Sell CA rental property and buy out-of-state?

Question

I’ve been brainstorming about my plans for the future and if I should sell rental property #1 to invest more out of state. My current portfolio is below. I will be moving into an ADU at my parents by summer, so I plan to save a lot for the next 2 years. A lil background…I will be retiring in 4 yrs from my job with about a $3k/month pension. I’lll be 42 at that time, so I’m planning to work remotely, but just trying to set myself up for success. Please share any advice, thank you! 😊

Primary residence (turning into rental, Jul 2024)

Home Value: $620k

Mortgage balance (4.5%): $551k

Payment w/HOA: $3,460

Expected rent: $3100-3200

Rental Property #1

Home Value: $730k

Mortgage balance (2.875%): $460k

Payment w/HOA: $2,661.06

Current rent: $3200 (Lease ends in Nov)

Rental Property #2

Home Value: $75k

Mortgage balance: $44k

Payment: $559

Current rent: $930

Rental Property #3

Home Value: $75k

Mortgage balance: $50k

Payment: $662

Current rent: $930

Jason Allen · Answer

You can get a much better return on your investment if you sell your primary and Rental Property #2. I'd suggest investing here in Columbus, Ohio. It is one of the hottest markets for investors. With our out of state investors, we typically bring deals that meet or exceed the 1% rule. It looks like rental property #2 and #3 are meeting that general rule of thumb.

Bjorn Ahlblad · Answer

Eileen, your portfolio is pretty thin and you will need a lot more money. As a former Ca investor you can make more money from appreciation in Ca than CF elsewhere (provided market conditions continue). Attain REI pro status as early as possible-shed W2 income; income tax in Ca sucks. Get a good CPA. All the best!

Alex Olson · Answer

@Eileen L. I just sent you a DM regarding your investment goals for out of state. FYI.

Leslie Pappas · Answer

Eileen, if you ever want to take your appreciation out of CA and defer your capital gains, make sure to look into a 1031 Exchange. There plenty of other opportunities elsewhere, my clients are involved in institutional grade properties across the country. My recommendation is to choose cities in safe and economically diversified areas with above-average income and population growth. It can also be safer to diversify your investment properties across the country.

A very good source of local analysis, rereport.com.

Morgan Gutierrez · Answer

I would sell your primary home and take advantage of the tax free gains from living in the property. You will have negative cash flow... that doesn't make sense to keep it as a rental and get negative cash flow and then sell later on and potentially have to pay the capital gains tax.

Eileen L. · Answer

@Bjorn Ahlblad thank you Bjorn. I’m not retiring from working, only meant my current job. That’s what I was thinking about appreciation, thanks for your thoughts on that!

Tyler Fontaine · Answer

If you can move out of CA or get a job that pays you from another state that will help. Cost of living is too high in CA and will only continue to go up in the near/mid future.

Additionally, CA is becoming more communistic by the day. Political perspectives aside. The state has some of the largest income tax in the country. Property tax only goes up. Their social programs heavily weigh on the economy for regular people. Restrictions for housing/tenant laws are becoming increasing hostile for landlords.

It might be safer and get you a greater return if you explore other markets to invest in.

That said, @V.G Jason and @Bjorn Ahlblad make good points. Consider you other streams of income when you retire. How much do you have saved, and how far will it take you accounting for emergencies, black swan events, and inflation? How will you turn into a full time investor without a w-2 to keep adding to your portfolio?

V.G Jason · Answer

If you're going to retire at 42 with $3k/month in pension, I have to ask the following questions:

1) What are your other sources of income during "retirement"?2) You have two houses valued at $75k, where are these pieces of junk located?3) How much are you sitting on to retire at 42 as is?4) Do you have dependents?

You realize how inflation works-- every 12-15 years you'll need 40-50% more. I have a feeling you might feel short at some point.

Sell CA rental property and buy out-of-state?

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