Should I sell or keep my 2nd home in San Pedro, CA

Question

I bought a house in Point Fermin, San Pedro, CA two years ago as my 2nd home. It's a SFR and around 2500 sf. Now I don't need it anymore. Should I sell or Keep it? If I keep it, should I do long-term rental or airbnb? TIA

Clarence Johnson · Answer

Suggestions to explore building an ADU above would definitely be worth looking into.  I love the San Pedro market and believe it will continue to grow in demand as the waterfront development is finished.  I would explore the possibility of adding an ADU and holding out for increased equity/cashflow.  I sold my sister a duplex in San Pedro a few years ago and she has had massive appreciation, and we have seen the area improving.  Making $100k would be great, but to be totally honest if your not taking that money to a different market then it's probably not worth it.  You would need $100k to buy a $500k property, multi's in San Pedro are averaging $580-600k right now.  Don't sell without a plan, explore all options, and good luck.  @Will Barnard had good tax advice above, also if you do not qualify for the owner occupant exemption a 1031 exchange may be an option.

Maggie W. · Answer

@Samantha Chang as a general rule, property near the coast in California is an asset which I would only sell if I were losing money or in exchange for another piece of California Gold.

Robert Chuang · Answer

@Samantha Chang Instead of saying what you should do. I am gonna offer what I would do in your situation lol if you dont mind.

It depends on your attached/detached garage. I would turn them into ADU/JADU. Let's say one-bed studio rent for $1400. 2-bed rent for $2000. and 3-bed rent for $3000. Cash flowing at $6400/month. Mortgage plus your maintenance and repair lets say 2800+300. You are looking at $3,300 in cash flow. Now depending on the situation and what you want to do...I would use the surplus toward the mortgage itself. To pay off the house asap. Then go after a HELOC while looking for another place to repeat the same. Btw you don't get tax if you cash-out refi or HELOC your house.

This is one way of looking at it, really depends on people's tolerance with being a landlord and what they want to do with their money. After all my experience, I have learned that I don't want to sell any assets I own and I repositioning my strategy toward keeping everything

Will Barnard · Answer

Also, if you can prove you lived there for 2 of the previous 5 years, you can have a nice tax exemption of $250k if you are single, $500k if married and avoid any cap gains on your $100k profit making the argument for selling even higher (based only on the info you provided thus far).

Eric Yao · Answer

If you were you, I would hire a broker to look at a couple of reinvestment options, ask the broker to build a simplified spreadsheet model to compare the returns of the three investments (the two new one and the existing). Besides the money, you might also want to consider other valuable things associated with the investments: time, happiness/proud, risks(uncertainty of each of these three deals), etc.. Finally I agree with people here that San Pedro is a dynamic area. Congrats!

Mo Brentwood · Answer

Absolute best area for short and long term investment if you have enough

capital is San Pedro. Last affordable coastal property in Los Angeles.

over 1Billion dollars worth of construction in or around the water front

is set to begin or be completed in 2020-22. Property that is 500K now

will double in 5 years or less. Urbanize LA Articles on San Pedro

Will Barnard · Answer

Based solely on these numbers, it would be better in my opinion to sell and use that $100k profit to reinvest in another high yield investment (many choices there). With ~$2800 in hard costs and $3500 rent max, you still have repairs, maintenance, vacancies, legal, accounting, property management (even if you self manage, you still need to pay yourself for that as it takes time). If you have $100k in equity already (after resale costs), then you can do a lot more with that than some tiny cash flow.

On the other side of the coin, you should find out how much expected appreciation this home may have as well (no way to know for sure but law of averages for area can help) as this could be a good payday down the road if you add it to the small cash flow years down the road.

Brett Goldsmith · Answer

@Samantha Chang It really depends on how much equity you have, your age, and what your future financial goals are. How much is your mortgage payment? I can give you idea of what the rent would be. Reach out to me if needed.

Jeffrey Almonte · Answer

@Samantha Chang It really depends on your goals and how much time you are willing to allocate. Will brought up an excellent point about the tax exemption. If you qualify for that, that would push me more towards selling the house while you have the tax exemption still. I agree that there are many other investments out there that will yield you more return with much less effort.

If your goal is to get even deeper into real estate, then another option is to sell the property and purchase a multifamily property. Being in Southern California, the returns will be less than stellar and it would be time consuming. The new California Rent Control Laws will make it more difficult too. But you would gain landlord experience to help you grow your real estate portfolio.

Brandon Oldham · Answer

@Samantha Chang with the market booming in the southbay I would consider selling it or pulling out the equity and investing the cash in more popular areas that area fast growing, like Long Beach, Lakewood, or Bellflower. From a rental perspective these home are tend to have a better occupancy rate and they are appreciating at +6% a year. The cost are about $100k more on market but off market you can find some deals around $450k that comp out at $650+. I think it is worth exploring weather you keep it and do a Heloc or sell.

Should I sell or keep my 2nd home in San Pedro, CA

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