have a better quality of life.
Some additional considerations
The cost of selling a property and buying a replacement is high. Before you do this, you need to evaluate the cost/benefit of replacing the property.
You likely chose Moreno Valley because it is near to where you live. The old saying applies, "live where you like but invest where you can make money." We've delivered over 470 properties and 90% of our clients live in other states or countries. There is no actual advantage to living in close proximity to your rental property.
I'm sorry I could not offer you specific metrics. I hope what I wrote helped a little.
My lady and I own a rental in Moreno Valley, CA that we are in a dilemma of hold or sell - and I am hoping for some guidance or insight!
We currently owe $266k on the loan and the property is worth between $460k - $480k. It was built in 1980 and will need a new roof in the coming years. The monthly payment is $1,600 at 4.5% interest.
The property has been rented for two years, and before that, it was our primary home for many years. As such, we could benefit from the capital gains exception if we sell.
While it’s been rented for the past few years, it hasn’t been profitable because we had some large repairs to make (A/C change out, plumbing issues, etc.) that ate up everything we earned.
Since I am in the process of re-marketing for new tenants, I'm going to increase rent to market rent at $2,500 a month, which will provide a cash flow of $700 with Property Management (no including CAP EX, etc.).
My question to you all, do you continue renting and take the $700 with the expectation of future repairs, or take the $170k in profit and re-invest elsewhere?
Based on the information you provided Jarrid, it appears that you have a few different options to consider when it comes to your rental property in Moreno Valley, CA. Here are a few things to keep in mind as you weigh your options:
Consider the potential for future repairs: You mentioned that the property will need a new roof in the coming years, which is a significant expense. It's important to factor in these kinds of potential repairs when making your decision. If you sell the property now, you won't have to worry about these expenses, but if you hold onto the property, you'll need to budget for them.
Think about your long-term investment strategy: Are you looking to build long-term wealth through real estate, or are you more interested in making a quick profit? This will likely impact your decision. If you're in it for the long haul, holding onto the property and building equity over time could be a good strategy. If you're more interested in cashing out and reinvesting elsewhere, selling might be the better option.
Weigh the potential for future appreciation: Real estate prices can fluctuate, and it's impossible to predict the future. However, if the property has been appreciating in value over the past few years, there's a chance it could continue to do so. If you hold onto the property, you may be able to sell it for even more down the road. On the other hand, if you sell now, you'll lock in your profit and won't have to worry about potential dips in the market.
Ultimately, the decision to hold onto your rental property or sell it depends on your specific financial goals and circumstances. This appears to be a stable investment, do you have other ones or other means to scale your RE? If this is your only investment it may be risky to sell something that is working to look for something else that you have to make work. On the other hand if you have some other investment or investments to fallback on, then it is likely worth the risk to improve your return on investment.
Some of could just come down to how risk adverse you are and how much effort you are willing to put in to scale your return on investment.
