Santa Barbara County multifamily - Should I stay or should I go??

Question

We’ve bought three properties, but this would be my first time selling, looking for advice from seasoned investors.

We own a 4-Plex in Solvang, which we purchased for $850k at 3% (25% down), appraised at $1m when we purchased in 2020, now we believe we can get over $1.3m for it. Not much room for expansion other than adding on a 2nd story, but it’s right in the heart of town.

Do we sell!??

Is it going to drop in value? I’m hearing yes maybe a little but not back down to 2020 prices.

If we bought a replacement property, we would be buying in at 6% or more (and paying tax on the gains unless we can 1031 exchange in time), and with the 3% loan we currently have we are making $1,600/month net profit. Given the increase in equity, we can afford more property with a re-purchase, but with current inflated prices we wouldn’t actually be getting any more property for the extra money, right? Plus I don’t think we could make that kind of margin on a re-purchase at the same price.  Are rates ever going to come back down?

Any advice is appreciated!

Allen Maris · Answer

Hi Heather, I'm in SY, I'm thinking I might know the property, 2nd? The market should soften some, but everything I hear from the experts is unless things really go sideways not to expect too much of a hit. At the end of the day, you have to look to see where you think your money is best served. If you don't believe in the market you're in, it's tough to love a property. Also make sure you include the increase in property tax when calculating if you haven't. I've talked to a few people that forget to include the higher taxes on a higher purchase as part of the equation.

Allen Maris · Answer

It always seems like Zillow under estimates taxes. As a very early jumping off, I start with 1% of purchase until I can confirm the exact number.

I’m sure there are some that cash flow somewhere or someone finds a steal but it’s pretty rare in this market. I’m holding on to my current properties because by the time I 1031 into an equivalent cash flow, I’m using all proceeds, adding some cash and then doubling my property taxes.