Newbie San Diego, CA selling vs renting

[Bob P.]

Hello all,

I am currently in San Diego, CA and started reading and learning about real estate investing over the last few years. I've also read and learned a lot on this site and its great resource for information. Anyways, we took the jump to try to get into real estate and bought our place here last year in hopes of staying here a few more years before moving duty stations and then renting out our property. Unfortunately I was injured pretty badly and was medically retired from the military recently. We are moving to another state pretty far away where my wife has already gotten a contract to work starting this summer. Since things happened unexpectedly and sooner than we planned for, we are trying to figure out what to do with our place here in Imperial Beach. After looking at the market we are moving to we want to buy because of how quickly the prices are rising (20%) over 1 year and want to get a place before it gets to unaffordable. I've been talking with some loan officers and we will not be able to get a loan without either first selling the house or having a lease agreement. The market here is pretty good and they are finishing up building the new naval base here that will be starting to transition personnel over the next 2 years. However because we just bought the house less than a year ago and used the VA loan we didn't have to put a down payment. So, if we did rent we would be in the red at least for the first few years. And the VA loans is tied up in the house obviously. Selling it would not be a problem and most of the houses in this are are off the market within a week. However, we would most likely break even or owe some after closing but it would also free up the VA loan again. I guess I am just looking for suggestions that we should either sell and start over or hold on and rent and then decide to sell later when we have more equity.

Any help/feedback is greatly appreciated.

Thanks,

Bob

[Dan H.]

First thank you for your service.  I hope your injury is not too severe and allows a full and wonderful life.

Some thoughts:

• Managing from a far is not easy.  Hiring a PM will make it further cash negative.
• Most homes purchased to be your home are not optimal as investment properties. I would place every SFR purchased at retail in San Diego into this category.
• You have earned the VA load. Use it to the maximum. There is a lot of value in the VA loan. Freeing it up would open up options.
• Unfortunately 1 year of living in the home presents some tax issues on any gains but the gains seem to be modest so that is not that much of an issue.

So what would I do?

• I am a  big fan of San Diego RE investing but a bigger fan of newbies investing local.  Therefore I would sell.
• I would use the freed up VA to purchase a detached duplex to quad where you are moving. Ideally one that has some value add opportunity via rahabs. I would house hack this property (live in one of the units). I recommend the detached because it is nice to have separation from the other tenants. I have detached duplexes that look like 2 SFR. They have fences separating the units with each unit having their own yard/space.
• I would refer to myself as the PM and not the owner.
• I would live in the worst of the units and rehab it.
• Once rehabbed I would move into the next worst unit and rent the just rehabbed unit at top of market prices.
• I would then rehabbed the unit I moved into (the current worst unit), and once it is rehabbed I would rent it at top of market.
• Repeat for each unit.
• When all units are rehabbed you have a fully rehabbed property obtaining top of market rent.  You have added value.
• Before moving out (when still owner occupied) I would refinance it using traditional loan (not the VA loan). Ideally your value add, as well as any principle pay down, provides the equity such that you now have 20% or 25% equity. If this is the case the loan amount will be similar to what you borrowed with the VA. The property should be able to have rents that easily cover the payments as well as cash flow positive (money into your pocket every month). It is important to do this when owner occupied because loan terms are better for owner occupied than non-owner occupied properties.
• Your VA is now free. You can decide if you want to repeat with another detached duplex to quad leveraging your increased knowledge and experience or if you want to use your VA loan and increased net worth to buy a long term family home (no house hacking).

This is basically a BRRRR combined with house hacking leveraging the VA loan. Trifecta of good ideas.

Good luck