Advice for a novice Oakland real estate investor?

[Jannah M.]

Hi everyone!  I'm new here to the Bigger Pockets forum.  (In fact, this is my first post!)  I'm really interested to see what expert advice I can obtain from the many real estate investors here.

I have been fortunate in my purchase of Oakland real estate over the last ten years.  In 2009, I bought a house in Maxwell Park with an ex for about $250k and we sold it for $520k in 2016.  

In 2013, I bought a condo near downtown Oakland for $320k and have had tenants in that property who have pretty much been covering the mortgage and other expenses.  If I sold that condo now, I could probably get $575-$600k for it.  

And then in 2016, I bought the house I live in now for $648k and plan to sell it in the fall for around $875k, hopefully more with improvements I've made.  

After I sell the house, I plan to do a deferred mortgage on a house my boyfriend plans to buy in cash.  My mortgage broker tells me that so long as my half of house costs no more than $600k, I don't have to bring cash to the table.  This is appealing to me since borrowing more money now while interest rates are low makes sense to me.

Here are my questions: 

What should I do with the condo and the proceeds from my house sale?  

My tenants at the condo just told me they are likely moving out of the condo.  If I don't do a 1031 exchange, then I'll suffer a tax hit on the mandatory depreciation for the years it was a rental.  Tax free, I could walk away with nearly $300k from the condo sale I managed to do a 1031.  If I keep it, then it can probably continue to appreciate both short term and long term, since it's a short walk to downtown Oakland, which is only increasing in value.  Plus, I'd forever benefit from the lower property tax basis based on my $320k purchase price.  I could start to cash flow positive with the next round of tenants, but only minimally.  Or should I go through the headache of the 1031 exchange?  

And, what about the proceeds from my house sale?  I could foreseeably walk away after a sale with around $350k.  I am considering investing in emerging areas of Sacramento that are downtown convenient but haven't arrived yet or an airbnb rental near Yosemite with a friend/ friends or a rental or two in Nashville where my brother lives, which seems to have good rental prices compared to purchase prices.  

Clearly, I am all over the map and would love to hear your thoughts.

[Account Closed]

Hi Jannah,

A lot of sound advice from the successful local investors. Real estate investing is a journey. Look 10, 20 and 30 years out and see what Bay Area real estate has done for its residents and investors and can potentially do for you. 

If history is any indication, the appreciation and future cash flow of your Bay Area Real Estate will outperform the $2k/mo initial cash flow from your OOS investments. 

A big time BP poster on here sold his house in Palo Alto in 1992 for just over $500k. He thought people were insane to pay those prices for a 1,800sf ranch house. Today, that same house is worth around $2.5-$3M. Say that house could have rented for $2,500/mo at the time and I'm being generous here. At $2.5M, that house has appreciated at $6,400/mo in the last 26 years. That's more than double the rent. 

I cluelessly bought a 3/2 house for $200k in 1996. The neighbor with the same floor plan sold their home a couple months ago for $1.2M. Equivalent rent at the time was $1,200/mo. It has appreciated at a rate of just shy of $3,800/mo. In 1999, I used the equity and some savings and bought a 4/2 house for $330k. It's worth $1.3-$1.4M now. It was rented for $1,800/mo at the time while it has appreciated at $4,400/mo in the last 19 years. 

In 2003, I bought my current home for $945k. It's worth about $2M now. At best, it would have rented for $3k at the time. It has appreciated at a rate of $5,500/mo. The stuff I bought between 2009-2017 would blow these numbers out of the water. 

You own assets that everyone wants to own. You have a couple of golden goose that are actually laying golden eggs. Don't be short-sighted on the short-term cash flow OOS crap. They are money pits in the long run. They're cheap for a reason. If it were cheaper to own than to rent, why aren't the local folks buy them? Your massive cash flow payday will come. Patience is a virtue. 

Best of luck.