SELL Coastal San Diego Townhome or Keep?

Question

Hi there

I bought a townhome in Oceanside, California back in 2016 for 445k. Its 3 bedrooms/3.5 baths in a gated community and a 15 min walk to downtown Oceanside/the beach.

Id say its worth about 590-600k.

I have great tenants in there and I am cashflowing $300 a month not including any unforeseen maintenance.  Downtown Oceanside is an "up and coming" area and I "feel" that long term the property could severely appreciate.

However, I want more cashflow.  I could sell the place and invest the equity into out of state rentals and (hopefully) net $1000-$1500 month.

Im debating this vs keeping the property for a while.  My wife and I lead a comfortable life and net over 200k from our W2 jobs.  No kids yet, but maybe in a couple years.

Donald E Appleberry · Answer

Hey man,

I definitely agree with your "feeling". Based on how much development is going on in oceanside, the fact that you have a major military base right next to you that will keep bringing in and recycling new people every year, and even looking at vistas development - it's not crazy to think that EVERYONE in the Tri-city area is preparing for the high appreciation that appears to be coming to Oceanside and the Tri-city area as a whole.

If you're dead set on building more cashflow, I'd recommend out of state. Unless you can put a 20% down on a property in West Chula Vista. Even then, it most likely wouldn't meet what you're trying to net. Kansas City, Mo is a great rental market I'd check out for sure.

All in all though, I'd say hold it. However, we are in a sellers market. So, it's a really good time to sell. It's a tough choice, but either way I think you'll be in a good position.

Twana Rasoul · Answer

@Jay Chandler This is definitely an easy choice, do not sell, I totally agree with @Dan Heuschele ….and  if you decide you want to sell I wouldn't necessarily suggest doing so right now.

I have investments in high cashflow markets as well as here in San Diego.  If you want to see the difference between investing in a market like SD vs one in a high cashflow area with average of 8+ cap rate I'd be happy to show you the difference over a period of time.  the data speaks for itself.

Feel free to reach out anytime and best of luck whatever you decide.

Dan H. · Answer

Let me see if I understand this correctly.  You purchased 3 to 4 years ago and have experienced $145K to $150K appreciation (I suspect with either a 80% or 75% LTV) and you are cash flowing $300/month (which I am surprised it is only $300/month as rents have risen on average more than $100 per month annually).

Lets go with the lower LTV (75% LTV) and go with $112K plus closing costs (note higher LTV would have meant less invested).  To have achieved between $3K ($145K/48) and $4.2K ($150K/36) per month of appreciation.  Plus $300/month of cash flow.  Am I missing something?  You know how many units you would need to own at a few hundred a month cash flow in the historically zero appreciation markets to achieve that much return?  This is not even including your significant equity pay down.

Add in Prop 13 saving you ~$1500/year compared to a new purchase.

I am unsure if your question is serious.  There are few investments that you could make that would do better (Similar purchase with a value add would clearly have done better, but …).  I will show what appreciation can do for cash flow by using some of our properties.  We have a (Beach area) STR that has an over 4% rent to purchase ratio (not now though, now it has 0% ratio due to the virus).  We have a quad and a duplex with over a 2% rent to purchase cost ratio.   Imagine the cash flow if no money had been extracted.

Beach area property is very precious.  It is not like much of the Midwest where there is miles and miles of underutilized land.

Good luck

Bradley Laddusaw · Answer

@Jay Chandler, I live in Oceanside and it has been amazing to see the growth and new development over the past 7-10 years in the area.  The city appears committed to continue this growth.  With that being said, Greg has some valid points to holding a rental in CA.  If you are looking to gain/spread net rental income, $300-$500 per property across multiple properties, then out of state is the way to roll as the cost to acquire vs. market rents in CA typically do not pencil out.  Going out of state has its additional hurdles and risks but I have clients that hold a healthy schedule of real estate out of state and do quite well.It really comes down to your current liquidity constraints and what out of state markets you want to get exposure to.  Based on the purchase price, you may be able to acquire 1 or 2 out of state to start.  This will allow you to get boots on the ground and a property management company you trust.  Once the out of state systems are in place, you could acquire at a more streamlined pace and potentially liquidate the CA asset.You have options which is great.

Michael Glaser · Answer

They're not making more land near the ocean in Oceanside. I would hold that for generations and pull your money out.

Greg Scott · Answer

Greater SD is a great place.  I lived in SoCal for a number of years.

I'd factor into your analysis that you live in a landlord-hostile State that wants to remove from you any ability to collect rent on your property.  Because Newsome shut the state down for so long, your state is looking at a massive budget deficit that will ultimately result in more taxes and a continued flight of businesses and people out of state.

Cesar Cruz · Answer

I have a buy and hold strategy in Oceanside.... They are building a new mall on 76, improved the mall on 78, trying to open the carlsbad airport to more traffic, and you can see the redevelopment (new hotels and apartments) in Downtown and 92056. If rents increase, then you'll have better cashflow...

Mike D'Arrigo · Answer

@Jay Chandler before making any decision, you need to do a deeper analysis of your returns. Don't just look at cash flow, especially in a high appreciation market. Look at your total returns through cash flow and equity. You might find that although you might get higher cash flow from more properties in out of state properties, your total returns might still be better with the Oceanside property. As much of a proponent as I am for out of state investment, as a Californian myself, I would always think twice about selling a cash flowing CA property with significant appreciation potential. I suspect that you would regret it down the road. Can you pull some of that equity out and use as down payment for some out of state investments?

Jay Chandler · Answer

Thank you everyone for the feedback! Much appreciated.

Alex Olson · Answer

Until the condo association forgets to put a new roof on and causes damage. Or doesn't update the pool or requires specific glass to be used on a broken window that no longer is available. This happened to a friend of mine. His condo was worth $450,000 one year and now is worth $245,000. My point is that a ball that looks like a home run ball could just be a pop fly.