Moving - do we rent or sell and invest outside CA

[Keith Gilbert]

We are moving from Long Beach, CA to Chandler, AZ.  We are trying to decide what to do with our current house.  

I asked a friend and he posed an interesting question.  Imagine you had $350k (which is the cash our equity in our home) would you use that money to invest in a single family home in Long Beach?  Our plan was to rent it out, but we have the house on a 3% 15-year note and it would only break even or be a slightly negative cash flow (not counting debt reduction or appreciation).  I don’t see our house appreciating much more given it’s one of the nicer houses in a very blue collar neighborhood.

Should we hold onto it?  I’ve always believed in never selling.  If we do sell it, how would you recommend investing the $350k.  We don’t need the money for our AZ house.  However if we did put it into our AZ house we would have an extra $4k per month to invest.

[Alan Grobmeier]

@Keith Gilbert, there are a NUMBER of things to consider that make your friends' comments invalid.  I'll name a few:

• As you stated, the difference in property taxes is HUGE! 
• Per your own words, you are not sure if you will go back or not.
• CA Prop 60, transfer of property tax for seniors.  Let's say you move BACK to Long Beach for a year and then buy your dream place in Seal Beach.  Your taxes are now lower.  Look it up.  One time exemption, so you better make it good.  ;-)
• If you 'leave' and sell, the appreciation in Cali might be as such as you might not EVER be able to buy back in.  

For ALL these reasons, and a few more, I keep my property in San Diego.  

What I would do is get it back on a 30 year term (you don't want to pay it off anyway, you will owe tons to STATE of California), and strip it for $100k when I want to invest elsewhere.  Or pay off your primary residence since you probably can't itemize anyway.  Paying off a rental completely in Cali is a bad idea, but that's another story.  ;-)

I visited AZ a LOT before living here.  I've been here 10 years now.  It has LOTS of both 'good and bad', like any place does.  But the heat becomes unbearable year after year after year.

And that is why I STILL have a 'foothold' in San Diego.

In your case I would Re-Fi as is on a 30 yr term. Your PITI would be around 2600, based on 4% interest rate.

If your rents are 3400 a month, the numbers work as follows:

Income:  40,000

PITI: 31,200

Cashflow:  8,800

Tax liability

Income:   40,000

Interest:  17,472

Prop Tax: 6,800

Insurance: 1000 

Depreciation:  14,500

Tax Deductions:  39,772

Net Tax Liability:  $228.00

So, you can basically put $8,800 in  

your pocket every year and pay no tax on it.  All except $228.  Where/how else can do that?

Now add 3-5% annually to the income line.  What does that look like after 5 years, 10 years?  

In your case you have already made the investment/hard part.  If you want to have a chance to go back someday AND make money in the meantime, this is it.

If you need/want $100k, go strip it for $100k and invest it elsewhere.

If your rents are more that 3400 a month, you will pay some tax.  But MAYBE you can find some expenses or upgrades that can write off the difference?  ;-)

In any event, I hope I have given you a few things to think about.