Advice Needed - Do I Sell or Hold?

[Jamie Jeffredo]

Hello. I am a newbie to the group. Looking for advice - Do I Sell or Hold?

I own a home in San Diego CA. I purchased the house in 2015, in a transitional neighborhood for a low price, and the value has since doubled. Houses across SD County, and in my neighborhood, are consistently selling for $100K over listed price. My house is small, only 1000 sq ft. But the lot is 7000. I bought the home because the neighborhood zoning is designated RM 3-7 (Residential-Multiple Unit ‘medium density’). Therefore, this property would permit up to 7 dwelling units, up to 3 stories in height. The plan has always been to build 3 more units on the property, and create passive income.

The house is located 1 mile from the city, and from Petco Park (our baseball stadium). Flippers have been buying/selling in this area for the past year or two. Unfortunately, the neighborhood is still a bit ‘rough’ and not improving as fast as I had hoped. Current rental prices, although high if compared to other states, is relatively low in my neighborhood (as compared to other areas in San Diego). *The house was previously rented out on Airbnb (very successfully) due to its proximately to the San Diego Convention Center (1.9 miles away) but Covid has temporarily ended this.

Due to a recently work injury, I had to transition careers, and unfortunately took a significant pay cut (over 50% decrease in salary). Therefore, I am not in a position where I can afford to add additional units on the property, nor get a construction loan. The estimated cost to build 3 additional units is over $800K.

So the question I have is… Do I sell the property now, while the prices are high, and take the cash and invest somewhere else? Or do I keep the property, and hold onto it, until I can afford to build the additional units?

The idea to sell is very tempting. However, I will be limited in loan availability (even with a large amount down) due to the decrease in my income. My long term goal is passive income. I just don’t know if I would be better off to sell now and use the profit to invest in other low priced homes outside of San Diego, or to hold onto the property and look for future opportunities to build on the land.

Any advice from investors or those with passive income is greatly appreciated. Thanks in advance.