Tough Decision whether to sell my one unit and buy more

[Brian Cassanego]

Hello,

Brand new here and would love anyone's input on this. I own a condo in San Francisco. Bought it in 2004 and it has appreciated quite a bit. I have a little over 1M in equity and I am currently renting it and cash flowing a little over 1K per month. Thanks to prop 13, my property tax is only around 12K, my mortgage rate is 3% but my HOA is now 1K per month. But still, I am cash flowing and I have a prop manager in place (as the rules in SF are clearly geared towards tenants rights and didn't want to screw anything up) and I have never once even talked to my tenants (they pay rent on time every month). This is as passive income as I can get. So, it's not a bad situation. And in SF, building new residential units is very difficult, and the fact that SF is a peninsula (finite space to build) and there are great jobs here, it should always be a great market.

However, I keep on thinking if my 1M in equity can be better served in a different market buying multiple properties that may appreciate more and generate better cash flow. I did recently take a 400K HELOC out in order to start buying in other states. I am def interested in Cash flow as well as appreciation. I recently sold my businesses (bars in SF) and will have a bit of money from those to bring towards the investing table. But now, my income is sporadic (Im a mortgage loan officer---got my license in 2020 when the pandemic hit and my bars were shut down--- in CA and business is pretty dry at the moment to say the least). My wife makes good income, but I would like to take the equity I have to generate nice cash flow and future appreciation. Just wondering if I should sell SF to generate a lot more money to invest in multiple properties and markets. I am not afraid of Long distance investing (reading David's book as we speak) and wondering what are people's favorite markets. And what people would do in my shoes. Thanks! and sorry for the long post!!

Cheers,

Brian

[James Hamling]

@Brian Cassanego you asked what we/I would do in your shoes, I will do you 1 better, I will advise as if you were my client. 

Your clearly a smart guy, very much so, maybe too much, and maybe that's why find self stuck in analysis paralysis? So let's start by taking a step back, taking a big breath, and re-framing this into it's core components. 

The real heart of this question is; I have a million+ in invested capital, that I currently have in 1 singular investment making me about 1% annual gross net. Should I keep all my $eggs$ in this 1 singular basket, or diversify into many baskets? 

I think it's very possible we could stop right here, already, at the 35Kft altitude of the situation, right. Maybe read this question a few times if impact of the question alone has not hit as of yet, because the question strongly stand's out the answer for myself. 

Rule #1 is never loose $, rule #2 is to make $, and rule #3 is NEVER forget rule #1.    Risk analysis is a paramount factor in any and every investing, and this situation stands very clear as diversification is the key safety mechanism too lowering risk exposure. 

Is it possible that there is a nostalgic value clouding business decision clarity on this property? Especially having sold other business's so recently. 

I would absolutely encourage diversification, strongly so. You stand to considerably benefit on every investment metric, risk factor lowering, equitable gains potential being compounded, NOI greatly increasing. While yes, this property absolutely could go on with it's current performance, the foundational fact will remain that it is still just 1 property, gaining a return on 1 vs gaining a return on 15. There is simply no comparison when we review the math, by leaps and bounds diversification will aid and amplify your performance and security.

Here in my local market that capital in the pinnacle of "safe" property investments gaining an A+ property with A+ tenant in A+ market, would net at minimum $7k monthly, minimum, NET.