To hold and rent or sell in this market?
San Diego, CA · Member since 2021 · 9 posts · 4 votes
To hold and rent or sell in this market?
Most Popular Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votesOriginally posted by @Daniel Kahler:
Currently live in San Diego county, bought a house with my VA home loan. My wife and I will be moving next year out of country for 3 years. Our initial plan was to rent the property but now I am not sure that's the best choice.
My question is, with the housing market being the way it is, should we sell, and make a 25-30% profit, or hold and rent?
My view is only you can make the decision, but here are some things you should consider in the decision (some are pro keeping and some are pro selling):
- 2 of 5 years rule protects your gains. This will only be true for 3 years after you move out.
Ca is unique in its property tax rate due to prop 13. Your prop tax rate is significantly less than it would be if you purchased today. Our most extreme case has us saving ~$1500/month on the property tax versus having purchased recently. - San Diego cash flow is horrendous as a function of value.
San Diego long term cash flow is good to outstanding as a function of purchase price. - neighbor hood scout ranks San Diego appreciation as 10/10. There are few markets that have experienced better appreciation. Our worst appreciating property has appreciated over $1900/month over the hold period. We have 3 properties that have appreciated over $4k/month over the hold period. I suggest you calculate this number for your property as I expect it will be enlightening.
San Diego climate is near top in nation.
San Diego is employment diverse with many high paying jobs.- San Diego development is constrained like few other places. South is Mexico, west is the pacific, north is Pendleton and after Pendleton is OC with similar price to San Diego, East quickly gets very harsh.
Ca Tenant laws are LL unfriendly, but the low vacancy rates result in near low in nation deliquency and eviction rates. - buy and hold is not passive. This is true with the use of a PM but even more true if self managing.
If you were planing on selling any time soon, the 2 of 5 years has to be considered and my recommendation would be to sell now. However, if your intent is a long term hold, few investments can compete with the historical returns of a San Diego leveraged long term buy n hold property.
Good luck
23 Replies
- 5yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
What are the numbers? If you sold, how much would you make? If you rented, what are all of the costs including a property manager? Do you plan on moving back to the same location?
- 5yDan H.Pro MemberInvestor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
Originally posted by @Daniel Kahler:
Currently live in San Diego county, bought a house with my VA home loan. My wife and I will be moving next year out of country for 3 years. Our initial plan was to rent the property but now I am not sure that's the best choice.
My question is, with the housing market being the way it is, should we sell, and make a 25-30% profit, or hold and rent?
My view is only you can make the decision, but here are some things you should consider in the decision (some are pro keeping and some are pro selling):
- 2 of 5 years rule protects your gains. This will only be true for 3 years after you move out.
Ca is unique in its property tax rate due to prop 13. Your prop tax rate is significantly less than it would be if you purchased today. Our most extreme case has us saving ~$1500/month on the property tax versus having purchased recently. - San Diego cash flow is horrendous as a function of value.
San Diego long term cash flow is good to outstanding as a function of purchase price. - neighbor hood scout ranks San Diego appreciation as 10/10. There are few markets that have experienced better appreciation. Our worst appreciating property has appreciated over $1900/month over the hold period. We have 3 properties that have appreciated over $4k/month over the hold period. I suggest you calculate this number for your property as I expect it will be enlightening.
San Diego climate is near top in nation.
San Diego is employment diverse with many high paying jobs.- San Diego development is constrained like few other places. South is Mexico, west is the pacific, north is Pendleton and after Pendleton is OC with similar price to San Diego, East quickly gets very harsh.
Ca Tenant laws are LL unfriendly, but the low vacancy rates result in near low in nation deliquency and eviction rates. - buy and hold is not passive. This is true with the use of a PM but even more true if self managing.
If you were planing on selling any time soon, the 2 of 5 years has to be considered and my recommendation would be to sell now. However, if your intent is a long term hold, few investments can compete with the historical returns of a San Diego leveraged long term buy n hold property.
Good luck
- 2 of 5 years rule protects your gains. This will only be true for 3 years after you move out.
- San Diego, CA · Member since 2021 · 9 posts · 4 votes5y
@Dan Heuschele
This was very insightful and very much appreciated! My wife and I have been back and forth on this trying to run the numbers and figure out what the best course of action would be.
We are considering selling and with the profits ($200k-$250k) using this money to purchase a property with cash, or to use it as down payments for rentals in a lower costing area (around family).
We are new to this and have been reading all the bigger pockets information and it's all very helpful but also intimidating. I am very motivated to see what investments we come up with!
Again thank you! I am definitely looking for all the help and mentoring I can get.
- Investor · Scottsdale Austin Tuktoyaktuk · Member since 2021 · 4k+ posts · 4k+ votes5y
Originally posted by @Daniel Kahler:
Currently live in San Diego county, bought a house with my VA home loan. My wife and I will be moving next year out of country for 3 years. Our initial plan was to rent the property but now I am not sure that's the best choice.
My question is, with the housing market being the way it is, should we sell, and make a 25-30% profit, or hold and rent?
I would sell since we are at the height of the market, having tenants is a hassle, if the tenants trash the house it's worse still, you can take advantage of the capital gains tax law, it frees up your VA eligibility, you don't know for sure what the future holds for you.
- Member since 2021 · 4 posts · 1 vote5y
@Theresa Harris.I would hold on to it if you plan on coming back.That property could be worth almost double or triple what you paid.If you can cover the lease and make a decent profit, I would keep it.
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes5y
Sell and buy a property all cash for a rental. Hire a PM to handle it.
- Rental Property Investor · Central California · Member since 2018 · 40 posts · 16 votes5y
Good Morning.
1. Thanks for being willing to serve.
2. Thirty years from now, long after the money from the sale has been reinvested, others in your situation have said something like, "I should have never let that property go."
That being said, someone in the 80's decided, "The values in Detroit have to go up soon...", so we never know the future, but the odds are strong.
As someone who has both cashed out and held, depending on the situation, the questions I would ask are...
How well could you manage one of those "Oh Crap" issues like a roof, storm, A/C, etc. Only you can make those assessments and decide if you can sleep at night with those answers.
Is the cash flow, or lack of, worth the realistic likelihood that San Diego property is going to continue to appreciate at the levels observed over the last decades?
Finally, none of these answers matter at all if you don't have full confidence in a local property manager; maybe even a couple companies in case one let's you down. You might invest an afternoon or two to meet with, check references of a few companies. Chat with them about your situation. They probably have current clients in very similar situations. They will also be able to give you actual data on the rents they are currently collecting and the waiting lists for properties just like yours.
Best of Luck on this next chapter.
- 5yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
Originally posted by @Javian Smith:
@Theresa Harris.I would hold on to it if you plan on coming back.That property could be worth almost double or triple what you paid.If you can cover the lease and make a decent profit, I would keep it.
Think you mean to tag the original poster @Daniel Kahler
- Rental Property Investor · Central California · Member since 2018 · 40 posts · 16 votes5y
Thanks.
Sorry about that.
:)
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes5y
Originally posted by @Daniel Kahler:
Currently live in San Diego county, bought a house
How long ago?
if over years ago, I'd sell tax-free.
Less that 2 years, I'd hold. But I've been landlording a long time. Not sure I'd learn from out of area.
- 5yTwana RasoulBusiness MemberReal Estate Agent · San Diego, CA · Member since 2017 · 1k+ posts · 1k+ votes
@Daniel Kahler Generally I'm for holding on to real estate in San Diego, not selling. That said, if your property has increased 250k+ in a short period of time and you want to take advantage of the 2 of last 5 year rule to save on taxes then go for it.
If you do go the above route, don't be quick to use that money to purchase properties all cash in a random market you don't know or don't have contacts you trust...any other market you choose won't be comparable to the long term, historical returns of this market.
Your profits aside, if you decide to sell in a short period of time and still be able to reuse your VA loan before you leave, that would be ideal in my opinion....especially if you are able to re-use it to purchase a 2-4 unit property to live in one unit and rent out the other units until you leave the country....I realized that the timing can be tough with this option but depending on when you are leaving next year then this may be possible. You'd still have all your profits left over for whatever you may want to do with it.
Good luck!!
Compass5122 Reviews - San Diego, CA · Member since 2021 · 9 posts · 4 votes5y
@Steven Holiday
Thank you very much for all the great information! I really appreciate everyone!
- San Diego, CA · Member since 2021 · 9 posts · 4 votes5y
@Twana Rasoul
This is great advice and I appreciate the information and your time.
- Lender · San Diego, CA · Member since 2012 · 54 posts · 34 votes5y
I would sell it and take the tax free capital gain. You could move that gain elsewhere whether it would be in a home you occupy or a into rentals. My opinion is that no tenant will ever take care of your "home" as well as you would and it that it is probable that your former home will deteriorate or excessively depreciate (wear/tear, landscape, water damage) with tenants in it. Most tenants don't have a pride of tenentship. But rentals for business and make business decisions; buy a home for the family and personalize it.
- Member since 2018 · 21 posts · 3 votes5y
@Daniel Kahler
Hey Daniel,
My wife and I have had to make decisions whether to hold onto rental properties or sell in this great market. If you sell now, you will probably be paying capital gains taxes. If you rent it out until you return to the states you can decide then whether to rent it or sell it. If you sell it then it can potentially qualify as an investment property and you can redo the tax benefits of that. Also, after 3 years of someone else paying your mortgage down you could possibly refinance and take cash out to improve the property or buy another one.
- San Diego, CA · Member since 2021 · 9 posts · 4 votes5y
@Twana Rasoul
So you know if there is a forum that talks about the 2 of 5 year or what you are referring to? Thank you.
- Developer · Houston TX · Member since 2018 · 423 posts · 400 votes5y
I would ask myself this question. If I will be living out of the country for the next three years, how would I feel about getting emails or calls from a PM about repairs, or issues with tenants, etc? If that doesn't stress you out then rent it out and see what holds for you and your wife in three years when you get back. Otherwise, sell get the tax-free money, and put it in the bank and while you are out of the country and hear the market has crashed you can fly back and spend a week picking up a great deal if the itch to become a landlord is still there. The equity you have picked up is not chump change. Greed is what gets people in trouble.
Being a landlord out of state is one type of stress but being out of the country to me seems a lot more stressful given what I know from all these years of investing.
Thank you for your service
Best of Luck
- NC · Member since 2017 · 9 posts · 5 votes5y
I bought my first home in Oceanside when I was stationed at Pendleton in 2013 for $353,000. We moved to NC in 2015 and have rented it out for decent cash flow since then. We could probably sell it for $650,000+ right now, and truthfully there is more that we could do to build cash flow with those capital gains than we could by holding on to a single property that is "only" cash flowing about $450/month.
Also, yes, there is a rule that if you have lived in it for a total of 2 of the last 5 years, your capital gains are tax free. BUT!!! If you are Active Duty and you are moving on orders, that 5 year limit can be suspended for up to 10 additional years. This means that you actually have to have lived in it for 2 of the last 15 years if you are active duty and sold it or moved out due to orders. This is based on my own research, so please fact-check on your own, or maybe someone will correct me if I'm mistaken.
So... if you are of the mindset that "Bulls make money, bears make money, but pigs get slaughtered" and you think the current run up in the SD market is enough for you to take your profits off the table, then I would say sell it.
You'll free up your VA loan for use on a new primary residence that can turn into an investment property down the road if you find the right place. Or just rinse and repeat by buying for "value," and selling the profits when you move out or PCS every time.
If you think you could stomach holding on to it through the twists and turns of the rental market for several more years, know that you should still be able to sell it tax free later on down the road without having to resort to a 1031 Exchange or anything. You don't know if it will appreciate more by then or not, but you'll have to weigh that with what you stand to gain through cash flow by renting it and mortgage pay-down in the meantime.
We held on to our Oceanside home for a while because I was expecting that I would get re-stationed at Pendleton or Miramar at some point down the road. Even if that were the case now, our family has grown and we likely would not return to this particular SFR (in fact we'd probably just rent unless the housing market made a correction before then), so selling it is kind of a no-brainer for us right now. We hope to list it as soon as our tenants (hopefully) leave in August.
On that note, keep in mind some of the ridiculous stuff that has happened in the last year in California, with tenants basically able to legally squat in your home w/o making payments as long as they can justify hardship due to COVID. In our case, we can't even notify our tenants of our intent to evict them based on the legal expiration of their lease. We can't sell the house with them in it, we can't move back into it, and we can't kick them out. We have to hope and cross our fingers that they will just move out on their own when their lease is up. We have been fortunate that they've still paid rent this entire time... but they don't have to, technically. And they don't have to move out either, technically.
COVID, and that State & County's reaction to it, has made my attitude toward SoCal housing sour completely, and I cannot wait to be out of that market, even if it has been a cash cow for us over the years.
If you'd like a recommendation for a property management company, please message me. Our management company has been amazing, and I'd be happy to recommend them to you (I get nothing out of it, they have just been a godsend).
- San Diego, CA · Member since 2021 · 9 posts · 4 votes5y
@Elliot Fuller this is awesome information. I've definitely heard of the downfalls of being a landlord in California since it is so renter friendly. We bought ours for $555,000 in September 2019, have installed solar and battery ($30k) and new a/c and furnace (10k) as well as some landscaping upgrades (landscaping and artificial turf). In our neighborhood houses are going for $780,000 and that's without solar, but I'm not sure about ac. So we could have a decent profit, especially since I'd list it for more in this crazy market. It's just hard to hold and only cash flow around $200/mo after expenses especially since we'll be out of the country. We could get a PM but then the cash flow will be next to $0.
- Realtor · Los Angeles, CA · Member since 2018 · 952 posts · 1k+ votes5y
@Daniel Kahler, what's the cap rate where you're be buying?
Let's say you buy a $250K fourplex in a low-cost market that meets the 1% rule. You'll collect $2500/month, with say 40% going to maintenance and capex, netting you $18,000/year in cashflow. That's a 7.2% cash-on-cash, and you won't be experience the appreciation of San Diego.
(This is all ballpark and based on a lot of assumptions, of course.)
Have you looked into refinancing your home? Might you be able to lower the payment? You're much better refinancing as an owner-occupant, and you'll have to refinance or sell to utilize your VA loan again when you return home from abroad.
If you can refinance into a conventional loan with a lower payment that provides a little more buffer when you factor in property management, I'd strongly consider holding onto the house.
Best,
Jon
- 5yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Originally posted by @Dan H.:
My view is only you can make the decision, but here are some things you should consider in the decision (some are pro keeping and some are pro selling):- 2 of 5 years rule protects your gains. This will only be true for 3 years after you move out.
Ca is unique in its property tax rate due to prop 13. Your prop tax rate is significantly less than it would be if you purchased today. Our most extreme case has us saving ~$1500/month on the property tax versus having purchased recently. - San Diego cash flow is horrendous as a function of value.
San Diego long term cash flow is good to outstanding as a function of purchase price. - neighbor hood scout ranks San Diego appreciation as 10/10. There are few markets that have experienced better appreciation. Our worst appreciating property has appreciated over $1900/month over the hold period. We have 3 properties that have appreciated over $4k/month over the hold period. I suggest you calculate this number for your property as I expect it will be enlightening.
San Diego climate is near top in nation.
San Diego is employment diverse with many high paying jobs.- San Diego development is constrained like few other places. South is Mexico, west is the pacific, north is Pendleton and after Pendleton is OC with similar price to San Diego, East quickly gets very harsh.
Ca Tenant laws are LL unfriendly, but the low vacancy rates result in near low in nation deliquency and eviction rates. - buy and hold is not passive. This is true with the use of a PM but even more true if self managing.
If you were planing on selling any time soon, the 2 of 5 years has to be considered and my recommendation would be to sell now. However, if your intent is a long term hold, few investments can compete with the historical returns of a San Diego leveraged long term buy n hold property.
Good luck
Daniel - Dan H has made some great points about the area, but there is perhaps another to consider. I (and many many of my friends/neighbors/aquaintances) have recently left California in general and San Diego specifically. Why would we leave the beautiful weather and all that SD has to offer? Because it is in California. Take a long look into the future, given the political climate that will only continue to go the way it has. You need to decide how that will affect you and your family and your possible future there.
You asked our opinions and here is mine: sell now, take whatever profits you make, and move somewhere where you can buy a house (or two) for cash.
- 2 of 5 years rule protects your gains. This will only be true for 3 years after you move out.
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