We moved in April 2019 and need to sell our 550k house in Cali

7 Replies

Hi my name is Danny. We bought a house for 550k in Canyon Country, Ca 91387 in Spring of 2019. My partner commutes an hour + everyday and works for a high paying job but the stress is killing him and making him miserable. The Tick fire has fueled us in thinking we need to get out! I would rather we sell the house, at least that's our thought. We are researching building a tiny home and moving to NC where he can freelance and I can learn and start to invest in real estate. Our obstacle is in selling this house. I don't know where to start because there could be options I just don't know that we have and I hope to find someone here would could share some insight.

Capital Gains tax, paying money out of pocket, and how much money we will lose is such a stressful aspect. We put 20% down on the buying of this home. TOTAL PAYOFF AMOUNT is $437,179. I don't even know where to direct my thoughts. I know I should probably call a realtor first and tell them our situation and probably an attorney and someone to look over the taxes. What would you guys do?

I have never posted on here before but watch the bigger pockets podcast a lot. I would like to invest money into real estate to create financial freedom which is the goal and hope we can figure out what to do in our situation.

P.S Our home wasn't burned down in the Tick Fire in California but we had to evacuate for 2 days. By the time we had packed our cars the air around us was black and full of smoke. Luckily there was no damage but we are stressed out being in what we perceive as an unsafe place and have no idea how we can sell after this fire. Would that make our odds of success much more difficult?

P.S.P.S

You can see a house that has burned down in our neighborhood which is up on a hill not too far from us. It is more remote than the houses where our cul de sac is located, but just to give you perspective, we recorded flames in the hills behind our home with our cameras.

Your instincts on what to do first are correct.  Speak to a local realtor and get a good picture of the current market there and a valuation of your property.  Understanding a reasonable sale price is probably the first most important piece of information.  After that, discuss what that sale would do for your tax position. Is there a gain? do you care if there's a gain? a tax professional can help you understand the consequences.

Once you've done those two things, you will be better equipped to know what you actually want to do. You could then entertain other strategies for your property and at least have something to measure them against.

Best of luck with whatever you choose to do and I hope you find a solution that eases your situation. 

I wouldn't just jump up and move because of that fire. That is too an extreme of a move. I would wait until end of year and start of 2020 to think of doing anything like that. If anything sell the house and move closer to your husbands job. 

I agree with Dustin that your first instinct to contact a local Realtor is correct. If you're not sure who to call, PM me and I can analyze the MLS data to suggest the best performing agents in the area. I can also give you a pretty good idea both of how much your home is worth, and how long it's likely to take to sell (for both the best agents in the area, and the average ones).

The time it will take to sell is important, both because the longer it takes to sell the lower the sale price usually is, and because if you move before putting your home one the market (which is the ideal to maximize the sale price), then you'd be paying for either two mortgages or one mortgage and one rental until it's sold. (To be more specific on the numbers, on average the prices of homes in most areas in Southern California drop just under 2% for each month they sit on the market, and homes which are occupied while on the market in most areas in Southern California take about 32 days longer to sell, and sell for more than 3% less than homes which are vacant during the sale).

Fires are a fact of life in many places in California; I live in the San Bernardino mountains, and there's a major fire somewhere on the mountain every 10-15 years.  Earthquakes are also a fact of life in California, and in some places floods also happen more often than I'd personally be comfortable with.  Unfortunately there's almost no place in the U.S. that doesn't have significant risk of at least two different kinds of natural disasters.  So if you're not comfortable with the fire risk, then don't feel bad about moving - but make sure you don't trade one danger for another when moving to a different place (for example, I'll take California earthquakes over Oklahoma tornadoes any day...).

As Dustin said, the tax consequences of a sale should be discussed with an accountant.  In general if you take any gains you get and use them towards the purchase of another house of the same price or higher, you should not have to worry too much about tax on the gains (this is just a general statement, not tax advice).

Finally, if you do decide to move, there are alternatives to selling - such as renting the house (short-term or long-term) while you either purchase or rent another place. If you can make more in rent than your total of all your expenses (mortgage, insurance, taxes, etc.), then you could actually turn the house into an investment. And since you bought it so recently, there's a decent chance you might even take a loss if you sell it - so renting or another method might end up being the only way to avoid taking a loss. I'll note that renting isn't for everyone, since renting isn't a walk in the park because you need to manage your property; but you can hire a property management company to do most of that work for you, and sometimes this kind of a situation can present an opportunity to get started in buy-and-hold investing, if you're up for the work and learning that will make it work for you.

I hope that helps, and please feel free to PM me if you have questions I you're not sure who to ask.  I can't guarantee I'll have answers, but I'll be happy to help point you in the right direction if I can.

@Danny T. See how much you can rent it out for. There are lenders doing cash out refinance for 1.00 DCR on investment properties @80 LTV business purpose loans. Let the tenant pay for your loan your equity can still grow year to year.

Originally posted by @John Michael Thomas :

As Dustin said, the tax consequences of a sale should be discussed with an accountant.  In general if you take any gains you get and use them towards the purchase of another house of the same price or higher, you should not have to worry too much about tax on the gains (this is just a general statement, not tax advice).

This statement is incorrect for the original poster since this property is a personal residence and not an investment property.

 

@Danny T.

I would do as you suggested, talk with a realtor and determine how much the house would sell for if you sold it. 
Please be mindful that there are costs associated with selling a house so factor that in as well.

I would not choose to make this property a rental and then rent a property in NC.
This property in CA will likely not cash-flow given its high price point.
If you think it will appreciate significantly, that is a different story.

Originally posted by @Basit Siddiqi :

@Danny T.

I would not choose to make this property a rental and then rent a property in NC.
This property in CA will likely not cash-flow given its high price point.
If you think it will appreciate significantly, that is a different story.

As with all things, you have to look at the numbers to make sure it makes sense (with or without appreciation). In this specific case, this is in an area of Southern California where long-term rents are decent, and short-term rents are quite good (both in terms of rental price and occupancy rate - Canyon Country is only 15-20 minutes from Six Flags Magic Mountain). So here's a quick check to see if it might make sense to rent it:

Long-term: Average long-term rents for a 3 bed 2 bath house in Canyon Country are $1.8k-$2.2k a month.  If you consider all your expenses (mortgage, taxes, insurance, utilities, etc.), this is probably close to break-even (maybe a little over, maybe a little under).  But when you add in the cost to have a property management company manage it for you (or even the costs to manage it yourself), it's probably not profitable.  And since the market is not in a clear upward climb, whether the property will appreciate is anyone's guess.  So for a long-term rental, Basit is probably right.

Short-term: According to AirDNA, the average rate for short-term rentals in Canyon Country is $185/night.  But this includes shared rooms, studio apartments, and small townhomes.  The average rate for full homes is closer to $300/night, but let's say $250/night on average to leave a buffer.  Also according to AirDNA, the occupancy rate is 71%; again that includes all types of rentals, so let's use 60% to leave a buffer.  That's over $54k/year in short-term rental income.  Most property management companies charge 10-15% of the rental income, so even if you subtract 15% of the profit to pay a rental management company, that's over $46k/year in short-term rental income, with a significant buffer.  Even if your total expenses (mortgage, taxes, insurance, utilities, etc.) reached $3k/month (which is unlikely), you'd still come out ahead $10k/year - almost $1k/month.  Of course with short-term rentals, the income will vary month-to-month, so some months you'd make less and some more; but there's enough buffer in this and enough profit each month that you'd likely at least break even during even the low months.

So bottom line, if you're even considering the possibility of renting it, I suggest you contact a local property management company (one that specializes in short-term or long-term, depending on which way you want to go).  And don't be afraid to ask them for the P&L numbers from other local properties they manage to back up what they say.