Should I sell my California Condo and Buy Multi-unit OOS?

[Noah Wieder]

I've owned a Condo in the La Jolla area of San Diego for 20 years. It's been a rental for 16 of them since I kept it when I bought my house. It has more than doubled in value and I'm not sure if the investment would be better off in a multi-family unit OOS or not.

There are only 52 units in the complex and the board has been fighting with owners for the past few years and finally got overthrown. The new board is spending money like crazy and has already increased dues (now at $400/mo) within months of taking over.  They claim a lot of deferred maintenance items need to be addressed (which I agree with), which if completed should make the complex even more desirable.

I've had a great tenant for the past 4 years leaving in March. The rent is providing approx $600 cash flow monthly and since previous tenants have been in there so long, they are below market. I'll be able to increase rent by about $150 or so making the cash flow about $750 come April.

To get a higher rent, I will need to spend few grand in upgrades and paint. Current tenant moved in as husband and wife, and now they have 2 toddlers tearing the place up so it's going to need some work.  They've also broken the microwave twice, I just replaced the water heater, they damaged the hard wood floors which they fixed, and all the blinds will need to be cleaned or replaced.

I've had to fork over a few grand for an assessment a year and half ago for roof repairs since the dues were only really covering expenses and they weren't building up reserves enough for major repairs, hence the increase in dues also. They will likely need to increase them again and within 5 years will probably be $500 but my new rent should help offset that.  

Very few of these units sell. It's a very desirable area and I get solicitations from brokers and agents often. Only a few of the units have been sold in the past few years and the last one sold for $650K. It's a 2Bd, 2Ba 2 Car Garage unit in a complex with waterfalls, pool, Jacuzzi and pool house with shower. I could probably get around $630 - $670K for it. Due to a refi in 2014 to lower the interest rate I have about 15 years left on a 20 year at 4.125%.

Does anyone think this unit double again in the next 15 - 20 years? WWYD - Keep, Sell, HELOC (I can easily pull $200K but might be able to do a complete refi and pull $400K) and buy OOS or sell and 1031?

I've never owned a Multi-family unit and since I'm a hands on guy having something OOS concerns me. How do you go about finding a good OOS property and a Manager you can trust?

Maybe this answers my own question but I'd like to hear some feedback. I don't want to trade a nice unit nearby for an OOS headache for a few hundred a month. Could a $500K - $650K multi unit create more income and if so, would it be worth it?

The other thing I've considered is to just pull out enough for a vacation property OOS and rent it out when we don't use it.  If anyone has any advice or input on that, I'd love to hear it.

Thanks!

[Jason Graves]

@Noah Wieder

I would do an equity line on the condo, keep the asset and buy out of state. That’s what I’m doing...just pulled out another $169 k from one of my San Diego condos....

I bought several condos back in 2008 that have doubled in value in the last ten yrs so I was in a similar situation 18 months ago. I attended a multi family seminar boothcamp by David Linhal here in San Diego.

I suggest picking up book emerging markets that talks about real estate cycles and mutil famIly millions.

I sold (1031) exchanged 2 condos for a 7 plex for $703k and a 14plex for $1.3m which appraised for $1.75m the day I bought it in Kansas City Mo. #$350kfreemoney

All the units are professional managed so it’s mostly passive.

Apples to apples my positive CashFlow is appox the same around $25k per year. However, that’s at about 80% occupancy rate. My CashFlow should be about $50k next year.

1-The real vale of the trade is I now have $$2.5 million appreciating at 5-7% or $175k

2-My tenants paid down my debt by over $40k

3-upside CashFlow of an increment $30 potential

4 investing in front of a path of progress with street car expansion.

Bottom line I’m glad I made the move to multi family out of state. However, finding a broker and a property Mgr you can trust is the key...

In fact my friends and I just bought 57 more units in last 90 days (27 plex and 30 plex) and my property mgr and broker both invested in our last deal. We are targeting 13% cash on cash returns and 20% IRR!

I’m a member at Morgan run country club which is near you. Happy to grab a beer sometime.

Ps

One last thought. I also did 2 cost segregation’s with @scottroelofs and my tax loss in 2018 was appox $500k because my wife’s a real estate professional this comes off my six figure W2 income...