Oakland - Sell or hold?

Question

Wanting to get out of my own head and get some other perspectives on my strategy.

I currently own a home in the Temescal district in Oakland that has appreciated significantly over the last few years. I want to start investing and here are two options I'm looking into and would like your opinions on what to do.

Option 1:

Keep the Oakland house and rent it. I've done some research and talked to a property management company and I'm confident I can be cash positive right away. Nothing huge, but still positive.

I would then purchase another home but would need to downsize quite a bit, which I am not super worried about.

Option 2:

Sell the Oakland house

Buy another primary residence (reaping the tax benefits, naturally) spending about the same as in Option 1

Buy a different investment property

We have a slightly bad situation with the neighbor and although I don't think they would turn out to be a problem with renters, there's a part of me that doesn't want to keep dealing with the neighbors if I don't have to.

Thoughts? Thank you in advance.

Robert Marston · Answer

If you cash out your primary residence to invest in your second property make sure you do not cash out so high that you are not able to cash flow on the property once you move!! If you Cashout you'll probably be paying a higher interest rate than you are now (I'm assuming here, I have no idea what your current rate is), your insurance costs on the property may go up a tad and you'll have some closing costs, ensure you are counting for that!! A HELOC should be explored in addition to a cashout, lots of variables here as to what the best route is.

I wouldn't put much weight into the neighbors, this is common and as investors we build thicker skin as we go forward via pesky neighbors and tenants. =)

I would recommend your plan involve you not paying MI on your new purchase, so coming in with 20% down + would be my advice. There are other lending tricks that can avoid MI while bringing less than 20% to the table but I'm not an expert on this, I can point ya in the right direction to learn more if you are interested.

Here are some quick numbers for 94609, I am averaging every sale in 94609: Feb 17' the average cost per SQFT is $549. That's down 8.8% from Jan 2017($602) and down 10.9% from Feb 2016, which was $616/sqft. Feb 17' time on market was 45 days, that's up 150% from 18 days in Jan and up 309% from 11 days on in Feb 2016. Homes in Feb 17' were selling for 107% of the list price, this is down 7.8% from Jan 17' and down 13.7% from last year. The median sales price is currently $853,000 which is up 20.8% from last year, which was $706k. Your Highest exit in the last year was $2,050,000- Lowest exit was $387,500.

Sagar Mata · Answer

Thank you all for the advice. All excellent.

I'm still trying to decide what to do but agree that the neighbor situation shouldn't really be considered too much as it's a small dispute.

And great point on the interest rate. I am locked in much lower than what I'm seeing now so worried about losing a good deal of equity cashing out and getting another 2 loans (for primary res + investment).

Will post again as I make a decision and will include more details as it may help others going through similar situations.

Many thanks again to all of you.

Arlen Chou · Answer

@Sagar Mata not knowing what your current loan situation makes giving targeted advice a little hard.  However, if you already have a good fixed loan rate I am not sure if doing a cash out refi will put you into a better position.  Once you get the cash you will feel the burn to spend it and put pressure on yourself.  I would personally opt for a HELCO.  Once you get it, you don't pay anything for having it.  It just sits there until you do a draw.  If and when you find a property you can use the HELOC funds for a down payment or if it is large enough, you could buy a property "as a cash buyer".  After purchasing the property, I would then take my time to shop for a good loan for the new property, to replace the HELOC funds.  At that point your HELOC is now charged to use for repairs or buy another property.  The best part is that you only go through the loan process one time.

Jeff Diver · Answer

If you have a place in Temescal neighborhood you know that you have had already great appreciation in the last couple of years. I would not sell. It is poised for more appreciation and rental growth.

Robert above has a very good analysis.

Andrew Muff · Answer

HI Sagar, I'm in Oakland as well and have a few rental properties. Not knowing the specifics on your neighbor situations, I'll just say -- If you continue to invest in properties, you are going to have neighbor disputes. They come with the territory. So if you can learn to manage this situation, that will help you down the road. Think of it as a learning experience.

If I was in the same situation, I would look to do the best cash-out refi I could, and take the proceeds and combine with what else you can scrape up and use that for the downpayment on the next place. Ideal would be for you to plan on moving in as you can get from multiple sources 10% down lending and great interest rates. That should get you into a pretty nice multi-family place to live and rent.

Then you end up with two properties cash flowing rather than just one. That's all good in principle, but we would have to run the numbers to see exactly what this nets out to for this advice to be sound. But lacking any other details, that's what I would do.

Oakland - Sell or hold?

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