Should I keep my home? Or sell and take all the equity?

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Should I keep my home? Or sell and take all the equity?

Kelly McJunkin
Real Estate Agent · Temecula, CA · Member since 2021 · 28 posts · 16 votes

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!

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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
5y

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

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  • Moses Moreno
    Rental Property Investor · San Diego, CA · Member since 2014 · 30 posts · 23 votes
    5y

    @Kelly McJunkin

    What a position for you and your family to be in! I was born & raised in Chula Vista so I know the area well. When my brother sold his comparable house in Rancho Del Rey a few years ago for $650k, I was amazed. The fact that the area has appreciated to $800k+ is incredible!

    Other investors on this forum can break down the X's & O's much better than I ever could. For me it's a matter of PEACE. What decision will create the most peace for you and your family? A $500k-ish payday without capital gains? Or becoming a first time landlord and starting to build on your portfolio? If it's the latter, be prepared for the ups & downs as a RE investor, and make sure you stay focus on the BIG picture! My wife and i have gone through 2 super stressful evictions, and the only thing we would change is our screening process! We started our REI journey in 2004, when we decided to keep our SFH in Phoenix as a rental, and that decision inadvertently started our RE investment journey. To date we currently have 6 doors and just 1031'd our original Phoenix SFH into a highly successful short term rental in Idyllwild, CA (#idyllwildtreehaus). Side Note: If you keep your home you may want to consider looking into doing a STR. (Potentially better income, better control, and gives you the flexibility over your home, and it fun!)

    My wife (44) is a hairstylist and I’m a W-2 employee (45) and we are crunching the numbers to see how we gain financial Independence in the next 10 years. This conversation would not have been an option if we decided not to keep our first home

    In my eyes it’s a win-win for your family! Best of luck on your decision and we look forward to hearing your decision and your progress as you continue to move forward!

    0Reply
  • Luka Milicevic
    Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
    5y

    @Kelly McJunkin

    Sell and leave California. Use the money to buy a house for cash in an affordable market. At the very least you will no longer have a mortgage. 

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  • Varinder KumarPro Member
    Real Estate Broker · LA & ORANGE COUNTY CA -Multi Family · Member since 2016 · 374 posts · 132 votes
    5y

    @Kelly McJunkin

    DONT SELL! the land value alone will go for what you owe, and their not making any more of that. I would rent out cash out refi if possible or heloc leverage it if you need to get cash for your next property but I would not sell a coastal california property. Let it pay it self off. I have a SFR in orange county and not near coast but good area and could cash out $250k but I too am not selling instead leveraging it. We are young and have a long way to go, we have the privilege of holding on.

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  • Kelly McJunkin
    OP
    Real Estate Agent · Temecula, CA · Member since 2021 · 28 posts · 16 votes
    5y

    Just an update on my original post- Decided to sell the CA property. I was expecting around $835k, and ended up closing escrow this week for $916k. After all commissions and fees- left with $543k profit. Super happy with the outcome.

    Now, researching which areas to invest. New Braunfels, TX is a possibility for MF properties (although I would love to find a deal on one in Southern CA)- and considering Big Bear for a STR that my family will also use occasionally throughout the year. Step by step, but looking forward to this.

    Thank you for all your help!

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