Leaving CA. Hold my primary or sell and reinvest?

Question

Orange County, CA ( La Habra)
On my current residence, owe approx $335k + $135k HELOC (down payments for out of state rentals). Home worth $825k give or take. Mortgage at 3.125% and a payment incl. taxes and insurance around $2,200, could rent for ~$3,500.

Currently the out of state rentals cash flow a total of $400-500/mo including covering the HELOC, the HELOC payment is $750, which would be paid off with sale. It’s locked at 4.75%

I’m aware of the capital gains exemption to be realized by selling within 3 years of moving which is what has me leaning towards selling.

It's amazing that a $10k FHA down payment in 2010, has ultimately led to the above situation.

Adam K. · Answer

Thank you for the responses. All seems fairly unified in favor of selling. We intend to move and stay moved so to speak, not really entertaining the idea of returning. It should be next summer, so the market could certainly change things between now and then, but I won’t dare try to predict how things will go.

Celia Lumbroso · Answer

@Adam K. Hi Adam this is an interesting scenario given your outstanding balance on your HELOC.  If you are planning to move back to CA in the future (given like 5 or 6 years) then I would keep the CA house and rent out for the next few years until it keeps appreciating. Refi in two years when interest rates come down. If you are not planning to move back to CA, then I would sell and get out.  Take the money from the sale and spread the money towards multiple projects if possible where real estate is relatively still cheap for fix & flips.  Florida, Texas, or Georgia would be ideal markets to target.  Happy to discuss in further detail if you have availability.  Thank you.

Scott Scialabba · Answer

I'm leaning towards selling, but the new location you're moving to.. do you plan to be there for the longer-term, or?

Peter Berokoff · Answer

If you live in my neighborhood in La Habra. You'll have the only house on the market and be able to get top dollar.  Good luck!!

Peter Mckernan · Answer

This is a great situation, the equity is great and like anyone here, the equity you have built is a way to set your life even more free. If you keep and hold, that tax savings will go away, which I know you do not want to do. My suggestion would be if you are moving and ready to go, pull the trigger now, the rates in the current market and lack of inventory has helped many sellers increase their net proceeds due to over asking bids again.

You sound like you do have a plan I would really dial in that plan for the 350K-400Kish you will be pocketing.

The equity piece and appreciation you have seen since 2010 is amazing, and the move would be keeping it to gain more in equity quicker than out of state or cutting it now and leaving for bigger cashflow today. It sounds like you are searching for that cashflow which I do not blame you and take that money to do so. I would move the money to something where you can have more doors at the same time of moving the money (I.e an apartment, Commerical industrial space). I would not go buy a few homes, because the bigger property with one roof will be easier to manage.

Bill B. · Answer

No way I would try to pull the rent for 2 and then sell in California. Whether you just end up payinf]g relocation fees or you can’t get the person out by your deadline. With banks paying 5% gueantteed. Take your money away from California taxes and run.

Erin Church · Answer

I'm also going to vote to sell it! Getting that kind of money tax-free is delightful! It'll also increase the cash flow in your rentals (since the HELOC will be paid off). I'm not sure where you're moving to, but hopefully lower entry points and less tenant friendly.  :)

Bjorn Ahlblad · Answer

@Adam K. if you rent the property you lose the Tax exemption for capital gains on a primary residence. As a rental you will have a lot more expenses than you considered here. If you rent the property you will fall under Ca law for any tenant/LL issues. Those considerations would have me selling in a heartbeat regardless of mortgage rate. All the best!

Theresa Harris · Answer

Do you ever plan on moving back?  If not (and keeping in mind CA is very tenant friendly), you could rent it for 2 years and then sell it.  Would you be able to get as good of a return if you bought rentals elsewhere?

Andre Taylor · Answer

Yeah I hear you about that rate. Since I focus now on Commercial property. I don't really worry about the rate like that since rates are only fixed for 5 years for me.  I am preparing to purchase 12-20 unit in the first part of the new year which will require me to refinance and I have 3.6% fixed right now but if I can recapture the hit to my cash flow in the new property then Im jumping in. I do see the feds cutting rates next year and I feel like 5% will become the new 3%. This reminds me of after the 2007/2008 housing crash. I was getting rates in the 4-5% range. the 2-3% range was a blessing in disguise due to covid but if you been investing for a long time; then you know thats not the norm.