Should i sell my home?

Question

Hi! Everyone on Biggerpockets,

Im currently thinking of selling my home right now that demand & prices are high. Our family goals have shifted from working, saving, buying a home to investing to get out of debt and become financially independent. We realize the La Market appreciates well and it would be good profit if we hold on and sell 20 yrs from now but as robert kiyosaki says your home is not an asset.

We are shifting towards selling this home and moving into an apt which is a couple hundred less than our current mortgage. Using the profit after closing costs, re agent fees etc to payoff current debt and use the rest to invest in an area with lower cost propertys to do short term rentals that cash flows well.

What do you guys think is this a good route to go or is their other ways i could go with my investing plans?

Here is some info:

-Home in los angeles 90247 zip code.

- mortgage balance is $385,000

- 2 bed / 1 bath / 815 sq ft / 5100 sq ft lot

- current homes sold in area comps are $550,000

- so after closing costs, re agent fees, moving costs we will have around $110,000 to $120,000 profit

- we will payoff debt of $25,000 and be left with around 85k to 95k to invest with

- i will also get back my Va entitlement so i wont have to put down any money on a new investment and wont pay mortgage insurance.

- both of our credit scores are 800+

Thanks

Edgar Gascon · Answer

@Marcos, the previous response by @Jon Schwartzundefined made some great points as to the options you had. The one other thing that comes to my mind is adding an ADU (attached dwelling unit) -  do you have the space to create an additional 400-1000sqft unit on your property? New CA State laws in 2020 allowed for a garage conversion or additional unit to be built on your lot up to 1/2 soft of current home or up to 1000sqft - due to housing demand.

In my area, Santa Barbara County; these ADUS are popping up like crazy. I recently converted my detached garage; start to finish with permits and finishing It cost me $45k. Renting the unit at $1500 - the conversion would have paid itself in 3 years gross rent. I believe in maximizing your land use - so if you can fit an additional "unit" without having to go buy some other investment out of state, pay RE fees, closing cost, etc etc etc - you end up saving some of those costs and reinvest into the land you already own.

I hope that gives you another option

Luke Carl · Answer

@Marcos Urvina. I wouldn’t worry about this at all. You’ve got to have a car and a place to live. I can’t imagine rent would be much cheaper in your area. And student loans are damn near free. Plenty of time to worry about this stuff later.

Set a goal to finish one BP podcast per weekday for the next 2 weeks.  :)

John Underwood · Answer

You might be able to save the same $200/month by doing a refinance. Then you would still be paying off your house that hopefully will keep appreciating. Everyone needs some place to live even if it is a liability.

Jon Schwartz · Answer

Marcos,

Thanks for supplying all the numbers. You have a fun problem to solve, and as I see it, you have some wildcards up your sleeve!

As a previous poster mentioned, you should definitely look into refinancing with a lower rate. This might reduce your $2300/month payment, providing you less stress and, hopefully, a little more left over with which to pay down your car and student debt.

I also agree with the previous poster who pointed out that rent in your area won't be much cheaper than the cost of ownership. Median rent for a 2/1 near you is currently $2200/month:

It looks like selling won't lower your cost of living, but it will pay off your debts and give you $90K to invest.

So here's what I'm thinking: I'm a believer that longterm appreciation is Socal builds more wealth than cashflow from cheaper markets. Do you have income from a job/career? You must to afford your mortgage payments. If that's the case, I wouldn't invest for cashflow; I'd invest for equity growth.

I think you should first explore househacking in Gardena. I'm househacking a duplex just below Hollywood. My family lives in the upstairs 3/3, and I rent out the downstairs 3/2. My cost of living is significantly lower than if I owned a house down the block; I'm even paying a lot less out-of-pocket than my tenants! And meanwhile, I'm gaining equity in principal paydown and longterm appreciation.

Your wildcard is your VA loan. I would like you to explore buying a multifamily property with no down payment and using your $90K to either A) renovate the building, B) negotiate a cash-for-keys with one or more tenants, or C) do both.

Simply investing in an owner-occupied duplex or triplex will lower your monthly cost of living while allowing you to build more equity. But if you force equity right off the bat with your proceeds from your home sale, then you'll really be cooking with gas!

Investing in LA isn't the same as investing in Midwestern or Southeastern markets. Our pricing and rent control makes this market unique. But you're in a position to take advantage of it!

What do you think? Am I making any sense to you?

Best,

Jon

Zachary Rymarcsuk · Answer

@Marcos Urvina

Have you considered house hacking?  Assuming you're talking about renting an apartment rather than purchasing an apartment complex, I don't think that's a great idea, since you will not be building equity.  If you would consider living in something like a duplex or triplex and renting out the other units, you may be able to use the rent for mortgage paydown and thus build equity with little (or none) of your own money invested.

Marcos Urvina · Answer

@zachary rymarcsuk yes have researched extensively on converting my 200 sq ft garage into a 3rd bedroom with private entrance for short term rentals. Would have to rent 22 days of the month at $70 daily profit ($1500 monthly) to payoff the monthly payment for construction of garage conversion + the costs to run the short term rentals. So anything after 22 days would be profit. Their is demand out here in Los angeles for short term rentals since the city imposed lots of rules and regulations recently that closed down many people that are not following the rules on short term rentals. So i am definitely looking into this route also.

Jon Schwartz · Answer

@Marcos Urvina, curious to know where you're leaning on this now...

Best,

Jon

Marcos Urvina · Answer

@luke carl thanks for your reply. im not the poconos guy you mentioned im planning on staying in southern california with the investment and had no plans of quitting my job while investing. Our debt includes a car balance of 15k at 4.5% apr and school loans of 10k at 4 %.

i will definitely learn more about the investment route i choose before taking the plunge thanks for that advise. I just want to be free from this high mortgage payment of $2300 + maintenance & repairs and debt that has controlled us. We now live frugally and pay as much as we can on debt and have savings of 15k for emergencies. My thinking is to get out of all bad debt and start with a clean slate and have enough cash on hand for investment route i choose.

Luke Carl · Answer

@Marcos Urvina  congratulations for taking the plunge into your journey! I started my real estate career with zero dollars. I’m now financially free and not quite 40.

My short answer is no. Don’t sell it. You’ve got a lot more learning to do. Also the word “debt” stood out to me. Need to know more about that.

First off.... why STR? Too many people come here thinking they’ve reinvented their wheel with this Airbnb thing and if they buy one house they can quit their job. It’s just not gonna to happen. I’ve got a lot of real estate and I still have a “day job”

I think you’re the same guy that was asking about the Poconos earlier today. So you’re thinking about selling your home and investing in a market half way across the world -which never really gets mentioned on this forum so it probably doesn’t make money -with every penny you own. Unless you’re 25 and kid free I wouldn’t do this. But then again I’ve bought plenty of properties with every penny I owned.

Before you sell your house my prescription is 408 bigger pockets podcast and 10 non fiction books. Go listen to these and then come back with more questions. :) ❤️❤️

**Typed on an iPhone

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