San Diego Equity Investment Question

13 Replies

Hi BP! This is my first post and I'm looking for a bit of advice. I bought a townhouse in San Diego, CA in the Midway district in 2016. It's a 1400 sq ft, 2 bedroom/2 bath with an extra room for an office or small bedroom and a 2 car garage. It's in a gated community with a low HOA fee and has a pool. Since I bought it, it has appreciated by about 110k. I also invest in KC, and bought my first quadplex this year (a BRRR in Raytown, MO).

My plan right now is to sell the townhouse and pocket that equity, then use my VA loan here in SD to buy a small duplex. It would allow me to buy a higher priced house and lower my monthly payment due to the tenants from the extra unit. I would apply the money gained from sale of my townhouse to the KC market and purchase more cash flowing properties there.

My other option is to refi the townhouse and rent it. With mortgages in San Diego being so high, I would most likely break even on the mortgage, but could potentially make a couple hundred if everything went perfectly.

Other notes: The Midway district in San Diego is developing really well. They have multiple housing projects coming in the next 5 years which will add several thousand new housing units. They are also renovating the SPAWAR complex, renovating the old postal office into luxury offices, adding a new trolley stop, fixing the roads and intersections, and they’re getting rid of the “red light district” in Midway. With it’s close proximity to Point Loma and Liberty Station and it’s incredible schools, I think the Midway district is due to sky rocket in value in the next ten years.

My biggest question is: With the current market situation is it better to sell and utilize the cash made from my equity to continue to purchase out of state properties or break even by renting and holding on to a property that has a bunch of equity potential?

I appreciate any feedback! Thanks for your time and input!

@Brent Cline .  I am a San Diego native, grew up in pt loma & La Mesa.  I’m now a ‘refugee’.  Keep the condo & rent it out.  Rents are skyrocketing, even with ‘rent control’.  Which won’t apply to you.  In 3-5 years you could be +$500 a month cashflow.  In 10 years you could be +$1000 a month.  And, as you know, they are not making more land in Pt Loma.

Your Midwest cashflow won’t appreciate like this townhouse.

[Solicitation Removed by Moderators]

PS.  You can have more than 1 va loan.  I did have 2 va loans at the same time for a few years.

@Brent Cline

I would keep holding midway. Rates are so low right now. Look into a cash out refi to unlock some of that equity. You’ve got so much room to run up and I think you’ll be glad that you have the SD townhouse. If you can buy another duplex in SD and keep buying out of state even better. I think you’ll be really glad to own the SD townhouse in the future and will make larger gains on its appreciation than you will buying cash flow or even value add in the midwest.

@Brent Cline keep the townhouse and look at a cash out refi to pull out some equity. Renting it out won’t go perfectly, as things always come up, but you could potentially do well with it.

The cash flow you’d get in KC absolutely pales in comparison to the appreciation you’ll see in the next few years in our market.

I’m up the road from you in Mission Hills and will ‘never’ sell this house. Not never, but you get my point...

A couple of years ago I did a return calculation on the average San Diego SFR for the previous 5 years versus the no appreciation Midwest SFR for the previous 50 years. It was not Close.

Especially with your optimistic projection for the location, I recommend you keep the townhouse.   

Good luck

Most of the votes here are to keep it. I am familiar with that area as well and I know the future appreciation should be solid. I can tell you this, of most of the homes (if not all) that I flipped from 2011-2015, I wish I still owned them! That said, nobody has a crystal ball to inflation and we have experienced some of the highest real estate gains in our lifetime. It is reasonable to suspect that the growth rate will falter at some point, but if history has taught us anything, it will certainly come right back in CA, especially that area.

If you did sell it, unless you used a 1031 exchange, you would take a big tax hit too so keep that in mind with your calculations when making your final decision.

@Alan Grobmeier thanks for the specific insight! That's a good point about Midway and the cashflow in the Midwest doesn't appreciate nearly as quick. I've spoken to multiple lenders about how to have multiple VA loans. Do you you know how I could go about doing that?

@Will Barnard great point about taxes. I was concerned on that as well. In your investing experience, do you think it is a stronger position to have a large amount of cash early on, or to save that equity and defer taxes? 

Originally posted by @Brent Cline :

@Will Barnard great point about taxes. I was concerned on that as well. In your investing experience, do you think it is a stronger position to have a large amount of cash early on, or to save that equity and defer taxes? 

 Hard to say as it really depends on the individual circumstances. Large cash early on gives you buying opportunities and differing taxes is almost always a great idea. Equity can be converted to cash for other buying opportunities as well.

I agree, keep it and rent it out. The Midway area is in the path of progress and I anticipate rents increasing over the next several years. That area will also attract a consistent pool of high quality tenants, keeping your vacancies way down. 

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