Sell California Condo or Sell and 1031 into OOS Multifamily?

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@Kyle Steiner : Hey, fellow Californian!I can't tell you what to do, but I can tell you what I did, as I'm in a very similar situation as you, but just scaled up slightly.I began acquiring SFR in various CA markets around 2009, and like you, I ran up the score on appreciation.We've had a pretty awesome run here in CA, but for my own reasons, I wanted to diversify out of NorCal. Within the last year, I sold 2 CA SFH in CA and traded them for 2 SFH's in Austin, and a 4-plex in OH. Since these are fairly recent trades, time will tell if they work out or not.what I will say is that acquisitions OOS is not at all "passive", especially in this hot market. It's not just about writing checks and entertaining the notary at closing. You will mostly likely need to get on a plane, probably twice.Even if you buy "turnkey," you're essentially trusting a random stranger that you probably met on the Internet to manage your 100K. That can go wrong on a lot of different levels from outright fraud to just run-of-the-mill incompetence. How do you know they aren't selling you a flaming pile of crap in the middle of a war-zone? You should be doing a bunch of background checks on the provider AND you should be getting on a plane to see what you're buying.I should also mention that a 1031 puts you on a very tight timeline. If you aren't already familiar with them, then research that first.Finally: I really wouldn't recommend trying to self-manage a property OOS. It can be done, and there are proponents of such tactics, but it is fraught with pitfalls and demogorgons. However, using a PM gives you a roughly 10% haircut. You should factor that into your ROI. If you still prefer DUI management, and you do go into Cincy, give Misty a call at CincyRents, and tell her I sent you. They have tiered services which may match your style.Hope that's some valuable food for thought. Let me know if I can help otherwise.James

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Because you have a full time job in CA, I would say any OOS endeavor should be through something extremely passive. Otherwise, you are placing yourself at a much greater risk. CA as a whole doesn't provide very much opportunity for cash flow but it's out there. I would recommend getting your condo rented out and pursue refinancing on it. You said a bank is willing to extend $60,000 credit line but that is only 60% LTV based on your $100,000 equity. Try to find a bank that will give you 80% LTV and find a comfortable path for you to deploy that $80,000 from the bank.

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@Kyle Steiner I would say it depends on where in CA the condo is located. I'm often an advocate for OOS investing for Californian's because it's so difficult to get anything to cash flow, however, in your case, you already have positive cash flow and being in CA, you have strong appreciation potential. I agree that you can get at least 10-12% COC returns in other markets, especially the midwest, but you really need to factor in long term appreciation. Personally, I would I would pull equity out and hold on to the condo.

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@Kyle Steiner, I actually like your current property. Visions of 10% and 20% and higher and higher are the things of early markets and they ride on the backs of unicorns. 6.8% ROE at this point in the cycle without factoring in depreciation and appreciation is actually pretty good. Maybe a careful refi can boost that significantly while not hurting coc too much or putting you at risk.Nobody ever talks about the COF index that is the truest measure of the success of your investment. It is way more important than ROE.But that being said a 1031 might be right for you. I'm not as pessimistic as @Sam Shueh is for a couple of reasons:1. You don't have to have a property under contract in the first 45 days. You simply have to identify a list of potential replacements. 2. Nationwide, other than the SF Bay area, avg DOM is well above the 45 day window. In Kansas City and Cincinnati for instance the avg DOM is well over 100 days. This means that almost every property you'll have time to identify as a potential and then negotiate several even after the 45 days.3. Turn Key properties have in essence become a commodity. The addresses may be different but the returns condition, and costs are remarkably consistent within classes. I'd certainly be worried about doing anything (1031 or not) outside your known area - that's a recipe for disaster! But if you're working with reputable agents and turn key providers you will almost always find the exact same properties available at any given point in time within ranges. The addresses may be different but the nature will be the same. The difference simply happens to be which pork bellies are on sale at that moment and really, the service level of your provider.

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Hi Kyle, Checkout the recent BP podcast with Swanny, he goes over this in detail. It’s always hard to tell someone else to do so I’ll tell you what I would do. My background: I live in CA and rent and invest in MF in Kansas City, MO. I’m also waiting for a delayed flight from Sweden back to LA so I have ample time to consider this question! If I were in your position I would think about if I have any interest in the condo in question in the future. Do I want to own it for some reason? If so, I would rent it, and pull the 60-80k out of it once I have found a suitable use of the money. In my definition a suitable use would include anything that would give me higher than an annual cash on cash return of 10%. I don’t know what your definition of suitable is. Some ideas for me would be using the money as a down payment on a OOS MF with a commercial loan. They will usually lend 80% of acquisition plus rehab. So you would be able to pick up something in the 300-400k range. In my market that’s a 4-9 plex. I would look for something that I could buy for 200k and put 100-150k in to get a valuation around 400-500k. Another use would be lending that money to someone wanting to do renovations to increase the value on a commercial property. You’d be a second loan for a return of 10-12%. Also, you could just sell, then you’re looking at a 1031 into a higher purchase price on a MF or more than one MF. That’s what I would do, keep keep us posted on what you do!

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My company is putting together a large multifamily acquisition in Pittsburgh catered to wealthy CA residents. There are plenty of opportunities for you to seek out in which you can invest with a syndicate. We offer 8% preferred return but some other general partner investors may offer more or less return depending on your risk appetite.

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You might want to consider a 721 exchange (aka up-REIT)

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I was trading emails with Swanny as well and he makes a lot of sense, however, the Cleveland area scares me: A continuous migration out of the Cleveland area, continuous depreciation, and with both of those factors, rents may follow, killing your ROI. I see amazing Cap rates in almost every market but mainly "C" class properties with NO hope of appreciation. I too own a condo in So. Orange County that is depreciated out and hasn't appreciated in years. Sure it cash flows but I could triple my cash flow in NE Ohio or Texas. Anyone have any thoughts?

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@Ruel K. I spoke to Swanny today. I agree, he has good advice and we share a lot of the same views on how to grow our real estate holdings and cash flow.

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@Kyle Steiner I am almost in the same situation as you. I am barely breaking even on my condo rental. If I sell it, I could make around $100k too and was thinking of doing a 1031 OOS. I spoke to Swanny over the phone he gave some very good advice.