Hold vs Sell Sothern California Property
Hey guys!
Looking for the extra push to sell or hold my southern California condo. I have about 200-220k of equity in my place. After owning for 6 years, my expensive HOA (340/month) is really dampening my cash flow. I actually am paying roughly 100/month to keep it and run it after all fees. Looking at cap rates, it is at 2.67%. Would you recommend selling since my tenant leave at the months end in July and buy more property or would you find this place worth keeping. It is worth noting that I bought with VA in 2016 so it was fully financed so that is why after 6 years I am still having to pay a small amount AND the market rents are at least 2600/ month which is a 450 increase from previously rented (I had a long term renter for the past 3 years so rents were low.) My concerns with keeping are the HOA and just how the housing market in SoCal looks. Reasons to keep are that I will FINALLY be able to cash flow a little bit this year if we decided to keep, plus we have enough capital to buy another property in other markets. Thank you to any input and opinions or solutions!
-Nick
#3 House Hacking Contributor
- Real Estate Agent
- Los Angeles, CA
I'm in the same boat as you. I have a condo in Los Angeles.
What I'm doing is listing for 30 days and if I don't get my price, I will rent it out. The only reason to sell is if you know what you will be doing with the money. If you don't know what to do with it, then keep it.
I don't know the San Diego market that well but generally $340/month is the norm or actually low. I'm seeing the $400+ range here in L.A.
Hi Rick,
is that $350 to $400 cash flow after vacancy, open CapEx etc?
also do you use a PM or are you self managing?
If it is after all the expenses and PM, surely it’s pretty nice cash flow to hold. (unless ofcourse you are deploying elsewhere)
Quote from @Manraj Singh:Manraj,
Hi Rick,
is that $350 to $400 cash flow after vacancy, open CapEx etc?
also do you use a PM or are you self managing?If it is after all the expenses and PM, surely it’s pretty nice cash flow to hold. (unless ofcourse you are deploying elsewhere)
I am paying 100/month currently. That is with all fees and HOA. With NEW rent, if I were to keep, I would cash flow about 250-300/month after fees
Quote from @Rick Albert:Rick,
I'm in the same boat as you. I have a condo in Los Angeles.
What I'm doing is listing for 30 days and if I don't get my price, I will rent it out. The only reason to sell is if you know what you will be doing with the money. If you don't know what to do with it, then keep it.
I don't know the San Diego market that well but generally $340/month is the norm or actually low. I'm seeing the $400+ range here in L.A.
Thanks for the recommendation! That sounds like a good option, thanks for the input! :)
hi nick,
i have approx similar numbers (without PM) for my Condo.
It is cash flowing negative after all expenses. I treat this currently as holding costs. I have also installed a credit line on it so I can access the equity (around $150k) if needed.
I believe I should be able raise rents next term per market and get to break even. So I am holding mine.
plus mine is in a good school district, so that’s an added incentive.
manraj
Quote from @Nicholas Creahan:
Hey guys!
Looking for the extra push to sell or hold my southern California condo. I have about 200-220k of equity in my place. After owning for 6 years, my expensive HOA (340/month) is really dampening my cash flow. I actually am paying roughly 100/month to keep it and run it after all fees. Looking at cap rates, it is at 2.67%. Would you recommend selling since my tenant leave at the months end in July and buy more property or would you find this place worth keeping. It is worth noting that I bought with VA in 2016 so it was fully financed so that is why after 6 years I am still having to pay a small amount AND the market rents are at least 2600/ month which is a 450 increase from previously rented (I had a long term renter for the past 3 years so rents were low.) My concerns with keeping are the HOA and just how the housing market in SoCal looks. Reasons to keep are that I will FINALLY be able to cash flow a little bit this year if we decided to keep, plus we have enough capital to buy another property in other markets. Thank you to any input and opinions or solutions!
-Nick
hi Nick, that question was for Rick. Apologies for the confusion. I am using my phone for the messages and the GUI isn’t helping :)
just based in raw numbers (and nothing more) cash flows of $250/$300 is quite decent IMO. Unless you have a plan for your equity to buy better.
having a credit line on it would help aswell- if you can cover your payments (which you might be able to with the new cash flows + new investment)
Quote from @Nicholas Creahan:
Quote from @Manraj Singh:Manraj,
Hi Rick,
is that $350 to $400 cash flow after vacancy, open CapEx etc?
also do you use a PM or are you self managing?If it is after all the expenses and PM, surely it’s pretty nice cash flow to hold. (unless ofcourse you are deploying elsewhere)
I am paying 100/month currently. That is with all fees and HOA. With NEW rent, if I were to keep, I would cash flow about 250-300/month after fees
By the numbers the answer is simple. If you've lived in it 2 of the last 5 years, you can sell it tax free. Take that 200k in tax free earnings to invest in better opportunity. As I see it, you will cash flow maybe $350 a month or 4200 a year as long as the HVAC doesn't go out? That's a terrible return on the equity. If you try to get a HELOC to tap into the equity, you will be under water. On top of that, its a condo. I've heard horror stories from condo owners in the great recession losing massive amounts of equity. That's an easy sell to me.
#3 House Hacking Contributor
- Real Estate Agent
- Los Angeles, CA
Quote from @Manraj Singh:That was the HOA dues, not my cash flow.
Hi Rick,
is that $350 to $400 cash flow after vacancy, open CapEx etc?
also do you use a PM or are you self managing?If it is after all the expenses and PM, surely it’s pretty nice cash flow to hold. (unless ofcourse you are deploying elsewhere)
I have been self managing. I have had the same tenants all four years of while it was renting. They are only moving out because of budgetary reasons.
For me, the condo was a vessel to buy other properties. I ended up using a HELOC to buy the second house hack, which ate into my profits. Now if I were to rent it out I would be fine (including setting money aside for Cap X, repairs, etc.). I would still be doing self managing.
Over the long term, historically every residential property in San Diego has produced outstanding returns, but ...
You do not indicate if you have lived in it 2 of 5 years such that the gains would be tax free. This should be considered in any decision to sell.
I have issues with condos as investments and it is not so much the HOA fee as I believe virtually all HOAs are good with the finances. It is more about the control or more precisely the lack of control. HOAs can set rental occupancy thresholds, they can dictate flooring, they can be under-charging for cap ex and hit all owners up for large expense items.
You have owned for 6 outstanding years and your cash flow at market rent is quite low. This is an issue that I cannot explain. My local purchases have had more substantial rent increases than seems to be the case for your property. Is it the location? How did you derive market rent price?
The past 6 years have been outstanding for appreciation. Due to prop 13, you are paying a reduced prop tax rate compared to purchasing today. This amounts to extra cash flow and should be considered in the decision to sell.
Note as PM, 8% of rent you are earning by managing the property.
I lean toward selling not because I do not expect the property to produce a good return but because I suspect you should be able to do better. This is truer if you have lived in the property 2 of the last 5 years. Note syndicators with good track records that project 17% to 20% annual return and typically outperform projections are available and more passive. If you are not beating this return acting as your own PM (I suspect you did beat this because of the outstanding appreciation over the last 6 years), then why choose your path?
Good luck
Have you considered renting the unit out furnished for 3-6 month stints. (See Furnished Finder). I dont know where you are in the city but this might be a method to boost your returns and improve the cashflow. If so it might be a reason to keep.
@Nicholas Creahan If you decide to keep it, you definitely won't regret holding onto San Diego real estate in the long term. If you want to deploy that equity somewhere geographically closer to you that makes sense as well as long as you can get into something decent, such as a 2-4 unit property assuming you had to do a 1031 exchange.
If you decide to keep it, you can rent it medium term furnished to travel nurses as an option as well (30+ day rental). If you are $300+/month positive for a property that you have no money in, its not bad, even though the cashflow should have been quite a bit more after holding on to the place for 6+ years.
