Investor · TN · Member since 2008 · 13 posts · 3 votes
Hi BP Community,
I bought a duplex in 2009 in San Diego and have accumulated equity (on paper), but it has never cash flowed. I have since relocated to Georgia and I'm considering cashing out in San Diego to build a cash flow portfolio here. Business wise this seems to make sense.
Since I'm not living in the San Diego market, any advice or insight on making this type of move would be greatly appreciated.
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
10y
@Jeff B. I refinance to remove money when I desire. I have one property (2 units) with such good rates that I cannot refinance without paying significantly worse interest rates but the rest of my properties are all at rates that are close to current rates. In addition I previously have looked at ELOC on my units and found there were a few places that do ELOC on investment properties (I did this research over a year ago but I suspect it is still true). So I take equity out of the properties as I desire. Normally I take cash out to purchase another property but recently I refinanced 7 units to take cash out just to have it ready for another property purchase (not yet identified).
So while I did not use a deposit slip my account currently has a lot of this vapor money that I can access for whatever I desire (I have been considering a Tesla with Ludicrous mode 😀).
Investor · Bakersfield, CA · Member since 2015 · 161 posts · 46 votes
10y
Hello @Account Closed. My thoughts are for you to sell. The market here in CA is still hot/warm so it's a good time to sell. There seem to be a lot of investors in LA and San Diego who buy purely for capital appreciation these days.
Real Estate Broker · Miami Beach, FL · Member since 2014 · 65 posts · 11 votes
10y
Nina, properties are still flying due to little inventory. I just co-listed a home Friday in Claremont, 60 buyers walked through open house Sat, signing highest and best contract no today. Let me know if you need a hand reselling.
Are you looking to buy properties in GA and surrounding states or elsewhere?
Real Estate Opportunist · Tustin, CA · Member since 2012 · 23 posts · 17 votes
10y
I think the answer is highly dependent on your personal situation and goals. I like cash flow and yearly high performance numbers from 'linear' markets, but I cannot deny the historical performance of SoCal properties.
The reality is that by holding on to CA properties long term, it will appreciate. Sure, that's dependent on market cycles, but I haven't heard of someone losing from long term ownership in this highly populated, limited space to build.
On the other hand, a great advantage you now have is they you will be a local in a hot MSA. Either way, you'll be in a win-win situation.
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
10y
@Account Closed My belief is you have some decisions to make:
- Do you want to continue to invest in real estate?
- Can you do better than your duplex in San Diego? I am also curious where the duplex is.
If you want to stay invested in Real estate I suggest you look at expected returns in your area of Georgia versus expected return (including appreciation) in San Diego. Then factor in advantages of local ownership, cost of selling, and any other factors. Depending on how you answer the questions will determine if you should keep, sell but use 1031 exchange to reinvest in Georgia, sell use 1031 exchange to invest elsewhere, or sell and cash out.
The market for multiplexes in San Diego county is very strong. If you price it appropriately it will sell very fast. So it really depends on what you believe the best course of action is but I would not worry about being able to sell the property (assuming you price it at market).
Investor · San Diego, CA · Member since 2015 · 290 posts · 80 votes
10y
@Account Closed. Your return on equity (Net income divided by total equity) is diminishing each month with the increase in property value. If the equity in this property can earn you greater returns elsewhere, it makes sense to sell. If you sell, a 1031 exchange is hands down the best approach. The amount of taxes (Fed and CA long term cap gains and depreciation recapture) you pay from a traditional sell wipes out a substantial amount of equity. Another option is to hold a note (i.e. seller carry back) on this property if you're looking for passive income but don't want any responsibility in managing the property; this approach also defers taxes from the sale of the property.
Investor · Leesburg, VA · Member since 2015 · 54 posts · 19 votes
10y
@Account Closed I have recently been faced with a similar situation and I decided to sell. As everyone will tell you, “it depends on your personal situation." The problem is no one has a crystal ball on what appreciation is going to do in the coming years. San Diego is probably a good bet on continuing. I was holding on to a condo that I purchased in 2000 as a primary residence and began renting it out when I moved on to another property. It made minimal to no cash flow but it was in great area and I knew in my gut that it was going to keep appreciating and it has. I’m at a point in my life now that I want cash flow. I would like cash flow to at some point allow me quit my W-2.
Finding Bigger Pockets last year opened my eyes to all the other options I have to make that equity work for me. Would my property keep appreciating? Likely, especially since a metro stop will be two blocks from it in two years. I still decided to sell because I wanted more control over my money and not to rely on speculation. My big issue is I'm very busy with W-2 and family. In addition, the market I live in (Northern VA) is tough for buy and hold. I sold the condo earlier this month and I'm doing a 1031 exchange into some out of state turn-key properties .Once those properties close, I plan to refinance and take most of the money out of the properties and start on building a team closer to home (likely Baltimore) to purchase more properties. I went the turn-key route because I didn't want all the stress (it's still stressful) of finding replacement properties in 45 days especially since I don't have a good team built up anywhere.
Hopefully my situation may be of some help. Best of Luck!
Real Estate Agent · San Diego, CA · Member since 2014 · 1k+ posts · 635 votes
10y
Hey @Account Closed
I'd be more than happy to assist you identify and weigh the different options available to you. I will shoot you a PM now with a few questions that will help me get a better idea of the best way to advise you on the matter.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
10y
Wear the hat of an investor - -
WHY would I buy a property that has NEVER cash flowed?
If your answer is appreciations, IMO (sorry) you don't understand REI. Several will back you up on that, but I sincerely doubt they have ever had money on the table (aka, invested w/o cash flow).
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
10y
@Jeff B. I have purchase many properties in San Diego without initial cash flow yet every property I have owned at least 3 years has provided >10% annual return. I am not alone. A lot of factors go into making a smart buy n hold purchase. Cash flow certainly is one but appreciation and rent appreciation in So Cal have in recent years been bigger factors.
In recent years So Cal and San Francisco Area has out performed virtually every buy n hold market in the nation and it has not been due to initial cash flow. Discounting potential appreciation and rent appreciation in a purchasing decision is discounting key components and in recent years would have left you behind those who purchased in appreciating markets.
This is not meant to indicate cash flow should not be used in the buy n hold purchase decision but that there are often bigger factors and in recent years appreciation in many markets is a larger component determining the return on a buy n hold purchase.
@Jeff B. I have purchase many properties in San Diego without initial cash flow yet every property I have owned at least 3 years has provided >10% annual return. I am not alone. A lot of factors go into making a smart buy n hold purchase. Cash flow certainly is one but appreciation and rent appreciation in So Cal have in recent years been bigger factors.
My problem with 'discounts and appreciation' is they are vapor-money, non-spendable assets and the only way to use them on a deposit slip is to sell. That means a non-cash flowing asset is producing red-ink and stealing good cash from other assets.
Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes
10y
My advice would be to sell it and do a 1031 exchange into a larger cash flowing property in your area. There are value add opportunities in every market.
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
10y
@Jeff B. I refinance to remove money when I desire. I have one property (2 units) with such good rates that I cannot refinance without paying significantly worse interest rates but the rest of my properties are all at rates that are close to current rates. In addition I previously have looked at ELOC on my units and found there were a few places that do ELOC on investment properties (I did this research over a year ago but I suspect it is still true). So I take equity out of the properties as I desire. Normally I take cash out to purchase another property but recently I refinanced 7 units to take cash out just to have it ready for another property purchase (not yet identified).
So while I did not use a deposit slip my account currently has a lot of this vapor money that I can access for whatever I desire (I have been considering a Tesla with Ludicrous mode 😀).
@Jeff B. I refinance to remove money when I desire. I have one property (2 units) with such good rates that I cannot refinance without paying significantly worse interest rates but the rest of my properties are all at rates that are close to current rates.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
10y
Can you raise the rents so it will cash flow? Your idea sounds reasonable otherwise. How much did it appreciate? I know a lady who lives in Atlanta and owns in San Diego. She says it is by far her easiest property to manage if that matters.
That explanation looks good until one realizes that the red-ink accumulating from the non-cash-flowing asset can easily have a growth rate greater that the growth of appreciation. So the net-net over time still remains negative unless there's some magical local market appreciation.
If your approach works for you, then that's all that matters. As a general strategy, I find it risky to bet on appreciation.
Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes
10y
I guess it depends on your original objective. And, you get to change course and direction if it falls short of the investment's intended purpose.
if it's job was to throw off cash and it didn't and doesn't, I'd put it in the conveyer belt pile. Keeping it would likely be counter-productive.
So, my vote is to sell. I've done many, many deals in San Diego and still own well-performing assets there as well as a large private retreat/ranch in North County. Great area to live in.
Then, you'll need to decide what to do with the profits and it you still like the asset class. Units? SFR's, Commercial/industrial? Paper? Granted you can't exchange into paper, I still like a balanced portfolio.
Think you might have difficulty buying replacement property that cash flows in the ATL area?
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
10y
@Jeff B. every San Diego property I have owned at least 3 years has returned >10% annually on investment going back to first unit purchased in 1993. I use cap expense numbers of ~$300 for average size rental SFH and $250 for attached. I include vacancies and maintenance costs. My return includes any red ink from initially not having rent high enough to cover planned expenses (mainly the full cap expense is not covered: rent - (mortgage + escrow) is not sufficient to cover cap expense, maintenance, and vacancy). I would expect very few places to return >10% annually without appreciation and/or rent appreciation.
Even though I have purchased with negative cash flow only one property is still at negative cash flow and I expect it to go positive next month and it has a couple of extenuating circumstances. This particular property I purchase 4 years ago for $390k with 20% down and today is worth $580k (I think a little higher but it is were the appraisal came in) and I recently refinanced at 75% LTV. So I have recovered initial investment, have ~$150k equity and will soon have slightly positive cash flow. Also my cash flow numbers do not include mortgage payment that is applied to principle (if it did this property is already positive cash flow).
Note family properties purchased out of state based on cash flow have not done as well and we have sold 2 units of the 3 (we still own a lake front property in Alabama).
My point is appreciation can cover a lot of red ink and typically appreciation is coupled with rent appreciation (not always but if a property appreciates 20% it is rare that there is not any associated rent appreciation).
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
10y
@Jeff B. maybe I cannot convince you but mathematically, in recent times, the appreciating markets (San Fran, Los Angeles, OC, San Diego) have out performed virtually every cash flow area. If your argument is that it may not continue that way no one knows but I continue to be positive on San Diego real estate (but I could be wrong and San Diego RE could depreciate - time will tell).
Real Estate Agent · Richmond Hill, GA · Member since 2016 · 24 posts · 6 votes
10y
Dan Heuschele what you're saying makes perfect sense to me. I bought a property in Hawaii that isn't bringing in much cash flow, however, it has appreciated around 70-80k in the last 3 years. I'll take that any day over a property that's bringing in cash flow. You just have to look at the big picture sometimes.
Investor · Orange County, CA · Member since 2015 · 2k+ posts · 3k+ votes
10y
If there is any doubt about wanting to return to San Diego at some point, I'd hold ... selling would likely insure that your ticket to GA is one-way. On the other hand, if you are 100% sure you are going to live in GA longterm, I would sell ... don't get me wrong, I LOVE SoCal RE, as does anybody else who has held here for any significant time. What I don't love, though, is managing out of state property. What's more, I'd build your network in GA and make sure you are familiarized with the market before redeploying the capital there.
San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes
10y
@Account Closed I also was wondering how long you have been in GA and if you might want to wait to be sure you want to stay.
I moved to TN for 5 years, and am a native Californian. I was not meant to be a southerner.
If there's the chance you'd want to move back to CA, you will be glad you kept your duplex. If you haven't been in GA at least a year, I think you should wait.
Also, why isn't it cash flowing? What's keeping that from happening? Can you turn it around? It seems like it should.
@Jeff B. I have purchase many properties in San Diego without initial cash flow yet every property I have owned at least 3 years has provided >10% annual return....
This is not meant to indicate cash flow should not be used in the buy n hold purchase decision but that there are often bigger factors and in recent years appreciation in many markets is a larger component determining the return on a buy n hold purchase.
One of the other interesting dynamics in a price-crazy market like San Diego is the landlord-tenant interaction. My "basic" 2bd/1ba unit here attracts people with $60k+ incomes (who can't afford to buy a place), and the way a tenant with lots of disposable income acts is often (I gather from talking with others) very different from what investors experience elsewhere.
So, broad generalization of course, but this might be one of the underlying reasons why that San Diego property seems to be so easy to manage.
Investor · TN · Member since 2008 · 13 posts · 3 votes
10y
Thank you all for the feedback. I especially appreciate the discussion this has generated.
I bought this as my first property with a FHA 203K. After 6 years, I refinanced at 65% LTV 15 year. The goal was to payoff and hold. It's under great management and has been relatively low maintenance/pain free. Rents are at market comps, but it still doesn't cash flow.
I've been in GA for almost two years. I was considering leveraging the equity in the CA duplex to purchase here (ELOC), but do not want to be highly leveraged in case the market should change.
In considering a long term plan here in GA, I thought to sell the property in CA. Buy houses at approximately 75% LTV here, and use the cash flow for maintaining the properties and paying down principal. Then in 7-10 years, leveraging those properties into larger investments.
My goal is to build a real estate business as a way to build long term wealth and with that, have a long term plan. In GA, I don't "need" the cash flow to live, but rather to reinvest.
With this information, input on my "plan" and what to do with the CA duplex again, is appreciated.
Dan Heuschele what you're saying makes perfect sense to me. I bought a property in Hawaii that isn't bringing in much cash flow, however, it has appreciated around 70-80k in the last 3 years. I'll take that any day over a property that's bringing in cash flow. You just have to look at the big picture sometimes.
Interesting, whereas my 6-units are cash flowing 49k each year. Guess I need to get my camera adjusted.