Should I sell my Moreno Valley Condo and purchase in Rancho Cucam

Question

Hi all,

To make a long story short I own a 2bd 2br condo in Moreno Valley, ca (92555). My husband and I rent it out for 1800 which means we cash flow 400 each month. The property will be paid off in 5 years and we currently owe 37k. Once paid off we will cash flow 1100 per month (not including putting money into reserves or potentially paying for a property manager).

In your opinion would it be a bad idea to sell the property and use the proceeds to purchase a condo in Rancho Cucamonga Ca (91739) ? 3 bd 3 br. We would live in this new property and rent our current Rancho condo and cash flow 800 per month if we rent out where we currently live (Rancho).

Eventually with this route we would end up buying a forever home down the line and then have 2 Rancho Cucamonga properties. Cash flow on these would be 800 and 400 (before mortgages are paid off) and then we would must likely increase cash flow to 2000 for each property once paid off (before putting money in reserves and potentially paying for a property manager).

Pros:

We would own 2 properties in a very desirable area (higher socioeconomic area with great schools)

if we saved we could pay one Rancho property off in 5 years and still have a paid off property that would cash flow 2000

With Rancho Cucamonga rentals We would cash flow more in the future  with better rate we would probably find more qualified tenants. ( it took 2 months to find qualified tenants for the Moreno Valley property although we had quite a few applicants)

consperhaps we would be overpaying for a property   The market is high right now and 3 bed condos are going for over 600k

The future is uncertain with everything going on politically. If one of us loses our jobs, we would still be able to live off one income but our savings would be significantly reduced.

Any insight would be helpful and much appreciated.

Phil Collett · Answer

If your going to live in it, and can afford the mortgage, why not use an FHA 3.5% down loan for a primary residence and keep them all (you have 2 condos now?).
As long as the Moreno valley place cashflows with a mortgage. You could always do a cash out (leaving some money in the condo so it barely cashflows, don't make an alligator) and cash out refi or establish a HELOC on it so you have access to some equity if you need or want to use it.

It could be a market high right now and a good time to offload less desirable houses (if there is something odd about it besides the city), but inflation could also keep house prices here or they could go higher. Also, if we are in for a bunch of inflation, your rents will go up while your mortgage rate is fixed on the mortgages.

Lots of investors I know say they wish they would have kept more of their properties over the years. That being said, I am offloading a house and doing a 1031 into another property. If you live in the Moreno place, you could get $250k tax free gains (or $500k if married) with the primary house sale tax exclusion if you lived in it 2 out of the last 5 years. Condos have not gone up as much as the SFH have in the last year, so I have heard they might be decently priced right now compared to houses (read a few times from REI newsletters).

Jennifer Smith · Answer

Thank you everyone for your help!

Aaron K. · Answer

Moreno Valley and 92555 in particular is by no means a bad area, 1800 is not the high flying price it once was for the city.  Depending on when you bought prop 13 and lower property taxes could very easily be your friend here.  If you were going from a condo to a single family my answer may be different but I'd probably keep the home in Moreno Valley for now.

Tyler Hungerford · Answer

If you can avoid the capital gains tax on this, then I would say sell it and buy in Rancho. Rancho is going to keep going up in value because the area is very high end. The same can't be said of Moreno Valley unfortunately. Having that tax benefit is going to be HUGE for you guys. That is going to go away here pretty shortly for you. With pricing the way it is, it's not the worst idea to take your profits and put it in a better area.

Also, I remember talking to you over a year ago about buying a property! Glad to see you got married and are settling into Rancho well. Happy for you and your hubby!

Jennifer Smith · Answer

Thank you gentlemen for your input.

Our concern with keeping the Moreno Valley condo and purchasing a 3rd condo is that we definitely don’t want to over extend ourselves in the event that tenets for 2 properties are not paying rent. (Although having reserves as you mentioned  would help alleviate that concern).

Also, for us, we would rather put down more to keep our mortgage payments lower so we would want to do a conventional loan.  Additionally, a larger down payment would help us cash flow a a bit more once the potential 3rd property gets rented

I definitely hear what was said about holding on to property.  this is definitely a huge part of the dilemma. Also I guess we would have to seriously consider if making a move now would significantly delay or purchase of our forever home.

If we were to sell we would qualify for avoiding capital gains tax as we have only been renting out the property for a year and I was living there prior to getting married.

Thank you again,

Dave Foster · Answer

@Jennifer Smith, if you're wanting to end up living in the new property and defer tax on the sale of the old property you'll need to both do a 1031 exchange and then use that new condo for a year or so as investment before you move in.  The benefits here are that you get full tax deferral.  The down side is that you have to wait a bit.  And you can't use the cheap primary financing @Phil Collett was referring to.

Should I sell my Moreno Valley Condo and purchase in Rancho Cucam

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