250K appreciation in 5 years with $400+/month CF. Time to exit?

San Diego, California
Real Estate Deal Analysis & Advice
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250K appreciation in 5 years with $400+/month CF. Time to exit?

Jimmy Watson
Investor · San Diego, CA · Member since 2014 · 65 posts · 39 votes

Hi all,

I purchased a 3 bed, 2 bath condo in Oceanside, CA with a VA loan for 0 down in 2017 for $336,000. My mortgage rate is 2.75%, I owe 300K on the property, and the unit right next to me just sold for $530K a few months ago. I believe I could easily sell it for about 550-600K in this hot market right now. I'm really deciding if now is the time to sell but I just don't have enough experience to take the next step so I'm turning to you all for help. Here are the numbers:

Expenses:

PITI: $1695 / month

HOA: $325 / month

Property Management: $145 / month

Income:

Rent:  $2,600 / month

Total profit:  $435 / month (~$3,000-$4,000 a year due to occasional repairs).

With rents continuing to rise at unprecedented levels and home prices expected to appreciate another 15-20% this year for San Diego County, it seems silly to sell at this point with a cash flowing rental property.  However, I just can't help but think about pulling out all of that equity seeing as my condo has nearly doubled in value in just 5 years.  Being able to pull almost $300K from putting 0 down is extremely enticing but my greed is setting in about it doubling again in value in another 5 years (unlikely, I know- but let me dream).  

Should I stay or should I go?  I feel like best option would be to 1031 and go out of state, but I have analysis paralysis about where to start and I don't have a firm grasp on any other market.

Thanks in advance!

James

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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
4y

Congrats on turning $0 into a $250k.  You seem to be making good decisions so far; so, maybe people should be asking you for advice.

I recommend running your existing property and your alternatives through your deal analyzer and the numbers will speak for themselves.

This must have been your primary residence at one point with the VA loan; so, be sure to factor in the section 121 gain exclusion on the sale of a primary residence (tax free gain on $250k in appreciation is substantial).

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  • Jimmy Watson
    OP
    Investor · San Diego, CA · Member since 2014 · 65 posts · 39 votes
    4y

    @Bob E. Great video, very informative (and a bit scary).

    1Reply
  • Jeff T.
    Rental Property Investor · Culver City, CA · Member since 2014 · 222 posts · 79 votes
    4y

    @Jimmy Watson

    You have a cash flowing property in California, which is tough.

    Ask Jay Hinrichs how he feels about the California property he has sold.

    My feeling is that the long term growth for Oceanside is good. LA and San Diego will merge and Oceanside is in the middle.

    So if that is what you are looking for I would stay put. You have locked in a low interest rate and have low property taxes.

    Also I suspect you can get more rent, but I don’t know the market. As you said rents are way up.

    Be careful about getting any advice from people that don’t know California. Other markets are very different.

    Good luck with whatever you decide to do.

    5Reply
  • Rodney Sums
    Laveen, AZ · Member since 2016 · 584 posts · 528 votes
    4y
    Quote from @Jimmy Watson:

    Hi all,

    I purchased a 3 bed, 2 bath condo in Oceanside, CA with a VA loan for 0 down in 2017 for $336,000. My mortgage rate is 2.75%, I owe 300K on the property, and the unit right next to me just sold for $530K a few months ago. I believe I could easily sell it for about 550-600K in this hot market right now. I'm really deciding if now is the time to sell but I just don't have enough experience to take the next step so I'm turning to you all for help. Here are the numbers:

    Expenses:

    PITI: $1695 / month

    HOA: $325 / month

    Property Management: $145 / month

    Income:

    Rent:  $2,600 / month

    Total profit:  $435 / month (~$3,000-$4,000 a year due to occasional repairs).

    With rents continuing to rise at unprecedented levels and home prices expected to appreciate another 15-20% this year for San Diego County, it seems silly to sell at this point with a cash flowing rental property.  However, I just can't help but think about pulling out all of that equity seeing as my condo has nearly doubled in value in just 5 years.  Being able to pull almost $300K from putting 0 down is extremely enticing but my greed is setting in about it doubling again in value in another 5 years (unlikely, I know- but let me dream).  

    Should I stay or should I go?  I feel like best option would be to 1031 and go out of state, but I have analysis paralysis about where to start and I don't have a firm grasp on any other market.

    Thanks in advance!

    James


    I have a couple questions for you.  Many responses may be based on what that investor would do in your position.  Your life and goals are what's most important.

    1. What do YOU want to do?
    2. Why do you want to do that?
    3. Why haven't you done that?
    4. What do you effect on your lifestyle do you want the property or its equity to have?
    0Reply
  • Account Closed
    Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes
    4y
    Quote from @Bob E.:

    @Jimmy Watson  I follow Steve Van Metro on You Tube.  He seems to have a reasonable take on macro economics.  Todays video is This Will Crash the Housing Market

    Timely of him to post this today.


     Uh, ok, when?

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    4y
    Quote from @Jimmy Watson:

    @Joe Villeneuve what you’re saying makes 100% sense and I want to do that… I just don’t see how it’s possible. While I would have enough for a down payment on a 1,000,000+ property, I just wouldn’t be able to afford the mortgage. Unfortunately, 1.25 mil only gets you a decent sized single family home in a decent neighborhood here in SD, so I couldn’t get a multi and rent it out (unless it was in a less desirable area).

    Any it’s on how to make this work when my income prohibits me from being able to afford a mortgage worth more than $3200 / month?

    Wait a minute.  Your not paying the mortgage...you tenants are.  Most lenders will include the cash flow from a seasoned rental in your income, so that approval number will increase as you add properties.
    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    4y

    Let me add this to the mix.  Why not flip this property to get your profit out of that equity, and buy rental properties in the midwest?  That scenario has been going on for at least the last 10 years (that I've been involved with at least).  Flip in the west, cash flow in the midwest. 

    0Reply
  • Emy Bernardo
    Investor · San Diego, CA · Member since 2017 · 112 posts · 92 votes
    4y

    Keep it!  You would be hard pressed to find the cash flow combined with rent and resale appreciation in the mid-west markets.  We have two properties in the mid-west and the market is much more stable there - no where near the rent appreciation and price appreciation as here.

    4Reply
  • Ehab Tadrous
    Manassas, VA · Member since 2015 · 114 posts · 13 votes
    4y

    @Richard Balsam this a tremendously great strategy I never heard of before . But is it easy to find such investors to buy rental steam

    0Reply
  • Jennifer Jo McCallonBusiness Member
    Member since 2020 · 62 posts · 59 votes
    4y

    It isn't just about where the most money is, but also, what makes you happy. Would the challenge of exchanging this for a 4plex be a fun challenge for you or a life-sucking drain? Do you enjoy owning the condo? I don't see the market tanking, so if you enjoy it and it is easy, keep it. If you want to move on to the next thing, you can and should. Follow not just thoughtful financial analysis, but think about what makes you the happiest too.

    [email protected]510-545-6390
    1Reply
  • Teddy Mohlman
    Real Estate Broker · Denver Colorado · Member since 2022 · 3 posts · 2 votes
    4y

    I Personally would do a Cash out refinance and purchase another property! Look into out of state investing if you are buying in a high market, that is what I am doing right now and getting 11.5% Cash on cash return vs 3% in Denver CO

    2Reply
  • Axel MeierhoeferPro Member
    Rental Property Investor · Escondido, CA · Member since 2017 · 684 posts · 550 votes
    4y
    Quote from @Jimmy Watson:
    Yes, this is what's called the "Military Clasue". it basically says that if you get orders all teh normal restrictions are removed to allow you to go and defend our freedoms. This also applies if you rent a place and get orders you can break the lease using teh military clause.
    I can show you a way to stay in SD county ewven wiht these crazy prices if you are willing to have a little flexibility.

    Feel free to get in touch

    @Axel Meierhoefer thank you!

    To answer everyone’s question in regards to living in the property for at least 2 years, the answer would be no but I believe I still meet the requirement. Reason is because I bought the property, and then immediately received orders to deploy. I returned and then I was stationed overseas in Ukraine and later Indonesia. I believe that since I was forced to leave my residence for the military, that I would still qualify for the tax exemption but I am not too sure.

    I definitely want to look into buying more properties with my VA but it doesn't look like there is anything I can buy in SD with the prices where they are right now! I've been looking but everything is crazy.

    Will definitely DM you in the future to discuss further! Thank you

    0Reply
  • Axel MeierhoeferPro Member
    Rental Property Investor · Escondido, CA · Member since 2017 · 684 posts · 550 votes
    4y

    @Jimmy Watson 

    Yes, this is what's called the "Military Clause". it basically says that if you get orders all the normal restrictions are removed to allow you to go and defend our freedoms. This also applies if you rent a place and get orders you can break the lease using the military clause.
    I can show you a way to stay in SD county even with these crazy prices if you are willing to have a little flexibility.

    0Reply
  • Paul Marthaler
    Rental Property Investor · San Diego, CA · Member since 2015 · 21 posts · 46 votes
    4y

    If I read correctly, you stated this is a rental. You're 5 years into this so if you sell: 1. No cap gains exemption,  2. you have to recapture your depreciation which should be about $60K  ( 5 years at $12k/year) so when you sell at $550K - approx 6% selling expenses = you're at $517K  less $336K = gain $181 + $60K recaptured depr you'd pay taxes on $242,000.    You have a killer long term rate, Oceanside will always kill it with the rent.  KEEP IT.  You can always pay down or refi for cash out in future.  BUT, beware , here in the People's Republic of California, if you 1031, I believe if you go out of state you will immediately have to pay the state's cap gain regardless  OR if you roll into an out of state property, you have to report back annual gains and pay CA taxes on gain in the future on an out of state property.  Newsom has long tentacles.   I'd keep it and focus on picking up your next investment property for the future cash flow when you're older.

    1Reply
  • Paul Marthaler
    Rental Property Investor · San Diego, CA · Member since 2015 · 21 posts · 46 votes
    4y

    Joe; flipping the property and buying in the midwest not likely to make sense.   Don't remember if he listed how much he owes, but after selling expenses, he could maybe afford to pay cash for a single family home that could bring $2000/month rent in some neighborhoods...before taxes, insurance, etc...  He'd have a little more money left but his asset in Oceanside has way more upside since he's in it already.  Plus, would make a nice retirement location in the future. You own close to the coast = GOLD.

    1Reply
  • Dennis Maynard
    Real Estate Broker · Los Angeles, CA · Member since 2018 · 307 posts · 146 votes
    4y

    What are you going to replace it with?  What are your new cost of ownership?  Has inflation ended as real estate is an inflation hedge?  How much are your taxes?  

    My hunch, unless you are trading up and adding capital, and trading up is difficult if you have not already identified your new investment, sit tight. 

    Now, getting a HELOC for a small percentage of equity and taking that capital out of state. Yes, I would look at that.

    1Reply
  • Justin Lacsamana
    Member since 2020 · 8 posts · 5 votes
    4y

    My dude, most markets will either give you good cash flow or good appreciation. And you got a little bit of both right here. 

    You got a house for $0 down with your VA Loan, and it appreciated in value, and it cashflows, and its in southern california? Wow, I wish I could find something like that...

    1Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    4y
    Quote from @Paul Marthaler:

    Joe; flipping the property and buying in the midwest not likely to make sense.   Don't remember if he listed how much he owes, but after selling expenses, he could maybe afford to pay cash for a single family home that could bring $2000/month rent in some neighborhoods...before taxes, insurance, etc...  He'd have a little more money left but his asset in Oceanside has way more upside since he's in it already.  Plus, would make a nice retirement location in the future. You own close to the coast = GOLD.


    Who cares what the rent is if you can't keep all of it.  It's what you keep that counts,,,the CF, and the midwest if famous for being excellent for this...which is why so many CA investors flip in CA and buy rentals in the midwest.


     He'd walk away after closing with over $200k.  $200k in cash, used as 20% DP, buys him $1M in property value.  Right now he has only $550k.  Last time I checked, $1M was a lot bigger than $550k.  In fact, almost 2 times bigger.  A $200k property in the midwest should get him at least the same $4k/year in CF.  So 5 times that = around $20k in CF...not the current $4k.  Last time I checked,...

    0Reply
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