Stuck in a situation in So Cal investment

[Armando Gomez]

I'm in a dilemma..should I sell the investment rental home and do a 1031 exchange or buy out my inlaws who are 50% owners or pay out my inlaws thru a cash out refi or HELOC and keep the home at full price at current market value. We paid 96k back 10+yrs ago worth 360k

It is paid off no loan . So would be to pay off 180k minus Real Estate fees and less capital gains which is (15% or 10%) anyone know ?

Current Rent under market value can rent for $700 more than and that would clear the caproash out refi mortgage payment with a low Real Estate tax or get the money and do a 1031 exchange and purchase outside of California

Which would be to identify a home within 6 months. pay a higher real estate tax of the new purchase price 180k.

So if I keep home and pay off in-laws 150k approx more than we purchased . And make $1400/month (way under current rental value) with possibility of renting at $2100 /month.

Or sell and do a 1031 exchange and try to find something that can give me that kinda of return outside of California.

And its 2 homes I have purchased with inlaws

Same situation. And they want to sell both. They are retired and just want to pay off their current home which the owe 215K.

Have to come up with about 280K or sell them

2nd home bought at auction for 55k and value now 350k and under rental market too. Can rent for $500 more in current rental market.

What is the best scenario for me?

Kinda know . But just need some reassurance.

[Matt Devincenzo]

Do you still live in CA, and do you intend to continue to for the foreseeable future? If so I'd advocate the buy out and keep the homes option. As you've found your value is up between 3.5-6.5 X of your original purchase price in just 10-12 years. I believe you will look back in 20 more years and find that values are again up quite significantly. The reality is the regulatory environment within CA (and the US at large really) isn't making new home construction faster/easier, and that is creating an upward pressure on values that is beating many other investments. 

I would discuss how you can do a refi for a family member buy out. I believe there is a specific option available in conventional loans for that scenario, and it may be better from an underwriting standpoint. I'd refi the larger of the two homes at 80% LTV which should completely payoff your in laws mortgage. If there is still some value you need pay them for maybe then they would allow you to buy out the remainder over time. The only reason I suggest this specifically is it allows you to only incur one set of closing costs/fees etc. If you need more than that amount, then I would do both homes but keep a lower LTV like 70% and use the extra proceeds to do the upgrades needed to increase the rents like you indicated.