Kinda Newbie Questions -- Which of My Children Should I Sell?

Question

Help, hive mind. I've been lurking and learning. Now I need to sell a property, and I'm stuck. Some kind of math/logic fear. Here goes: I invest in the Bay Area and San Diego metro area. I run my property taxes using 2% (it's 1.17 for SF County and 1.16/1.23 for San Diego County).

Condo #1 in SF has PITI/HOA of $1150 + 650 + 710/mo for a total of $2510. Insurance/Management fees: -0-
Rent is $3100. Net $590 (not counting maintenance/cap ex). Speaking of CapEx: I didn't factor these into my monthly costs. I have over 6 months reserves for each property. Not sure of the # I should be using for it. Repairs: Again - not sure of the #. Because they are condos, repairs have been minimal, last SF condo turnover and repairs cost about $2000 (not including my time).

Vacancy rate: I use 5% - may use more now that market is softening. Utilities: Tenants/HOA pays for water, trash, sewer, outside maintenance. Utilities run about $100/mo. - gas/electric/internet.

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Condo #2 - San Diego.  Owned outright, HOA $800 per month including special assessment.  HOA pays for water/trash/outside maintenance.  Other utilities about $150/mo.  Taxes about $600/mo.  Was renting for $4200.  Last tenant turnover/repairs cost about $4000 including new fridge, w/d and stove.

----Child #3 is a 4 plex in San Diego.  No HOA, mortgage is $1650 and taxes about $900/mo.  Tenant pays for gas/electric/internet.  Those items for the empty units are about $60/mo. total.  Management fee 5%, insurance $150/mo.  Rental market is softening/readjusting.  These units used to rent for $3400/mo., I have one rented for $2800 and am looking for vacancies at $2500.  $600/mo. taxes.

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So - which of these children should I sell?  I want OUT of CA and evaluating where to jump next.  This is my first step, not sure where I want to jump given a 1031 is in my future.

Many thanks for the shared brain cells/info/generous knowledge.

Linda West · Answer

just curious, Jake - and thanks for taking the time to think about this with me.  Why would you sell the SF condo before the SD?  Is it because you see SD as more desirable/lucrative?   Thanks!!!

Jake Andronico · Answer

@Linda West

Great problem to have. I love San Diego and went to school in Santa Barbara.

Came out to Reno, NV to invest due to it's proximity to Lake Tahoe, low property taxes, low vacancy, job growth, population growth, etc. We help/see investors 1031 from CA all of the time into single family and multifamily.

I am of course bias being an agent here now, but also invested here (and so did my family) many years prior.

You are certainly in strong appreciation markets so I'm assuming you should make out very well. If I was in your shoes, the SF condo would be my first sale. You don't have to sell anything/everything of course, and even if you "commit" to doing a 1031 exchange, you can ALWAYS cancel and just pay the taxes (that's the worst case).

The softening rental market isn't shocking (we're seeing it slightly here as well), but SD is an extremely desirable place that if you can push through may make sense keeping (on Child #3).

Would be happy to connect. No matter what you decide to do, congrats!!

Account Closed · Answer

First you want to have a consultation with @Dave Foster: who specializes in these 1031 exchanges and then start looking for properties to exchange to. There are some across the eastern boarder from you that may be suitable.

Nate Meeker · Answer

@Linda West I analyze these situations with clients all the time. While the numbers are important I like to start with your "why" and "goals." From this we look into all of the different tax saving options and see which is best fit for your lifestyle.

Some may prefer more cash in hand now via normal sale, others might prefer less tax and more money cash over a longer period of time.

A 1031 might not be needed depending on your involvement in the properties and when you sell. Maybe a 721 exchange is better, what about an opportunity zone investment?

Book a free call if you'd like to dive into some of these options, it's always best to explore the tax ramifications before you commit.

Linda West · Answer

Thank you, Kenny!  I appreciate the insights and have come to the same conclusion.  You nailed it with your third sentence - having to come back to the owners for $$.....

Kenny Simpson · Answer

if you can sell any of them that you lived in and avoid capital gains that would be your first option. I would NOT sell 4 unit, I would sell condo's and trade out of those first.  If the condos are old especially, they are having tough time getting proper insurance on the entire properties, lots of these properties are having to fix stuff on older properties and they are having to come back to all the owners for $$, I am seeing $25K, $50K, $100K, etc to fix issues.  Best of luck, if you need help reach out.

Linda West · Answer

Hi! Yes, I lived in one from 2014-2019.   I think the term is cash poor, right, too much real estate and not enough $ to live on.  Thus, I will sell one of my children.  Sent you a PM w/info requested.

Kenneth Donaghy · Answer

HI @Linda West,

Have you lived in any of the properties 2 out of the last 5 years? If so you can avoid some capital gains, and avoid a 1031.

It looks like you have a lot of equity. A lot of my investor friends, clients and I like to use the term Return on Equity, ROE. We want our money working for us, and when its locked up into a property, there may be better places it can work for us.

Regarding you SD properties, and if only one of these you want to sell, if you send me the address in a PM I can do a better analysis for you.

Kinda Newbie Questions -- Which of My Children Should I Sell?

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