What would YOU do?

Question

Greetings:

I own a sfr and a ADU in Moss Landing, CA. That is Monterey, CA county... It was a 1031 exchange.   As well as another property in Santa Clara Co, a great duplex.  (BP please add Monterey to your list of cities). My dilemma is that within the last 2 years TESLA/PG&E have moved in to the tiny community of 300 residents.  The area is a harbor with a beautiful beach, seals, whales, otters and  lots of tourism and mixed uses.  Well, TESLA/PG&E have partnered to purchase the old power plant.  It has been partially demolished and they are adding a host of unsightly industrial bldgs comparable to an Oil Refinery.  They claim to be storing lithium batteries for power production via AI for PG&E but they claim their goal is to be the "Biggest Lithium Battery Storage Facility in the World". (see attached article)

They are quietly buying properties behind the current the facility. There has been had two lithium battery explosions/fire emergencies in the last 2 years.  It is becoming extremely unsightly as they continue to build and will eventually bring tourism/desirability down (in my opinion).  It makes me very uneasy about my investment future.

QUESTION: Should I sell, do another 1031 exchange, or keep as a rental?  Is it a good time to sell?  Currently, it is a very desirable location between Santa Cruz, CA and Monterey and gets great rent!  A couple of the adjacent cities are planning on building 2500 new homes in the area...not sure of the impact as there is a water shortage due to salt water intrusion.  I fear poor planning on the horizon...

Any input/recommendations  greatly appreciated...

Rick Albert · Answer

This is a tough one because you also have potential disclosure issue when selling. Your Natural Hazards Disclosure should have some of this but it is tricky.

I think if the equity is there and you can move the money to a better producing asset, I think I would sell. We just don't know the environmental impacts and ignorance is bliss. The longer you keep it, the more information you will get. I know it sounds weird but Sellers want no knowledge and Buyers want all the knowledge.

Clayton Silva · Answer

Definitely a unique position to be in.  Are Tesla/PG&E buying up the properties?  If so, is there a chance they will come wanting to buy yours and are they paying a premium for the properties?  It could be a potential offload option, if they are paying premiums for the properties.  Without knowing too much about the specific market (although it does appear Monterey and Santa Cruz are holding pretty strong) it may be worthwhile to consider selling if values are holding.  Have you been to any local city council meetings to see if others in your area have the same or similar concerns?

Todd Anderson · Answer

Gayle, I can't give you specific advice on time to sell, but I am working with investors every day from all across California, who are thinking about moving their investments. As mentioned the most common path is to do another 1031. The investors that I work with value our process because they can get a New Construction investment property that is ready on their time line. They also value that the process is turn key from start to finish, will knowledgeable boots on the ground.

The other advantage the California investors have is that their equity goes a long way in another area. Best of luck, I know it is always challenging thinking about selling a profitable investment. Feel free to contact me with questions.

The other advantage the California investors have is that their equity goes a long way in another area.  Best of luck, I know it is always challenging thinking about selling a profitable investment.  Feel free to contact me with questions.

Bradley Buxton · Answer

@Gayle Eisner

I have a friend in Marina and there has been a lot of building in the area and combined with the risks with the battery factory might outweigh the eventual exit strategy for waiting.  Traffic can also be an issue in that area and as more homes are added it will likely get worse. What are your alternatives to replace your current investment?  Are you able to move it and still have the balance you want in your portfolio?

Alecia Loveless · Answer

@Gayle Eisner Simply do another 1031 to a property somewhere else to avoid the capital gains taxes if applicable.

Gayle Eisner · Answer

Also, the rental was 1031, so I would have to pay taxes and cap gains right?

Gayle Eisner · Answer

Also, the rental was 1031, so I would have to pay taxes and cap gains right?

Gayle Eisner · Answer

good advice! thank you.

Gayle Eisner · Answer

The TESLA project is across Hwy 1 (only two lanes hwy).  The ocean side is where the rental property is, along with about 55 SFR built in 1959-60... The home is about 1 block to the beach...About 300 people, most of which have lived there their entire lives and  are retired, still believe it still is an old PG&E plant that went off line many years back. I was never notified about Tesla moving in, nor the project.  After a few folks in the neighborhood became worried about the 2 chemical fires, they had a PG&E "information" meeting.  A resident told me that they were told not to worry....However, Lithium batteries are extremely toxic when they explode.....Thank you for your comments!

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