Looking for Advice: Single Guy Loaded with Equity

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Looking for Advice: Single Guy Loaded with Equity

Jason Clark
Real Estate Agent · San Jose, CA · Member since 2015 · 94 posts · 73 votes

Hi Everybody, 

I'm looking for some ideas/advice and wondering "what would you do" if you were in my position. This is for fun but I'm seriously looking at hitting the reset button for the next chapter of my life and I'm suffering analysis paralysis. I have too many options, to much equity, and not enough education or experience to feel comfortable making a decision. I'm hoping to bounce some ideas around to kick me out of this funk I'm in.

This is probably the third or forth time I've written this post over the past few months and I always delete it since I can't seem to word it in way that makes sense. I'm just going to blurt it all out and clarify any holes if there are any replies.

1. I'm a single guy, 41 years old, no wife no kids, I work in IT in the SF Bay Area but after 17 years I'm tired of it. I bought a rental SFR a few years ago that nets me $1400/mo. I paid 175 cash and it's worth about 230 now.

2. My primary residence has about 600k in equity so if I sell, which I'm considering, then I'm primed to take a big hit in cap gains taxes and fees and who knows what else that will eat up any buying power that I have.

3. I'm pretty much also tired of living in CA and would like to relocate out of state. I'm looking to move somewhere I can buy a couple of houses as rentals and something small for myself. I would then start the process of starting my own property management company as a new career.

My thinking is if I could have 2-3 rentals of my own (paid cash) and ~25 rental units to manage that over time of building the business I could live a pretty good comfortable life. I'm not trying to get rich I just want to enjoy life, ride my Harley, and go fishing every once in a while.

Areas I have looked at are Texas, Montana, and Tennessee (I really have my eye on Knoxville, not sure why). How cool would it be to work on a Business degree at UT while building my own PM business on the side and living on my rental income? It has my attention.

OK I'll shut up now. What do you think, am I crazy? If you had the chance to be in my shoes how would you approach your next move?

P.S. thanks in advance for any advice!

JC

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Dave FosterBusiness Member
Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
8y

@Jason Clark, the limits for the primary residence exclusion that @John Thedford was referencing is actually $250K in profit.  If you sell a property you have lived in for 2 out of the 5 years prior to sale you can take the first $250K in gain tax free).  You're right you would pay tax on the other $350K.

But that being said, as a young (I'm allowed to say that) single guy who's mobile, you are a perfect candidate for a primary residence conversion.

Convert that property into a rental.  You do it by moving out and renting it.  How hard is that.  Move to Knoxville and rent the property for a couple of year (but sell it before you have been gone more than three years)  When you sell you can now do a 1031 exchange on the property because it is investment.  Buy your next properties in Knoxville with the 1031.  But because you also sold it when you could still claim that you had lived in it for 2 out of the previous 5 years you can take $250K of profit and put it in your pocket tax free.  You will still have to recapture depreciation for the time as a rental but...

In exchange for a year or two of patience you are rewarded with.

1. two years more appreciation

2. two years of cash flow from the rental

3. $250K tax free.

4. The remainder of the sale tax deferred into new rental properties wherever you want to go.

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  • Mike H.
    Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
    8y

    There are two pieces here:
    1) Getting out of IT. IT used to be about creation real solutions. Now, we seem to spend more time trying to find buckets for our time so management can claim who knows what. And we spend less time doing any meaningful work.  They've sucked all the fun out of being in IT.

    Two years ago, I never thought I would want out. Now I can't get out fast enough. Just not sure if I'm ready to pull the trigger on it. But I like your plan on doing it.   How much life do we have to live? How much of it do you really want to spend dealing with IT management and all the nonsense?

    But its about how do you replace that income. PM seemed like a good idea to me at one time. I think there's money there if you structure it right. But maybe a combination of becoming a realtor and doing PM might be a way to give you two shots as opposed to one. 

    2) Second piece is where do you move to? I think the job you're interested in doing plays a part. But I also think where and what you're going to invest in does as well.

    To me, your tennessee idea makes the most sense. Great area. Good cost of living. Solid growth projections. Those make for great qualities for investing in real estate. So finding houses to PM becomes easier as more demand for rentals. And buying good rentals works there too. Agent? Commissions wouldn't be as good as a colorado but at least you have growth.

    The concern I'd have with a colorado would be the super high prices there. Great for commissions if you wanted to become an agent. But not sure the numbers work as well for investing.  PM might do ok because I'd bet you'd be more likely to have out of state investors or hands off investors there than in a knoxville. 

    A lot of people with a lot of money there. They may be parking their money into a rental or two but don't really want to deal with the headaches.

    I'm partial to tennessee in general but I think that would make the most sense. Your own cost of living would be that much less. And worst case scenario, is maybe you find a 3 month gig as a contractor in IT for some extra cash in your early years.  I do know that your cost of living would have to be much cheaper in tennessee than it would be in denver......

    2Reply
  • Ron Dayley
    Clarksville, TN · Member since 2016 · 238 posts · 96 votes
    8y

    In the last month, I have sold homes to 2 couples who are cashing out and retiring early (in the 40s).  Both couples live in the Bay area of CA and are moving here to Clarksville TN because of how cheap housing and cost of living is compared to CA.  

    You are in a great position to sell and move to just about anywhere in the country.  Good luck to you and let me know if I can be of any help if you decide to follow your fellow Californians out here. 

    1Reply
  • Mark F.
    Investor · Orange County, CA · Member since 2009 · 230 posts · 138 votes
    8y

    @Jason Clark  Just one suggestion for the move. On the way to the whatever new location you choose to live, make sure to take a detour for a few months through Europe, Australia, SE Asia or some other awesome part of the world. I would definitely do that if I were you :).

    2Reply
  • Jason Clark
    OP
    Real Estate Agent · San Jose, CA · Member since 2015 · 94 posts · 73 votes
    8y
    Originally posted by @Franklin Romine:

    I would convert some of the equity into private financing.  $400K loaned out at 10% generate $3,333 per month.  Not bad if you ask me.  This is my future plan.... Own and control real estate and loan out capital.

     Hi Frank, hard money lending is on my list of things to learn about. I've been doing my homework but like most things it has it's pluses and minuses. The 250K that I take tax free could possibly be the seed I plant to grow the lending side. I don't want to dig for gold, I want to sell shovels. I'll be heading to Visalia in a few weeks, I'll sync up with you.

    And thanks for the tips and advice everybody. I take all of your posts to heart that you all take the time to help a stranger out. Gracias.

    0Reply
  • Matt R.
    Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
    8y
    Originally posted by @Jason Clark:
    Originally posted by @Franklin Romine:

    I would convert some of the equity into private financing.  $400K loaned out at 10% generate $3,333 per month.  Not bad if you ask me.  This is my future plan.... Own and control real estate and loan out capital.

     Hi Frank, hard money lending is on my list of things to learn about. I've been doing my homework but like most things it has it's pluses and minuses. The 250K that I take tax free could possibly be the seed I plant to grow the lending side. I don't want to dig for gold, I want to sell shovels. I'll be heading to Visalia in a few weeks, I'll sync up with you.

    And thanks for the tips and advice everybody. I take all of your posts to heart that you all take the time to help a stranger out. Gracias.

     Cool post, I think the options mentioned all sound reasonable. Just keep in mind what partly led you here was that golden CA goose and many would give their left you know what to have the cash flow and appreciation today combined like that. The general historical fact on average usually is, where ever you reinvest now or find new home in will not or could not produce more total profits than what you own today. There is a good chance you might be trading gold for silver as far as the investment side of things go. If that part does not matter to you and your goals, that is also understandable. Good luck with your search! 

    0Reply
  • Carrie Carlton
    Investor · Nashville, TN · Member since 2016 · 88 posts · 66 votes
    8y

    I lived in Knoxville for 3 years for Grad school.  I did not like it. I will say the cost of entry into real estate is much lower than Nashville.  I found the city to be to to small for my liking and general opinions of residents to mirror the stereotype of the South. I recommend visiting and getting a feel for the city.  I am originally from Murfreesboro (a town outside of Nashville). 

    0Reply
  • Emily Golec
    Real Estate Agent · Knoxville, TN · Member since 2016 · 27 posts · 12 votes
    8y
    @Jason Clark Knoxville Realtor and native here. I was born and raised here, but lived west for 4 years in my 20s. I can speak to the fact that Knoxville is definitely growing, you can still find affordable housing here. There is plenty to do, tons of restaurants, micro breweries, sports, river, mountains, and a great sense of community. I work with many people relocating to the area. It’s a great city to invest in rentals, there is definitely a need for them. Many people, with the means, are taking advantage of that and investors I work with are always asking me if I know a good property manager!
    1Reply
  • Account Closed
    Registered Representative · Bend, OR · Member since 2018 · 91 posts · 38 votes
    8y

    Have you thought about Bend, Oregon?  Send me a message and I can give you the 411

    1Reply
  • Chris Grenzig
    Property Manager · Orlando, FL · Member since 2016 · 479 posts · 277 votes
    8y

    @Jason Clark I'm biased, but take that money and buy a mid sized multifamily and cash flow the heck out of it. Manage it yourself and start a small PM company with the cash flow. If you manage it yourself you should be able to find something that nets you 10% a year (depending upon where you go). Then start to offer your services as 3rd party management in the area and there you go.

    1Reply
  • Sam Josh
    Sunnyvale , CA · Member since 2017 · 373 posts · 362 votes
    8y
    You are only 41, probably have another (minimum) 9 good years of high income producing years. Why not just keep the worlds best currency i.e Bay Area Real estate intact, defer your plans to retire and focus your future income on investment in the location of your choice. The problem with the Bay Area real estate is if you sell, it's a one way street out. People who sell here can buy anywhere and everywhere (except London and Manhattan:)), but people in other parts cannot sell and buy in the Bay easily. Just saying!
    2Reply
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