Oceanside Condo - Sell or Keep Renting

Account Closed · 2020-10-22T07:54:50-07:00

Hi Everyone,I'm planning the next couple of years and could use some advice.My wife and I both bought condos (hers in Oceanside, mine in Poway) before we started dating. Once we got married, she moved into mine and we've been renting out her place. The current renters are planning to leave in February 2021, and the window to sell it and pay no capital gains tax for it being a primary residence would be August 2021. So I need some advice on whether to keep it as a rental or sell in the spring.We currently have a 3 month old and are planning on having 1 (or 2) more kids over the next 5 years. Our current condo is a 2Br/1.5Ba - which currently works for us but will not work when Kid # 2 arrives. With somewhere between 1-2 years before I am anticipating we will start looking for a new place, I would like some wisdom on how to prep.Key Personal DetailsW2 Income After Tax, Contributions and Benefits: $6000/mthExpenses: $3800/mthRental Income: $2000/mthRental Expenses: $1700/mthCurrent Cash Flow: $2,500/mthProperty 1 (Primary Home - Poway)Market Value (Zillow): $440,000Current Mortgage: $187,000P&I: $780/mthHOA: $415/mthProp Taxes: $260/mthProp Mgmt: $75/mthProjected Expenses: $100/mthProjected Rent: $2200/mthProjected Cash Flow: $570/mthEstimated Gain if Sold: $253,000Property 2 (Oceanside Rental)Market Value (Zillow): $350,000Current Mortgage: $206,000P&I& Prop Taxes: $1300/mthHOA: $350/mthProp Mgmt: $75/mthAverage Expenses: $50/mthActual Rent: $2000/mthCash Flow: $225/mthEstimated Gain if Sold*: $144,000Other Assets:$270k Pre-Tax Retirement$45k Post-Tax Retirement$60k Taxable Account$40k Cash on HandI genuinely enjoy my job and appreciate the benefits associated with it - company is currently WFH but don't expect that to be permanent. So far we've enjoyed being landlords, we've had 2 great tenants and our property manager has been on top of things. The secondary question to this is when I decide to move where to end up. I'd like to minimize the commute if possible (Sabre Springs for Work), but it seems like reasonable SFH prices requires going to Fallbrook.What would you recommend?

Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

5y

Poway schools are outstanding. If possible, I would continue to live in Poway school district (PUSD) for the school system. Poway school district is not cheap. Buying a place in the poway school district that is large enough for your growing family may necessitate selling one of the existing condos. If you need to sell a property, I would choose the Oceanside property because its 2 of 5 years occupancy expiration is much sooner than the poway property.

New purchases in San Diego county are cash flow negative. Another potential option is instead of buying your next home, you rent it in the PUSD. Advantages are that you keep both your properties, you have none of the selling costs, you keep your prop 13 advantage, your initial housing costs are lower than if you had purchased. Normally this option is not great long term because rents appreciate, but in your case you would have two rentals that would have appreciating rents and be paying only one rent. The downside to this thought is that you will lose the expiring 2 of 5 years occupancy on the Oceanside unit. To avoid taxes you would need to 1031 it or die (death results in a new basis).

by the way there are some on the far left that are advocating changes to 1031 rules. I am not yet concerned. The far left and the far right often want extreme policy changes, but they do not have the general support required to make the change.

Good luck.

2 Reply

Twana RasoulBusiness Member

Real Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes

5y

I'm partial to keeping property as much as possible although sometimes it does make sense to sell. Since you don't have to move for the next 1-2 years, maybe you can purchase a 3 bedroom+ property in the next couple years and keep both condos. Free and clear real estate down the road will be amazing for retirement and in the meantime your total returns in your properties are most likely way outperforming your retirement funds when including debt paydown and appreciation.

Compass5122 Reviews

Website View Page

1 Reply

Kenneth Donaghy

Real Estate Broker · San Diego, CA · Member since 2016 · 355 posts · 195 votes

5y

@Account Closed What is your goal? What would your desired outcome be? Do you want to capture your tax free gains for a significant downpayment for a home to grow your family? Or do you want to acquire a portfolio of rental properties?

1 Reply

Joaquin K.

Rental Property Investor · Dana Point, CA · Member since 2016 · 36 posts · 32 votes

5y

It sounds like you are in a great situation. It's nice to have a few good options. The primary residence tax exclusion cannot be beat, and even trumps the 1031 deferment. I don't know your tax bracket, but putting $144K in your pocket is probably equivalent to earning $200K through taxable income. Taking this money off the table would be smart, and allow you to reassess your strategy without a tight (1031) timeline. You could spend a few months considering whether you want to purchase a larger property in Poway, or make another investment.

If you choose to invest, there are many ways you can cash flow more then $225/month with ~$140K down. Oceanside appreciation has been fantastic, but I do not believe SoCal coastal appreciation can continue at the current rate for the next 5 years. That said, I have coastal investments myself and continue to be bullish for the long-term.

3 Reply

Jason Bell

Realtor · Poway, CA · Member since 2020 · 1 post · 0 votes

5y

Hi Timothy,

First, congrats on your new little one! Sleeping much? Well, you've gotten some great advice already in this thread, but I wanted to add a couple things. You've got a lot of variables going on here, and I think the first step is to clearly define your goals. Would you be selling the Oceanside condo simply to avoid the capital gains tax? What would you use that $144k for - a larger down payment on your future home or to put into other investments? If using for a larger (>20%) down payment, I'd suggest holding onto the condo, as sinking that money into a personal residence stagnates its growth potential. Plus, if you are able to keep both condos and buy a larger home in the future, your cash flow from the rentals would make up for the slightly higher mortgage payment on the new home, as compared to what it would be with the larger down payment.

If you're looking to use that $144k for other investments, I think there are many ways that you could increase your cashflow with that amount of money, especially if you moved it out of state and into multi-family units. My wife and I are currently moving into the short-term rental market and seeing great numbers. That said, these things are not things you'd want to jump into without a lot of research and/or experienced guidance. You're here, which is a great start. If you're not ready to move into a different type of investment strategy, then I'd suggest hanging onto your property for a while. The appreciation over the next ten years should make up for any tax savings you'd get now, and maybe in the future you could reinvest it with a 1031 exchange when you're ready (assuming the 1031 is still what it is today).

One last thing, as a Realtor® and family man also living in Poway, I know how hard the decision to leave can be. It's a wonderful place to raise a family, with the school district being the best in SDUSD and the small community feel with so many family-friendly events. Everyone always asks where the market is headed, and as we've seen this year, that isn't a question anyone can definitively answer. I have been reluctant to make any hard and fast statements about the "bubble," especially because San Diego real estate doesn't usually follow the national trends, but I do think an adjustment is coming in the next 1-2 years. Not huge, maybe only 10%, but I do think it's too early to rule Poway out of your long-term housing options.

0 Reply

Mark Frattini

Real Estate Agent · San Diego, CA · Member since 2014 · 338 posts · 176 votes

5y

Hey Timothy,

If short commute time is a priority Fallbrook is a bit of a stretch to Sabre Springs plus the traffic on the 15 is not getting any better in the next few years. You're going to want to spend that time with all the little ones running around not sitting in traffic. A commute time of ~20min or less is ideal. Checkout Greatschools.com to compare the schools. As you probably know PUSD contains some of the best public schools in San Diego.

It is nice to think we as investors can hold onto property forever but that is not always possible. You have great equity in both condos and it might be a good time to cash out and realize those gains. You could sell one or both and buy a nice SFH in Poway, PQ or Scripps Ranch and drastically reduce your commute time. If you decide to hold onto them for a bit longer you may be able to 1031 into something else. Check with your CPA. You could also hold onto both and pull some equity out to put towards your primary. Money is cheap now and will probably be for awhile. Lots of options to consider, just depends on what your overall goals are. Reach out anytime to discuss more in detail and let me know if there is anything I can do for you.

0 Reply

Account Closed

OP

Member since 2018 · 2 posts · 2 votes

5y

Hi Everyone,

Thanks for the input. I'll try to address some general comments first and then go to each person's specifics.

My priorities are generally as follows:

1. Want my wife and kid(s) to be happy in their new home. Realistically a 3/2 or 4/2 SFH with a backyard or walking distance to parks. Bonus would be an ADU/granny flat for the grandparents when they come to visit.

2. Reasonable commute. My W2 income is going to be the primary financial component for a while so need to be reasonably close. I would love to stay within 20 minutes, but want to balance that with Item #1. Also want to spend more time outside of work with wife and kid(s), less time driving.

3. Get to FI through a combination of stock market and real estate investments. I'm fairly indifferent to the ratio of assets in the stock market vs. rentals - I see the value and challenges in both and don't lean strongly one way or the other.

Based on that list of priorities - I would love to keep both condos if possible but not if it requires either choosing a house that is not the right fit for our family or requires an excessively long commute.

On to specific posters:

@Dan Heuschele - Agreed on PUSD system - my wife is an elementary school teacher here. Interesting thought on renting a property - I generally had always assumed once I purchased I would never rent again - but I could look at the numbers and see what rent goes for based on a property we would want.

@Twana Rasoul - Agreed on the approach to fee and clear - I absolutely believe over the long term it will be a winning move - it's just the short term that has me concerned.

@Kenneth Donaghy

@Jason Bell - Thank you! Sleeping less than I would like but more than I was promised :). See above for general goals - but yes, selling would be to primarily avoid the capital gains tax. Most of it would go towards the down payment and getting a low mortgage rate on the new place - then the rest would probably get dumped in the stock market. With a little one and a full time job the thought of managing a short term rental exhausts me at the moment. In regards to the market - I would love a correction from the standpoint of being a buyer, but agree hard to definitely guess what's next.

@Mark Frattini - Absolutely agree, initially I had ruled out Fallbrook for that very reason of the commute - but the price point is really attractive. I did just do a no cost refi on the primary to bring it down to 3% but yeah - I would love to figure out a way to hold onto both places and still have enough to be able purchase a new place.

1 Reply

Oceanside Condo - Sell or Keep Renting - Capital Gains Timing

Oceanside Condo - Sell or Keep Renting - Capital Gains Timing

Most Popular Reply

7 Replies