Duplex dilemma please help
San Diego , CA · Member since 2017 · 6 posts · 1 vote
First thing I notice is the realtor’s suggestion results in RE comision.
Are you thinking of ripping out a kitchen when you go to SFR. Investors seldom want to go from permitted multi unit (duplex) to SFR because the cash flow on the duplex is typically much better than on the same size SFR. So I am not a fan on converting the RE to a SFR.
I also question the return on adding a garage and office. My threshold for such expenditures is that I want an immediate 50% return on the investment. This is because these efforts are both work and have risks. I question if this expenditure would recoup the cost much less net 50% profit.
So ...
If you like the area and desire a larger SFR than either unit of the duplex I would consider renting an SFR where you want to live (possibly near the duplex). Note SFRs purchased today, in general, have negative cash flow. They are appreciation plays. Your duplex possibly would cash flow if purchased today (the ones I purchase today in San Diego county cash flow) and should appreciate similar to SFRs.
I would recommend leveraging your equity in some way even if it is to pull it out to to place in RE, stocks, bonds, REIA, notes. Note if your REI is worth $600k and you have $300k equity and it appreciates 25% you have made 50% on that appreciation However if you have $150k equity you have made 100% on that appreciation (in both cases $150k appreciation). The other $150k should also be making you money via how it is invested.
In summary I am not a fan of either suggestion but I am a fan of you leveraging you equity for further return. I think there are better options available than either suggestion.
Good luck
@Mark Gawlik - Could you build the garage with a studio apartment at the top? Then you could live in the studio and continue renting out the duplex?
If you would prefer to live in the house, then maybe you AirBnb the studio? Typically, you can get a much higher monthly rent through AirBnb than through a typical rental.
Your agent has a good point, if you've been living there for 2 of the past 5 years, you will not need to pay capital gains tax. However, I am a fan of holding on for long periods of time. If you hold for 20+ years, the property will undoubtedly appreciate in value. Not to mention, you will have paid down your mortgage and will likely be cash flowing very nicely.
First thing I notice is the realtor’s suggestion results in RE comision.
Are you thinking of ripping out a kitchen when you go to SFR. Investors seldom want to go from permitted multi unit (duplex) to SFR because the cash flow on the duplex is typically much better than on the same size SFR. So I am not a fan on converting the RE to a SFR.
I also question the return on adding a garage and office. My threshold for such expenditures is that I want an immediate 50% return on the investment. This is because these efforts are both work and have risks. I question if this expenditure would recoup the cost much less net 50% profit.
So ...
If you like the area and desire a larger SFR than either unit of the duplex I would consider renting an SFR where you want to live (possibly near the duplex). Note SFRs purchased today, in general, have negative cash flow. They are appreciation plays. Your duplex possibly would cash flow if purchased today (the ones I purchase today in San Diego county cash flow) and should appreciate similar to SFRs.
I would recommend leveraging your equity in some way even if it is to pull it out to to place in RE, stocks, bonds, REIA, notes. Note if your REI is worth $600k and you have $300k equity and it appreciates 25% you have made 50% on that appreciation However if you have $150k equity you have made 100% on that appreciation (in both cases $150k appreciation). The other $150k should also be making you money via how it is invested.
In summary I am not a fan of either suggestion but I am a fan of you leveraging you equity for further return. I think there are better options available than either suggestion.
Good luck
Does the land lend itself to expanding either of the existing units in the duplex? That may allow you to have a large enough space you'd eventually want to live in while still keeping the second half of the duplex.
If you do decide to combine the two units into a SFR, don't do so with submitted plans - the flexibility in the future to operate it as a legal duplex is valuable and not something you want to lose.
No thoughts on whether you should sell now or whatever - that's a personal lifestyle choice. I'm not personally selling anything significant in my local portfolio.