Path to take next? Unlock equity or continue with appreciation

[David Santos]

Hi BP Community,

I have actively followed many post and the advice on here is invaluable. Now, I am in a unique situation where I haven't been able to find answers online.

The situation:

I purchased a duplex to house-hack in Oakland, CA with an FHA Loan for $710,000 which is now my primary home. I renovated the property, raised rents in one unit and refinanced into a conventional loan at 3.5%. Now, SFH on my block are selling for $800K-$900K with less than a month on the market and realtors believe they can sell my home for $1M - $1.1M. This would leave me with $120K-$180K after taxes,closing cost etc. I also am wary on prices staying so high in the Bay Area. I feel as though the eviction moratorium is going to cause over-leveraged landlords to liquidate some of their RE (Please provide your thoughts on this).

I originally house-hacked because I wanted to jump into real estate investing, lower my housing cost (Net "mortgage" payment is $1,193 which is extremely low for the Bay Area), and have low-risk experience with renovations as it would be my own home. Now, I feel as though I am "stuck" on my real estate journey because there is no way for me to unlock the equity in my property. I tried cash-out refinance but lenders charged me 2pts for 25k (fannie mae limit is 75% LTV for duplex) and don't qualify for a HELOC given the stricter requirements by most lenders.

I am asking for the BP Community to provide insights as to what they would do in my situation. I feel as though I have 2 options right now:

A) Stay in the property and wait 2 years to build reserves to invest (Bay Area real estate appreciates ~4% to 5% per year). Currently have $15K in savings.

B) Sell my duplex and and use the cash to invest Out of State (I am thinking of Austin/Central Texas Area or ATL Area)

My financial goals are for my Real Estate income to be at least $10K a month by the time I am 40. Currently am 24, so I have a long way to go.

Let me know your thoughts on what you choose and why or any alternatives!

Thanks,

David

[Will Fraser]

Hi @David Santos, I'll second @Ori Skloot here.  Sit tight and let the levers of house hacking + real estate investing work for you.

To optimize your house-hack experience to better achieve your goals, I'd recommend pretending like you have a standard mortgage payment for your area and stuffing the savings your realizing every month into your investing account, sock drawer, or other preferred method of stashing cash.  Then, once you've gotten enough for 20% down and a few months reserves on a nice linear market in the midwest go buy a 1% rule house for $100k and start building in some good cashflow and diversification.  Try to own in 3 markets by the time you are 27 and scale within those markets.  You'll have more resiliency from regional trends and, most importantly, you'll keep earning in bloated-costs-of-everything home market and redeploying that capital in linear markets.

Pro-tip:  stay the &(*&$*$ away from Austin.  It's super sexy and as far as places to live go I bet you could move to Austin and not feel the Cali blues too bad, but please do not diversify into another cyclical market . . . that would be missing one of the holy-grail opportunities of long-distance investing.