Should I keep my home? Or sell and take all the equity?
28 Replies
Kelly McJunkin
New to Real Estate from San Diego, Ca
posted 23 days ago
I have been reading as much as I can to make this decision, and still feeling unsure. If anyone has the time and expertise, I would greatly appreciate some advice.
We are relocating from South San Diego to Temecula this Summer (about an hour north). My original plan was to sell our 4bd/3bth home, rent something in Temecula for a while, and invest a chunk of our equity into real estate investments. Leaning towards- Multi-family and BRRRR.
*Currently owe 335k - Able to sell for around 835k. Which would give around 500k in equity to use.
My question is- Is it the best idea to SELL and use equity for multiple investments? Or would it be a mistake. Should we try to keep this property, rent it out, and refinance it to take equity out for investments?
It would provide a positive monthly cash flow if we rented it out. Maybe not too much though after refinancing and grabbing equity out. (and is the market going to take a nose dive soon because of all this crazy inflation? This makes me worried to keep the home as well)
Bottom line, Is it a mistake to let go of a So Cal SFR when we only owe 335, or should I run with the cash and start my investing elsewhere....? I feel like I need some guidance at this point. And I really hope this all made sense.
TIA!
Dan Heuschele
Investor from Poway, CA
replied 23 days ago
Investors from lower appreciation markets will advocate SELL, but coastal CA is a different market than the market they are used to. coastal Ca has outstanding long term appreciation (property and rent)
If you refinance at a high LTV such as 75%, your property will have initial negative cash flow after allocating properly for all expenses. Learn about maintenance and cap expense costs. Having rent covering PITI does not necessary imply positive cash flow. Look at the 50% rule, it is conservative in our market and if you have no HOA or melo Roos your expenses may be closer to 40% including PM. The word initial is key, because historically San Diego has incredible rent appreciation. Negative cash flow soon becomes positive and with time becomes outstanding.
Two additional considerations in your case is 1) the 2 of 5 years owner occupancy and how that affects the tax gains 2) prop 13 and its affect on your property taxes. You are likely paying ~$4k less in property taxes than the person who purchases your property.
The 2 of 5 years is a case for selling. The prop tax discount is a case for keeping.
We have an ex-home of ours in our RE investments. It s our worse performing RE investment. It makes sense as it was purchased to be a good home for us versus our other RE investments were purchased to be good investments.
As for market being at the top, no one knows. I know people who have been claiming we are at market high for quite a few Years. At some point the market will dip. I think odds are greater for this dip being soon than they were pre-covid, but that does not mean I am real confident of an impending dip. I will state I have purchased twice prior to significant dips (properties lost more than 15% from purchase price). Both those properties look to be outstanding investments today. If you plan on holding long term, a dip will have little impact to your investment.
another item $835k and you owe $335k, your extracted amount will be closer to $440k than the $500k you indicated. Selling and closing costs
Final item to consider, buy n hold is not passive even with the use of a PM.
I provided all I can think of relevant to your decision to keep or sell. You have to make the right decision for you. I am confident San Diego will continue to have outstanding long term appreciation, but there are many factors to weigh in the decision.
If you decide to sell, then you can consider your best investment options.
Good luck
Kevin Purvis
Developer from Orange County, CA
replied 23 days ago
I do think its a good idea to have some debt to offset inflation. depending on your location in Southern San Diego and how close it is to the ocean,. I would consider renting it out and keeping the debt in that house and then renting into Temecula until you know the area a little better. Consider getting a 75% cash out on your San Diego home and using that money to either BR* in Temecula or invest in other opportunities.
I do think that Temecula and Corona I probably the two best markets in the inland empire though, so if you find a place you like or a lot you really like and you want to build on I might go for it.
I would be a little bit cautious of some of the lower priced areas surrounding Temecula. Once the forbearance ends I think we will see where the rubber hits the road in places like Lake Elsinore etc. which have attractive pricing but generally speaking much worse demographics and census data than Temecula.
Taylor L.
Real Estate Syndicator from Richmond, VA
replied 23 days ago
Originally posted by @Dan Heuschele :Investors from lower appreciation markets will advocate SELL, but coastal CA is a different market than the market they are used to. coastal Ca has outstanding long term appreciation (property and rent)
If you refinance at a high LTV such as 75%, your property will have initial negative cash flow after allocating properly for all expenses. Learn about maintenance and cap expense costs. Having rent covering PITI does not necessary imply positive cash flow. Look at the 50% rule, it is conservative in our market and if you have no HOA or melo Roos your expenses may be closer to 40% including PM. The word initial is key, because historically San Diego has incredible rent appreciation. Negative cash flow soon becomes positive and with time becomes outstanding.
Two additional considerations in your case is 1) the 2 of 5 years owner occupancy and how that affects the tax gains 2) prop 13 and its affect on your property taxes. You are likely paying ~$4k less in property taxes than the person who purchases your property.
The 2 of 5 years is a case for selling. The prop tax discount is a case for keeping.
We have an ex-home of ours in our RE investments. It s our worse performing RE investment. It makes sense as it was purchased to be a good home for us versus our other RE investments were purchased to be good investments.
As for market being at the top, no one knows. I know people who have been claiming we are at market high for quite a few Years. At some point the market will dip. I think odds are greater for this dip being soon than they were pre-covid, but that does not mean I am real confident of an impending dip. I will state I have purchased twice prior to significant dips (properties lost more than 15% from purchase price). Both those properties look to be outstanding investments today. If you plan on holding long term, a dip will have little impact to your investment.
another item $835k and you owe $335k, your extracted amount will be closer to $440k than the $500k you indicated. Selling and closing costsFinal item to consider, buy n hold is not passive even with the use of a PM.
I provided all I can think of relevant to your decision to keep or sell. You have to make the right decision for you. I am confident San Diego will continue to have outstanding long term appreciation, but there are many factors to weigh in the decision.
If you decide to sell, then you can consider your best investment options.Good luck
Great point that coastal CA has solid historical performance as far as appreciation goes, but there's that old saying "past performance is not an indicator of future results." No one knows if the market is at the top, but if you're getting rent and cash flowing positive every month, you have a pretty good idea of whether or not you're getting paid.
Tyler Hungerford
Rental Property Investor from Riverside, CA
replied 23 days ago
You've got options which is really great. What do you think the property would rent for? Piggybacking on the tax benefits of selling right now and capturing that $500,000 tax free. Having sold some property in the Temecula area, I know that you have a lot of options to pick up a gorgeous house for around $500-600,000. 20% down on that leaves you a LOT of money to purchase additional units in the area. If you took this money from the sale of the San Diego home, you'd be able to buy a GORGEOUS house in Temecula with 20% down and buy 2 or 3 duplexes in Lake Elsinore, Hemet, San Jacinto, Wildomar, Winchester, or Perris with the rest of your money. You could turn that $500k into 3-5 doors. Coastal properties are great, but if you make more from selling this house and purchasing additional units which bring in more rent than the San Diego house, then maybe it makes sense to sell. Would love to chat with you more about all of this.
Dan Heuschele
Investor from Poway, CA
replied 23 days ago
Originally posted by @Taylor L. :Originally posted by @Dan Heuschele:Investors from lower appreciation markets will advocate SELL, but coastal CA is a different market than the market they are used to. coastal Ca has outstanding long term appreciation (property and rent)
If you refinance at a high LTV such as 75%, your property will have initial negative cash flow after allocating properly for all expenses. Learn about maintenance and cap expense costs. Having rent covering PITI does not necessary imply positive cash flow. Look at the 50% rule, it is conservative in our market and if you have no HOA or melo Roos your expenses may be closer to 40% including PM. The word initial is key, because historically San Diego has incredible rent appreciation. Negative cash flow soon becomes positive and with time becomes outstanding.
Two additional considerations in your case is 1) the 2 of 5 years owner occupancy and how that affects the tax gains 2) prop 13 and its affect on your property taxes. You are likely paying ~$4k less in property taxes than the person who purchases your property.
The 2 of 5 years is a case for selling. The prop tax discount is a case for keeping.
We have an ex-home of ours in our RE investments. It s our worse performing RE investment. It makes sense as it was purchased to be a good home for us versus our other RE investments were purchased to be good investments.
As for market being at the top, no one knows. I know people who have been claiming we are at market high for quite a few Years. At some point the market will dip. I think odds are greater for this dip being soon than they were pre-covid, but that does not mean I am real confident of an impending dip. I will state I have purchased twice prior to significant dips (properties lost more than 15% from purchase price). Both those properties look to be outstanding investments today. If you plan on holding long term, a dip will have little impact to your investment.
another item $835k and you owe $335k, your extracted amount will be closer to $440k than the $500k you indicated. Selling and closing costsFinal item to consider, buy n hold is not passive even with the use of a PM.
I provided all I can think of relevant to your decision to keep or sell. You have to make the right decision for you. I am confident San Diego will continue to have outstanding long term appreciation, but there are many factors to weigh in the decision.
If you decide to sell, then you can consider your best investment options.Good luck
Great point that coastal CA has solid historical performance as far as appreciation goes, but there's that old saying "past performance is not an indicator of future results." No one knows if the market is at the top, but if you're getting rent and cash flowing positive every month, you have a pretty good idea of whether or not you're getting paid.
Why would you think cash flow going forward is guaranteed? I suspect there were many Detroit investors who held similar belief before the Great Recession (GR). Detroit was not the only location that had rent depreciation resulting from the GR. There were also locations that had no significant rent depreciation.
The future is full of uncertainty but going back as far Case Shiller tracks, San Diego has never not appreciated over any 10 year period. Same for San Francisco. I expect it is also true of San Jose, OC, and L.A., but I did not check.
Reba Marabotto
Real Estate Agent from Temecula, CA
replied 22 days ago
Definitely keep the capital gains in mind. In this case, if you're married, you can benefit a major tax relief up to $500,000 (or $250,000 if you're single) with this being your primary residence when you sell. If you rent it out, and change your mind a year or two from now, you may gain some additional equity, but you will lose that huge tax benefit as an investment property. As you probably already know from certain research, since you've already decided to move here to Temecula, you can get a lot of house here for $500,000-$600,000. Money is cheap still, so you can purchase one you sell, and still bank a lot of your money while you decide what you want to do for investments.
Houses here are VERY easily rented out here, with our neighborhoods and schools, we always have an over abundance of families looking to rent. If you decide to rent at first... you're also going to be challenged to find the rental. We have a lot of military families that get stationed in the areas around us, and want a good area for their families. Temecula is their first stop to look after they see the prices south of here! I know, as I work with a few investors here. With the continual tenant-base, it usually only takes less than a week to well-qualified tenants... often, first day of listing on MLS. When you're ready to become a landlord, it just takes a short time to list, show, get applications, get background checks done, and we usually have new tenants ready to move in within a day of other moving out. Most of our tenants stay longer than they expect too.
I'm here if you have any specific questions about Temecula. I've been here since 2007. I'd love to help.
Todd Rasmussen
Rental Property Investor from La Verne, CA
replied 22 days ago
If you are doing buy and hold, I'd suggest keeping it. Cash flowing SFH's in San Diego are a pretty safe investment for the foreseeable future. If you are going to get into trying to BRRRR then I'd sell. BRRRR is much better started on a solid cash flowing base. You can force appreciation faster, but you are sitting in one of the best spots for natural appreciation.
Further echoing Dan, it really comes down to you finding the best fit for you.
Maxwell Ventura
Real Estate Agent from San Diego, CA
replied 21 days ago
Is your family relocating up north because of work? What other reason to leave SD to go to Temecula?
To increase initial cash flow on your SFR when you leave perhaps there is an opportunity to build or convert an ADU?
Kelly McJunkin
New to Real Estate from San Diego, Ca
replied 21 days ago
@Dan Heuschele Thank you for all of this great information.
We have lived in our home for about 8 years, so the owner occupancy wouldn't be an issue. I will calculate the50% rule and see where we land. Thank you!
Kelly McJunkin
New to Real Estate from San Diego, Ca
replied 21 days ago
@Kevin Purvis Thank you so much Kevin. If we took all that equity out on top of the existing loan for our home, then rented it out, would that tie us up as far as getting financing for other properties?
Kelly McJunkin
New to Real Estate from San Diego, Ca
replied 21 days ago
@Tyler Hungerford Thank you Tyler. This is the thought process I had, but I was questioning the decision to sell our current home, so this helps me a lot. Our current home is in Rancho Del Rey area of Chula Vista. So it's not coastal, but on a clear day we can see a strip of the ocean at the end of our canyon. I have updated most of the home and it would be very a desirable for any renter/home buyer, as the homes in the area do not have the same aesthetic on the interior that mine does. It could rent for $3,500 or higher /mo.
I am a new investor, and my priority is to make smart decisions for monthly income flow and for my future. So, even though I do love this home- I will let it go in a second to get on the right path financially in investing.
Any help I can get is wonderful as I'm taking these first steps!
Kevin Purvis
Developer from Orange County, CA
replied 21 days ago
@Kelly McJunkin It might depend on your lender. Some lenders are very strict and want to see two years of rental income to include it in your Debt to Income ratios, while others just want to see a 1 year signed lease.
Another option you could go with, which is not for everyone, but is going with a private rental loan which is interest-only. Private lenders generally don't need a history of renting to count that lease (75% of it anyway) as income, and you can get ~5% paying only interest. These are usually only 5 or 10 years in term, but they also typically go up to 80% LTV, whereas most banks will only cash out to 75% LTV.
Ultimately you have to run the numbers yourself, I try to go conventional as much as possible because I like things to be locked down for 30 years. But I know people who swear by the interest-only payments as it lowers DTI, and the interest expense can be deductible (depending on your personal tax situation).
Kelly McJunkin
New to Real Estate from San Diego, Ca
replied 21 days ago
@Reba Marabotto Thank you Reba! I may send you a message in the near future as you will be local to me. We are now at the top of the $500k equity we can keep as a married couple, tax free. So, even though more equity would be great, the taxes would give us less at that point. We were considering buying out there, and doing a live-in update to sell in 2 years. But the offers on the homes have been wild! Dozens of offers before they are even listed. So I need to find an off-market home if this will be able to happen.
Kelly McJunkin
New to Real Estate from San Diego, Ca
replied 21 days ago
@Todd Rasmussen I was very interested in BRRRR. That was one of my concerns with keeping this home- that it would tie up our money/financing options for other investments. Our home is in East Chula Vista area, so it's south San Diego.
Thank you for your help
Justin Phillips
Lender from Phoenix, AZ
replied 21 days ago
@Kelly McJunkin Temecula is a great area! I lived there for 10 years, then recently moved to Phoenix.
We ReFi'd our home in Temecula Valley into a 1st position HELOC, which allows us to keep the property as a rental and access up to 80% of the equity for our next home/future investments. Really the best of both worlds, and a great way to get a feel for the landlord world. I'd definitely recommend exploring that as an option as you look to start your REI journey.
Kelly McJunkin
New to Real Estate from San Diego, Ca
replied 21 days ago
@Maxwell Ventura We are relocating because there are a ton of young families and excellent schools in Temecula. I have 2 young kids. We live in East Chula Vista right now, so although it's very close to everything San Diego offers, it's not in the heart of SD. The homes are still affordable out there, and the surrounding areas are growing and have opportunities for investments.
Kelly McJunkin
New to Real Estate from San Diego, Ca
replied 21 days ago
@Justin Phillips Thanks Justin! From what I know of a HELOC, the interest rate is variable. Isn't that a little daunting for such a large amount being financed over many years? Do you have a set monthly payment? Thank you
Douglas Spence
Investor from San Diego, CA
replied 21 days ago
@Kelly McJunkin I would keep the home and rent it out. You can do a cash-out refi and use that capital to invest. As long as the home is cash flow positive (after all expenses including vacancy, prop mgmt, etc) I think it will be worth it to keep the home in the long term.
I agree that inflation is coming, however real estate is one of the best hedges against inflation.
Justin Phillips
Lender from Phoenix, AZ
replied 21 days ago
@Kelly McJunkin This style loan definitely isn't for everyone, but it can be a great tool for everyone who qualifies. The average client pays off their home in less than 5 years, without changing any spending habits. That being the case, it's not an interest rate sensitive loan, because the payoff timeline is so compressed. It's really a matter of interest cost that you want to look at.
The only monthly "Payment" you have is the interest only cost. At the current rate, with a balance of $335k, the first month's interest cost would be $1,080.09 That should be the highest interest cost you ever pay, assuming there's monthly cashflow.
Temecula is a great place to raise a family, I think the market will do very well there long term. East Chula Vista is growing like crazy too. I used to do some work down there, and I was always so impressed by the East Lake Area.
Maxwell Ventura
Real Estate Agent from San Diego, CA
replied 21 days ago
Agreed.. I used to live in Lake Elsinore & Canyon Lake. Worked in Temecula.
Wildomar, Murrieta, Menifee, Winchester are also all areas of growth right now.
Tony Kim
Rental Property Investor from Los Angeles
replied 21 days ago
Originally posted by @Kelly McJunkin :I have been reading as much as I can to make this decision, and still feeling unsure. If anyone has the time and expertise, I would greatly appreciate some advice.
We are relocating from South San Diego to Temecula this Summer (about an hour north). My original plan was to sell our 4bd/3bth home, rent something in Temecula for a while, and invest a chunk of our equity into real estate investments. Leaning towards- Multi-family and BRRRR.
*Currently owe 335k - Able to sell for around 835k. Which would give around 500k in equity to use.
My question is- Is it the best idea to SELL and use equity for multiple investments? Or would it be a mistake. Should we try to keep this property, rent it out, and refinance it to take equity out for investments?
It would provide a positive monthly cash flow if we rented it out. Maybe not too much though after refinancing and grabbing equity out. (and is the market going to take a nose dive soon because of all this crazy inflation? This makes me worried to keep the home as well)
Bottom line, Is it a mistake to let go of a So Cal SFR when we only owe 335, or should I run with the cash and start my investing elsewhere....? I feel like I need some guidance at this point. And I really hope this all made sense.
TIA!
Not sure what your time-frame is right now and I'm not sure if SD is experiencing the same thing as LA, but it's about as strong a seller's market as I've seen in a long time. No inventory, low rates and buyers are falling over each other to put in offers way above list price.
With that said, I would never sell a nice home in SD that was close to the beach. In researching the pricing trends of Southern California as well as the demographic trends, you never want to let go of a property like this. People think of LA as a melting pot...well, tbh, it kind of is but when it comes to SFR locations, it isn't AT ALL. As prices get more and more out of control in So Cal, I believe this will simply get more and more pronounced. Admittedly, I'm not too familiar with Chula Vista, but I don't know any neighborhood in LA that borders the beach and hasn't priced out 85% of the people who live in LA.
Kelly McJunkin
New to Real Estate from San Diego, Ca
replied 21 days ago
@Tony Kim My property isn’t by the beach. It’s within driving distance- 10 mins in Rancho Del Rey, Chula Vista.
Will keeping this property (I owe 335k) and taking out the extra equity (value is around 800k+), tie me up as far as being able to finance other investments?
Thank you!
Randy B.
replied 21 days ago
@Taylor L. Actually, the old saying is “past for performance is the BEST indicator of future performance.”...
Justin Sullivan
Contractor from Williamstown, NJ
replied 21 days ago
My wife and I had this same question up
Until about 3 months ago. We purchased a live in flip while doing other flips and buy and holds over the past 3 years. We have now decided to move from New Jersey to Arizona. We own 4 units in jersey which we intend on keeping. We originally intended on keeping our house as a rental since our mortgage is so low. This inflation on housing has driven our value so high we actually decided to sell instead. I say weigh your options and figure out what is best for your current situation. Will our house appraIse, yes. Will we regret not holding it, absolutely not. We decided the cash is more important at this point in time. We owe 125 snd original value was 200 it is high over 275 so we are going to cash out snd out that money into future investments. We have decided that is what’s best for us at this time in our lives and I think you should do the same. So cal values will for sure increase and you’ll be sitting pretty in 10-14 years. But is that what your looking for right now. Can you cash out on that $500k and turn that into 2 million over the next 10 years where is you left it in the house you would only be at 1.5? Think of it like that. What can you do with the cash if you take it out. If you don’t think you can do that and make enough money at your job than keep the house rent it out snd refi for investments.
We ultimately decided that making $500/montg isn’t worth what we can do with the 150 if we cash out now. So we are gonna cash out and invest hardcore until we make the sale worth way more than holding it. Well also most likely put some of that cash into several cash flowing Assests via down payments so well turn $500 cash flow into $5,000!
Good luck wish you the best!’
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