Sell or Keep My Condo in Laguna Beach?

Question

Hey everyone,I'm in a weird situation. I lucked into one of the cheapest condos you can buy in Laguna Beach, CA. After three years, it's gone up almost 250k. I love my place, location is amazing, and I'd like to keep it for the rest of my life. BUT, there are some issues. The HOA board has lost their minds. They are all suing each other now and it has been going on for two years. We have had three special assessments in the last year and I can't stand any of the people in the building. There are only 9 of us. Also, I am on the verge of moving in with my gf and the place is probably too small. I will have to rent it out and will be negatively cash flowing probably a 100 or more dollars each month. It costs me around $2,600 a month to pay the basic bills. The people in the building also refuse to get earthquake insurance, which freaks me out. Since the appreciation is so high, is it worth waiting out all this BS, trying to rent it out full time and breaking even until one day it cash flows like crazy? Hoping we don't have a massive earthquake and the building crumbles into the sea? OR, do I sell now, collect the 2-300k and run for the hills, all while losing a place that I will probably never have the chance to own again. Ideas and similar experiences are GREATLY appreciated especially from people who understand Orange County and how valuable of a town Laguna Beach is. Thank you!

Joe Homs · Answer

@Jeff Dippel Wow this sounds like a similar problem I am having in my Rental HOA. I have decided to sell and do a 1031 exchange since its an investment property. You however are in a great position. You can sell and not have to pay any capital gains taxes. We are at the top and you can probably put that money to use somewhere else.In my situation the HOA was sued by an investor for $150,000 and it totally drained the HOA reserves. I'm out!Good Investing...

Adam Apalategui · Answer

If I felt good about the situation with the GF I would sell it and leverage the money into 5-6 nicer turnkeys with a reputable and well vetted company. Put enough down so cash flow is safe even if rents drop and then just plow the cash flow into more units or repaying I would pretend they don't exist in my mind and start saving for a house with the GF. In 10-15 years you will have amazing options...

Scott Mac · Answer

Hi Jeff, If this girlfriend thing doesn't work out in a year or two how much will you miss the condo as a home for yourself?And if you move inland how much will you miss the beach culture, because it is different. (I'd rather live in a small apartment in Newport than a large home in Irvine.)Good Luck!

Frank Wong · Answer

Hi Jeff,It sounds like you are ready to move on from it. I am sure it's in an amazing location and holding it long term would be solid. The negative cash flow is not bad but there is some sweet equity in there which could be applied to other things. My vote is to sell cash out and enjoy it.

Sean McCluskey · Answer

@Jeff Dippel I’m not an expert on condos by any means. But, are you allowed to do Airbnb in your building?If so, what about a HELOC plus Airbnb strategy? You get to buy more properties and will likely be cash flow positive on the Laguna Beach condo.

Jay Hinrichs · Answer

if there are actual lawsuits pending between owners and HOA then you wont be able to get title insurance and you wont be able to sell it for top dollar most likely.selling it though if you can get top dollar is best U get the 250k tax free.. talk to an accountant before you turn it into a rental.. if you cant get title insurance you may have no choice though.. litigation in condos can drop the value by a bunch

Theresa Harris · Answer

@Jeff DippelI'd also say sell it. You won't have to worry about taxes vs holding onto it as a rental and from the sounds of it, there will be more special assessments. I sold a condo a few years ago that I'd had for along time. Right after I sold, they took out a HUGE loan and that added hundreds of dollars to the monthly fees (though the billed it separately). Even though the price went up after I sold, I was happy I sold it when I did as I didn't have to deal with the stress.

Jeff Dippel · Answer

Much appreciated food for thought thank you all!

Isaac A. · Answer

1 vote for sell it. I'm also in Laguna Beach, and as you are well aware, we are at the top of another bubble. How and when will it burst, no one knows. You could take your equity, buy a couple of homes out of state, have a management company take care of them and you'd have a very positive cashflow, for years to come...no earthquake issues, no lawsuits (hopefully)...etc... If things take a moderate dip in the next few years, it could be another 5-7 years, or more, before you have the equity you have now. In that time frame you could have made quite a lot on some cash flowing properties. You could always advertise your condo with a lease option...and get top dollar, as well as little or no realtor fees, and see if you can squeeze a bit more out of it. You could likely more than cover your mortgage and HOA fees. No matter what you decide, it's a good problem to have. And if you decide to sell...give me a heads up :) Best...Isaac

Jacob Repreza · Answer

WOW. Special situation here that's for sure. I would personally say, and I will probably be in the minority I feel like, but keep it. If you really got it at a price that is unheard of for laguna beach then I think breaking even on it in the meantime is worth it. Coastal properties hold their value extremely well and will only keep going up. Now with that being said if you were interested in cash flow you could easily take that 200-300k and invest into something with more units either here in CA still or buy something much larger in the midwest somewhere. But if you love that property, could live with the earthquake risk and don't mind waiting for the inevitable appreciation I say hang on to it.