To sell or not to sell in San Fran --> buy in AZ (seeking pros)

[Josh Angeles]

I'm new to the BP forum and and I must say.... this is a damn good community.  That said I'd love to hear people thoughts on a transaction I'm having a hard time wrapping my head around.   

Situation: My wife and I purchased a condo in San Francisco (Dogpatch 94107), in 2012. We bought the condo for $519k. Last year we refinanced and pulled our initial down payment. The exact same unit in our building just sold for $930k. There is a real emphasis on development in this area. New hospitals, new restaurants, a few piers are being converted to shopping centers, the Golden State Warriors are planning to move in less than 2 miles away. The area is starting to be the trendy hip area of SF. We are currently renting it out and it covers the mortgage and HOA with a marginal profit. (The condo almost has no/low maintenance)

Some thoughts:

1) Is San Francisco RE unique.  Can valuations keep rising and if there is a correction, will it be minimal in SF?  If there is a correction will rents remain high (the rental market is very competitive). We have friends that have a combined income of $350k and credit score of over 730 and they had a really hard time finding a good rental.  

2) Will the new developments in my neighborhood significantly increase the value of our property over the next 2 years? (Look up Dogpatch SF and you'll know what I mean)  I have a feeling it will be like the Meat Packing district in NYC in the future. 

3) Is now a good time to get into REI in Arizona?

Here are the options we considered:

1) Sell the condo and lock in gains, and wait for a market correction ( it sounds like most guest on the BP podcasts are liquidating or just holding at the current time)

2) Do nothing, cross our fingers and ride the wave. Hoping this condo keeps flying high!

3) Look for REI opportunities and if we find any amazing deals we pull money from our mortgage.

Thanks for any feedback suggestions and connections! Cheers!

[Amit M.]

@Josh Angeles hi. As a long time SF investor I feel I must weigh in here. Short answer: DONT SELL YOUR DOGPATCH CONDO!!!

You made an awesome move buying in 2012 and also in Dogpatch, which is why you have almost $500k in equity in such a sort time span. You now own blue chip real estate that cash flows, which is really hard to do for most beginners. God there are so many reasons to keep it:

- you keep a low prop 13 tax base long term

- even if SF RE dips in value, it will most likely go down less, and rise back up quicker then lesser areas. That's what happened post 2008 recession. 

- you will always have prime tenants, which are much easier to manage than others. 

- I'm quite sure in 7-10 years the value of you condo will be in a different category than it is now, and you will be damn happy you didn't sell it. 

All the wealthy SF (and prime Bay Area) investors I know changed their lives by the equity gains they have made. 

I'll give you one example of mine (I have 5). Brought in the mission district in 2003 a SFR with large illegal inlaw. The mission back then was up and coming. Paid $530k and spent 270 to add a garage, renovate plus legalize the inlaw. Later condo converted the building. Value today is conservatively 2.2 mil. Back then spending 270 was a lot of money for the mission. But now, I'm thinking of completely remodeling both units to high end standards, with large light filled open kit/LR/DR. I'd spend an additional 200-250. Mind you that by doing so, I'd be "throwing away" about half of the original 270 I spent a few years ago, as I'd be moving kitchens and baths around; basically redoing decent work I did 12 years ago, which sounds like a waste of money. But by doing so both units would be worth closer to $3 mil. It's nuts to be in a position where you can "throw away" 130k of renovations because your market has changed so dramatically in 12 years! Plus not only will I make a huge equity gain, I'll also get higher rents, basically offsetting the 200-250 I will borrow from my HELOC for the renovations.

I'll also tag @bob bowling and @jay Higgins (fail) so you can hear their stories of Jay trapezing around the Bay Area with huge equity gains, and Bob may tell you about the golden goose ;)

Bottom line: keep that condo, and tap your equity via a HELOC if you want to make other investments!