General hold or sell question

[Account Closed]

I'm having conflicted feelings on a rental property I own and would love your input. 

The property is in Santa Cruz, CA, where the rental demand is high. The following numbers are actual's 

Purchase Price - $680,000 Down Payment $25,000 Monthly Rent - $4,700 Mortgage - $3,415 Annual Expenses - $5,000 (rounded up) NOI - $51,400 Cap - 7.58% DCR - 1.25

To be in tip top shape the house probably needs $25-$50k in work.

Any comments are greatly appreciated.

[Shane Pearlman]

That is a fairly nice area. I would own there (looking to sell?) We've had an awesome run up since 2013. Whether that continues or plateaus requires a crystal ball. I'm thinking it chills for a while, drops when the economy turns and then does another typical surge in 7 years. The fundamental question is how much equity do you have in it and what are your alternate opportunity for those funds. 

Right now, the property is cash positive and in a historically strong market with multiple economic drivers (tourism, agriculture, university, action sports industry, silicon valley...). If you were looking for principal preservation, its a good bet. It even sounds like there might be upside from improvements.

If you are looking for cash on cash return, while normally I'd say this isn't the right place, your FHA loan managed to create a pretty solid deal. I'm not convinced you would do that much better in the midwest all said and done.

Really, the only risk I see is an earthquake. Is the property tied to the foundation and in good shape? If so, you can accept the risk like most of us and get insurance if it keeps you up at night. If not, I'd fix the property or flip it.

btw - since you are newer here, when people help out it is nice to vote it up and say thanks if the time they spent is helpful.