Advice on Next Steps

[Mario Borg]

Hi BP community,

I'm currently 32 years old trying to figure out where to go from here. I have two current properties: One being my personal residence in Livermore California and and another being my rental in Brentwood California, both single family homes. I Purchased the Brentwood property about 8 years ago and have about 700K in equity. Expenses all in every month $1900.. current rent $4,000. I also have an Available HELOC of 300K on my personal property in Livermore. I've been in the construction industry my whole life ( my twin brother is a union plumber as well) and have also owned (2) business' that I've sold; Autobody Shop and A Trade Show Company. Concurrently I went through the Union Electrical apprenticeship and worked in the field for 10 years while managing apartment buildings on the weekends/evenings. My early 20's to my 30's didn't involve much sleep. I moved into an office position a little over a year ago ,for the electrical company i was working for, and now managing millions in work. To make a long story short, i want my hard work to feed my family and not someone else pocket. Going full time real estate is something that I've always wanted to do, and i think I'm at a point where I'm ready to take the leap. I'm Currently in the Process of getting my General Contractors License in California to allow myself another tool in my toolbox to build my real Estate empire (Dream).

I'm looking to connect with anyone that can throw some words of wisdom my way. Should i sell, refinance, 1031, Wait?  The high interest rates are making things a little harder in the Bay area and am very open to conversation of out of state investing if the Returns are better. I'm no stranger to hard work, just need to get the right team together.  

[Dan H.]

$700k to make $2100/month ($25.2k/year) is terrible. In reality you made the cash flow and the appreciation that led to the $700k equity position. If you started with a high LTV, you likely had a great ROI but would have achieved a better ROI if you had kept the LTV high (refinanced one or more times and invested that money). Your cash flow would have been worse, but historically in your market the ROI is defined by the appreciation.

At this time, like the other posts, I am being cautious (some would say I am always cautious).   I am leery of expecting significant return in the short term from appreciation.  In my market RE is down ~10% from its recent high (but according to core logic still up 13% YOY). I think the fed is going to raise the interest rates further and further decline of value in my market is possible and probably likely.  

I do not believe that small unit count out of state provides a significant return for someone who has achieved $700k equity.  The reality is most OOS investors are ecstatic if they achieve $500/unit cash flow.  I suspect your return on your Brentwood place over the last 8 years is at least 10 times that (over $5k/month).  In reality most OOS investors are not achieving the $500/month return.  In addition, OOS investing is higher risk due to difficulty in building, maintaining, and managing the necessary team.  Asset management of residential RE involves effort (work) and time. 

As indicated the $700k is purchasing your cash flow and, if there is not going to be return from appreciation in the near term, is producing terrible return.  The stock market has fallen and may not be at the bottom.  Can you identify return that is likely to produce better return than what the $700k trapped in the RE will achieve without appreciation (I.e the return from your cash flow)?   do you know of any syndications with value adds that are likely to still do well in a declining RE market?  If not I suggest you attend both investor meetups and RE meetups.  Educate yourself on the possibilities (and risks)

By the way I am convinced that in the not too distant future, your property will again appreciate faster than inflation.  The markets have ups, downs , and flat periods.  My market has started down and I believe has further down to go.  It will go back up.  

Good luck