Sell highest value property? Cash flow vs appreciation dilemma.

[Chris May]

I realize there's no "right" answer to this question, so I'm just looking for opinions or angles I haven't thought of.

We owner occupied a duplex a few years ago in the SF Bay Area. We've since moved to North Carolina, are owner occupying another duplex here, and the California property is fully rented. We did a ton of work to the CA property, so that combined with the incredible appreciation out there in the last few years, we're sitting on a pretty remarkable paper gain.

We've racked up quite a bit of debt rehabbing both the CA and NC properties. Right now we're fine--rents cover the expenses on our CA property (barely), but the prospect of a potential recession and a short term rent dip have me a little concerned. We've increased our financial independence moving to NC (lower cost of living and wife no longer works), but part of that means having slightly less income to cover economic shocks.

The CA duplex is also really hampering our ability to finance additional properties. It feels like we're stuck and just have to ride out another decade or so to realize gains from the property.

So here's the plan: 

1. Sell our CA property
2. Do a 1031 exchange and buy 2 SFRs in North Carolina as rentals for all cash. Put another 50% down on a vacation rental somewhere fun (probably the Caribbean). Live there 1-2 months of the year, rent it out the rest of the time.
3. Pay off all debt (except for a modest mortgage on our NC duplex).
4. Further increase our financial independence by significantly increasing our cash flow from rentals while decreasing risk.

The thing that's agonizing for us is we were hoping to retire (early) in the CA property. It's an absolutely beautifully restored building and we love the neighborhood. We're also giving up future appreciation if we sell now. Of course, if we retire there then we're not selling ever. I also don't know how realistic it is that we'd be able to cover the mortgage if we moved back into the property while semi-retired.

I feel like the right answer is selling the CA duplex, but again, it's killing me.

Thoughts? Help!

[Don Taylor]

Originally posted by @Mike Bolen:

Sell CA property and 1031 the entire amount into a single property, do not split the funds and buy a larger 6 unit or bigger in NC and enjoy the cash flow and stability. As that pays itself off that cash flow could pay for a new place in CA in your retirement years. 

 This sounds like a great strategy, I would do this