San Diego SFR; Rent out or Sell

[Scott Williams]

Good Afternoon,

Looking for some friendly advice or what others would do in my situation.

Currently living in a home I purchased in 2013 at 400k, however, getting ready to move in the next few months. Home is located in San Diego more specifically Spring Valley. Owe around 336k at 4.75% paying 2443 a month to escrow (600 approx to insurance/taxes) home valued between 585k-646k(I like to stick to lower try to be conservative). Projected rent for this house would be 2700 on the lower end and 3100 on the high end, I think given the location of the house and view can pull 2900 a month however sticking to my theme of conservative say I only pull 2700. Being this would be my first rental and managing it myself (to cut property management cost) I am nervous that I am missing data points and I'll end up in the negative(I can swallow a small negative in return for long term gain). Would you keep it as a rental or sell?

[Greg Scott]

No question for me.  I'd sell.  Why?

• As a personal residence, you pay no capital gains on this sale
• California is a landlord-hostile state.   Move that money to a more business-friendly state.
• Your return on equity would be terrible. $450 per month on a quarter million in equity is a 2% return on equity. 
• For almost a quarter million in equity you could buy 5-10 properties in other states and each one could cash flow better than your San Diego property.   Having multiple properties minimizes downside risk of vacancy, natural disasters, and you don't have all your equity sitting in one place, which is a target for lawsuits.  
• I have easily gotten 10-20% cash on cash returns on my Texas properties, meaning you could get 5x to 10x the cashflow this investment would have.