Help with idea to sell my rental duplex in Costa Mesa

Renter · Alhambra, CA · Member since 2009 · 133 posts · 5 votes

Hi all,

I have a duplex in Costa Mesa Ca area
that i have owned for a long time and now
but I'm only getting about a 3-3.5% return on equity.

I'm not sure I can improve the property better to try to get more rents and i think I should try and get a much better return in out of state investments.

I'm thinking of a 1031 exchange into a portfolio of properties.

What would be some good ( creative ) ideas to sell in such a bad market ?
Finding the proper Realtor etc.

Maybe even trade ?

Your thoughts ?

Thanks to all, Richard C.

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Aaron Mazzrillo

Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes

15y

Sell it and carry the financing. You can charge a very nice down payment and charge an interest rate that makes sense for you. At least you can get a lot more than 3%. Costa Mesa is a good area and there will be lots of investors interested if you are offering financing.

I personally would sell it and 1031 into a few houses out in the inland empire. I am seeing 20-30% returns on may cash invested in working class rental properties out there.

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Aaron Mazzrillo
Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
15y
Sell it and carry the financing. You can charge a very nice down payment and charge an interest rate that makes sense for you. At least you can get a lot more than 3%. Costa Mesa is a good area and there will be lots of investors interested if you are offering financing.

I personally would sell it and 1031 into a few houses out in the inland empire. I am seeing 20-30% returns on may cash invested in working class rental properties out there.
1 Reply
Richard Chang
OP
Renter · Alhambra, CA · Member since 2009 · 133 posts · 5 votes
15y
@Aaron,

Originally posted by Aaron Mazzrillo:
Sell it and carry the financing. You can charge a very nice down payment and charge an interest rate that makes sense for you.

Thanks ! But I don't own free and clear
and have to get about 35% down to cover my existing mtg and costs of sale.
What percentage rate can I ask for 6 7 8% ?
Then I would use that monthly income to pay for other properties ?

Thanks, Richard C
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
15y
The number one thing you can do to sell in any market is to get the property priced correctly. You need to be the best deal around if you want to sell quickly.

What's your market like right now? Are properties like you're selling? Are there dozens of identical properties that have been setting on the market for months or years?

Sounds like you have a lot of equity that you would like to extract and use elsewhere. A simple sale might be the best, especially if you can arrange a 1031. Creative techniques, like wrapping the existing mortgage to provide an owner carry deal will help, but leave you still dealing with the property. A 35% down payment is unrealistic. Anyone who can do that has plenty of choices. A small down payment might entice a buyer. You would leave the existing mortgage in place and continue to make the payments. You buyer would make the new payment to you.
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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
15y
Richard you need to answer "how much can you net from the sale?" and "what can you repurchase with the funds?".

Your in California I see.Many investors purchase here in Georgia as the returns are much greater for CAP and cash flow.Example you might get a lot from the sale in Cali but repurchasing there can also be expensive.So then you come down to "what have you gained?".

I remember home buyers coming here from Cali and couldn't believe they could get a mansion here for 800k that costs millions and millions more in Cali.

So maybe selling and then leveraging another state with lower pricing and higher returns is the answer.

You will just have to analyze and see.
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Steve L.
Investor · Rancho Cucamonga, CA · Member since 2008 · 1k+ posts · 684 votes
15y
I would list it in the MLS, 1031 exchange it and see what happens. My brother lives in a fourplex in a nice area of El Segundo. Total rent is about ~$5,500/month and someone paid $1 million cash. I would estimate that their cap rate is 4% or so.

If you message me the address I would be happy to send you comps.
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Richard Chang
OP
Renter · Alhambra, CA · Member since 2009 · 133 posts · 5 votes
15y
Originally posted by Jon Holdman:
The number one thing you can do to sell in any market is to get the property priced correctly. You need to be the best deal around if you want to sell quickly.
What's your market like right now? Are properties like you're selling? Are there dozens of identical properties that have been setting on the market for months or years?

Hi Jon,
Re: Market Value - hard to find direct comps since there is an old 1950 house in front and a 1987 2 story in back. I don't think there is any direct comps like this in this very nice area.
So, I'm not sure how to list the price.
The inside is not upgraded and pretty basic but neat and clean.
At this point, I think a potential owner will live in one and rent the other ( or possibly rent both ) with income about 60K per year fully rented.

Originally posted by Jon Holdman:

Sounds like you have a lot of equity that you would like to extract and use elsewhere. A simple sale might be the best, especially if you can arrange a 1031. Creative techniques, like wrapping the existing mortgage to provide an owner carry deal will help, but leave you still dealing with the property. A 35% down payment is unrealistic. Anyone who can do that has plenty of choices. A small down payment might entice a buyer. You would leave the existing mortgage in place and continue to make the payments. You buyer would make the new payment to you.

I agree that I would need a cash out sale and then exchange into something with much better return with about 500K-600K equity.

So, I need to figure out who to list with and how to assess the market value for sale.

Thanks, Richard C :D
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Richard Chang
OP
Renter · Alhambra, CA · Member since 2009 · 133 posts · 5 votes
15y
Originally posted by Steve L.:
I would list it in the MLS, 1031 exchange it and see what happens. My brother lives in a fourplex in a nice area of El Segundo. Total rent is about ~$5,500/month and someone paid $1 million cash. I would estimate that their cap rate is 4% or so.
If you message me the address I would be happy to send you comps.

Hi Steve,

As I just posted, it's an odd property with very old house and not so old house in back and nothing directly like it. So I don't think there is a direct comp. I guess trying to price by price sq ft sold for other duplexes ?

Thanks, Richard C
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Richard Chang
OP
Renter · Alhambra, CA · Member since 2009 · 133 posts · 5 votes
15y
Originally posted by Joel Owens:
Richard you need to answer "how much can you net from the sale?" and "what can you repurchase with the funds?".
Your in California I see.Many investors purchase here in Georgia as the returns are much greater for CAP and cash flow.Example you might get a lot from the sale in Cali but repurchasing there can also be expensive.So then you come down to "what have you gained?".

I remember home buyers coming here from Cali and couldn't believe they could get a mansion here for 800k that costs millions and millions more in Cali.

So maybe selling and then leveraging another state with lower pricing and higher returns is the answer.

You will just have to analyze and see.

Hi Joel, I am thinking of investing in a set of properties in LV or PHX with the money coming out of the 1031 exchange since I would have about 200K Depreciation Recapture ( 25%fed + 10% Ca State = 35% on 200K = 70K tax !) and sizable capital gain to pay on a normal sale.

Appreciate help on this, Richard C :roll:
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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
15y
Properties here you can hit for multifamily a 10 to 11 cap going in.

If you do distress you can further your returns.It all depends on how much money you will have to play with after you sell your property and 1031 exchange it.

There was an investor before that told me of a 1031 exchange where his funds were held by an intermediary waiting to exchange the funds into another property.The 1031 company filed BK and the funds have been tied up for years.

So when putting with a 1031 you have to make sure the funds you will be exchanging are protected.

The people I now just keep exchanging and refinancing out the equity.Then when you pass away your heirs inherit at a stepped up basis wiping out the deferred gains.

Sometimes doing a 1031 the seller you are buying from will play hard ball as they know you have a certain timeline to perform to get the exclusion.

It all comes down to where you feel comfortable investing (location) for the returns you will be getting.
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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
15y
I bought a 20 unit multifamily A location here for 1,450,000.

How much would that cost in California?? I'm just curious.
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Richard Chang
OP
Renter · Alhambra, CA · Member since 2009 · 133 posts · 5 votes
15y
Originally posted by Joel Owens:
I bought a 20 unit multifamily A location here for 1,450,000.
How much would that cost in California?? I'm just curious.

Hi Joel,

Of course you got a great deal.
What is your ROI on cash invested ?

I don't know anything on large units but I found this

http://www.loopnet.com/California/Los-Angeles_Apartment-Buildings-For-Sale/

$2,695,000 / 15,278 SF / 22 units
6.30% cap rate / Multifamily / Garden/Low-Rise

Thanks, Richard C :D
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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
15y
Richard it was an owner finance with a WRAP.Got in for 1,500 1/2 month escrow for taxes and insurance and 2,500 for title.

I did a video recording with Josh about it and some other commercial topics.It will be in one of the BP newsletters soon.

I apologize in advance for the video quality.The voice quality is great but something about Skype compressing my signal was messing up the feed some.

6% CAP is non-existent here.Mainly only REITS and INSURANCE companies are paying for those low returns.California is more appreciation driven.

If you will be exchanging to hold longer term in the new property cash returns might be more important to you.
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Richard Chang
OP
Renter · Alhambra, CA · Member since 2009 · 133 posts · 5 votes
15y
Originally posted by Joel Owens:
Properties here you can hit for multifamily a 10 to 11 cap going in.
If you do distress you can further your returns.It all depends on how much money you will have to play with after you sell your property and 1031 exchange it.

There was an investor before that told me of a 1031 exchange where his funds were held by an intermediary waiting to exchange the funds into another property.The 1031 company filed BK and the funds have been tied up for years.

So when putting with a 1031 you have to make sure the funds you will be exchanging are protected.

The people I now just keep exchanging and refinancing out the equity.Then when you pass away your heirs inherit at a stepped up basis wiping out the deferred gains.

Sometimes doing a 1031 the seller you are buying from will play hard ball as they know you have a certain timeline to perform to get the exclusion.

It all comes down to where you feel comfortable investing (location) for the returns you will be getting.

Yes, timing is very important. After the sale you have 45 days to identify in writing all the possible target property(s) to exchange into and then 180 days in total from the sale to complete the transaction.

So timing is the most difficult part of this as you have to start identifying target properties during your For Sale period.

I will also look into the purchase side soon but I need to figure out the sale part first.

Great point on refinancing out the equity ( I will look into this ).

Thanks, Richard C :D
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Steve L.
Investor · Rancho Cucamonga, CA · Member since 2008 · 1k+ posts · 684 votes
15y
Two house on a lot are usually more valuable than a duplex. Especially if you have two separate drive-ways.

What does a single family house sell for in the immediate area. That is probably how you are going to get optimum value... Selling it to an owner occupant who sees the value in the back area (teenage/adult kids, retiring parents, regular vacation visitors, rental unit, etc).

I personally think refi is a dangerous option. You will likely have substantial negative cash-flow if you take out all the equity.

Are both units occupied? What is the rent?

Once again, I am happy to give you my value opinion.
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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
15y
When I am talking refinance I am talking about taking equity out after you have bought a value add deal and increased the value substantially.

I am not talking about an existing property you want to tap out.Banks for refi's are being very conservative anyways now.They will only refi at maybe 70 to 80%ltv and nowhere near 90% to 100% of FMV.

This is because many markets are still declining in value.The banks if they had to take back loaning close to full value would sell at a big loss.

You have good debt and bad debt.Refinancing out for stupid stuff that declines in value or frivolous purchases is bad debt.Good debt is money taken out to leverage into other properties to provide better returns.

You really need to know the value of your property first.What is the average days on the market and is your market declining,flat,appreciating and by what percentage a month?
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Scott J.
San Juan Capistrano, CA · Member since 2011 · 114 posts · 34 votes
15y
Hi Richard. Would you mind PMing me about your property? We are in the market for duplexes in OC. We weren't planning on buying another one until the middle of 2012 (we are old school, buy & hold with traditional financing investors), however we may be interested if the price is right.

Do you have permits for the back rental?
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Richard Chang
OP
Renter · Alhambra, CA · Member since 2009 · 133 posts · 5 votes
15y
@Scott J.

Biggerpockets doesn't allow a PM message without being a Colleague first ? How to do that ? I followed Scott J and clicked the Add as Colleague but it didn't seem to save the Colleague status.

Thus not able to PM

Hope Biggerpockets admin can look into this issue.
Since, you can open a PM message and write it and then the message is lost ! telling you cannot PM unless you are a Colleague.

Richard C

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