What to do with Equity in San Diego, California

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What to do with Equity in San Diego, California

Isabella Phillips
Rental Property Investor · San Diego, CA · Member since 2018 · 12 posts · 1 vote
Hey Guys! I have a rental condo in Little Italy in San Diego that breaks even monthly with $200k equity in it. I’m trying to figure out the best strategy and would love some advice. I am a gymnastics coach running my own business. I love it but since I’m self employed I’m exchanging time for money and I have no security as far as retirement besides my IRA. My ultimate goal is to acquire enough real estate with buy and hold rentals that my passive income meets/exceeds 10k a month. Should I: 1. Wait and Pay it off (pay off in 2048) and collect $2600 rental cash flow forevaaaa 2. Sell and invest in multi-family out of state. (I am super weary of investing out of state bc traveling would be difficult since I’m self employed right now and if I’m not working I’m losing money plus I would prefer to keep my money where I can see it lol) 3. Sell now while the market is high and pay taxes on the gains and wait for the SD market to drop so I’m not buying at the top of the market. 4. Or ????
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Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
8y

@Mauricio Salom and @Isabella Phillips

I would be leery of advice from non coastal So Cal investors because, in general, their market is very different. 

Some thoughts:

  • How do you think you obtained the equity?  I suspect the mass majority came from market appreciation.
  • Which areas do you think have the best ROI? I will give you a hint that no Midwest city is above the 3 large coastal so Cal cities according to Core Logic. I did an exercise recently that showed the average appreciation on the average San Diego SFR in the last 5 years exceeded the cash flow on the average Midwest SFR for the last 50 years.
  • Do you know how many months at $200/unit cash flow it would take to achieve $200K profit? I suspect $200/door is generous on cash flow of a Midwest average SFR after accounting for all expenses and cap expense reserves.
  • Be leery of numbers provided by OOS sellers. See if they have allocated cap ex reserves. See if they are using actuals or projections (actuals = reality, projections = fantasy. See if their total numbers are anywhere close to 50% rule. If they are showing expenses other than mortgage costs are significantly less than 50% of rent for SFR then you have a good idea that their numbers will not be attainable.
  • Be leery of OOS pigs (the type of homes that have real low rents).  These homes will their cash flow significantly consumed by cap expenses and other expenses.

There is no way I would decide to invest in Midwest SFR over coastal So Cal SFR due to the historical ROI of coastal So Cal SFR. However, I suspect that your ex-homes are not the best local RE for buy n hold. I suspect this because I have an ex-home in my rental portfolio. It is my worst performing San Diego RE. This is because it was purchased to be a good home and not necessarily a good rental.

If I were to invest OOS:

  • I would not choose the highest cash flow Midwest locals but would look for a location with increasing population and constrained in some way in their RE growth prospects.  So I would look for a location where appreciation is more likely and/or larger than the Midwest cities.
  • I would go true multifamily. A couple hundred dollars a unit scattered all over is not as tempting to me as half the cash flow in one larger multifamily with an on site PM. Note 20 SFR at $200/unit is $4K/month and seems like a lot of work. However one 40 unit multifamily at $100/unit (also $4k/month) with an on site PM seems like hardly any work.

Good luck with whatever you choose to do with your equity gain.

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  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    @Isabella Phillips What’s the current LTV? It’s hard to know your options without knowing that. You can refinance or take a heloc depending on LTV or sell and 1031 exchange into likely out of state property. I probably vote for 1031 exchange. 200k equity currently is probably 185-190k post selling costs. After that you can buy a lot of out of state rentals in that. I would buy 5-9 in cash or moderate leverage
    0Reply
  • Isabella Phillips
    OP
    Rental Property Investor · San Diego, CA · Member since 2018 · 12 posts · 1 vote
    8y
    @Caleb Heimsoth Thank you for your response! I owe $300k and it’s worth 500k so that’s 60% LTV, yah?
    1Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    Originally posted by @Isabella Phillips:
    @Caleb Heimsoth Thank you for your response! I owe $300k and it’s worth 500k so that’s 60% LTV, yah?

    So id sell and 1031 exchange that then 

    0Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    8y

    @Isabella Phillips

    You are the 4th person this week tells me they want get buy 100 units out side of California to enjoy $100 a month per unit. So jokingly we need to find 400 units in mid west. By the time some retires one probably need min 15K to  to live on. Suggest you unload your SD no later than 2019 year end and see if you can get a multi family. Phoenix? SW of just west of you in the desert.

     Vegas is loaded with like kind people and homes paid $190K a few years ago are pushing 1M. 

    One can not have great cash flow because of HOA dues.

    May be find a home somewhere Bakersfield.  You know they are going to build a new city by I-5 the Grapevine. So I will look close to you. I have a trust broker field into property management in the desert west of you. She also manage a lot of properties may be 1 hour away from you. If interested her contact info, PM me.

    Good luck,

    Sam

    0Reply
  • Kevin FoxPro Member
    Real Estate Agent · San Diego, CA · Member since 2014 · 1k+ posts · 635 votes
    8y

    Hey @Isabella Phillips

    You have a ton of options available to you. I’ll shoot you a PM so we can chat. 

    0Reply
  • Mauricio Salom
    Homeowner · San Diego, CA · Member since 2016 · 30 posts · 20 votes
    8y

    Hello @Isabella Phillips

     I am actually in the same boat as you i bought in Chula Vista almost two years ago. My original plan was to remodel my home and use it as a rental but seeing how much equity i have gained in such a short period of time I have changed my mind. If i move and rent out my house i will break even but i fell like that is too risky, what if renters don't pay, you have to repair something etc. I have decided to sell and invest out of state where i can get multiple units. I feel like the more doors the lower the risk. A few others agreed with me on a similar post so Im not saying either is right or wrong but thats just what i have decided to do.

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    8y

    @Mauricio Salom and @Isabella Phillips

    I would be leery of advice from non coastal So Cal investors because, in general, their market is very different. 

    Some thoughts:

    • How do you think you obtained the equity?  I suspect the mass majority came from market appreciation.
    • Which areas do you think have the best ROI? I will give you a hint that no Midwest city is above the 3 large coastal so Cal cities according to Core Logic. I did an exercise recently that showed the average appreciation on the average San Diego SFR in the last 5 years exceeded the cash flow on the average Midwest SFR for the last 50 years.
    • Do you know how many months at $200/unit cash flow it would take to achieve $200K profit? I suspect $200/door is generous on cash flow of a Midwest average SFR after accounting for all expenses and cap expense reserves.
    • Be leery of numbers provided by OOS sellers. See if they have allocated cap ex reserves. See if they are using actuals or projections (actuals = reality, projections = fantasy. See if their total numbers are anywhere close to 50% rule. If they are showing expenses other than mortgage costs are significantly less than 50% of rent for SFR then you have a good idea that their numbers will not be attainable.
    • Be leery of OOS pigs (the type of homes that have real low rents).  These homes will their cash flow significantly consumed by cap expenses and other expenses.

    There is no way I would decide to invest in Midwest SFR over coastal So Cal SFR due to the historical ROI of coastal So Cal SFR. However, I suspect that your ex-homes are not the best local RE for buy n hold. I suspect this because I have an ex-home in my rental portfolio. It is my worst performing San Diego RE. This is because it was purchased to be a good home and not necessarily a good rental.

    If I were to invest OOS:

    • I would not choose the highest cash flow Midwest locals but would look for a location with increasing population and constrained in some way in their RE growth prospects.  So I would look for a location where appreciation is more likely and/or larger than the Midwest cities.
    • I would go true multifamily. A couple hundred dollars a unit scattered all over is not as tempting to me as half the cash flow in one larger multifamily with an on site PM. Note 20 SFR at $200/unit is $4K/month and seems like a lot of work. However one 40 unit multifamily at $100/unit (also $4k/month) with an on site PM seems like hardly any work.

    Good luck with whatever you choose to do with your equity gain.

    3Reply
  • Account Closed
    Contractor · San Diego, CA · Member since 2018 · 432 posts · 221 votes
    8y
    @Dan Heuschele If you need remodeling done, I'm helping people flip their homes in San Diego and would be happy to help get your house ready to sell at top dollar.
    0Reply
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