Hello! My wife and I have found ourselves in a state of "analysis paralysis" and are in dire need of some "Rent or Sell or Other" help from someone (or someones!) more experienced than us. I am trying to learn more about REI as quickly as possible, but time is conspiring against us since we just bought our forever home in Del Cerro (central San Diego). This means we need to make a relatively quick decision about whether we will rent or sell our current residence. Which then got us thinking about our other rental too... Now months later we've run all sorts of numbers but are no closer to a decision!

In January of 2010 I bought a 2 br / 2 ba 1,000 sq ft condo in Kearny Mesa (central San Diego) for $287,000. In December of 2011, I refinanced to a 15 year mortgage at 3.125% to take advantage of the historical low rates and I could afford the higher monthly payments. I was not really thinking much about it as a future investment at the time, it was just my primary home. I started renting it out (self-managed) in October of 2016 after moving in with my wife.

We just recently renegotiated a higher rent with our tenant for $2,250/mo starting in October which should bring us up to about a break-even. We never considered this a bad thing because we could afford it (and have enough of a safety net to cover a market downturn) and knew that San Diego real estate has an excellent historical track record for appreciating over time. It will be paid off in 8.5 years at which point we assumed it would make the break-even periods worthwhile. Based on comps, we estimate its value at around $460k. We still owe $140k on it which leaves us with about $320k equity.

In April of 2014 my wife bought a 3 br / 2.5 ba 1,500 sq ft townhouse in Santee (east San Diego) for $359,000. In March of 2016, she refinanced to a 20 year mortgage at 3.5% because it was going to be our new primary home and we felt at the time that it made sense to expedite our payments and lock in a lower interest rate. Based on comps, we estimate its value around $465k. We still owe $255k on it which leaves us with about $210k equity. Rent-wise, comps are about $2500/mo, which is just above break-even, but it's almost 18 years before it will be paid off.

From an income tax-perspective, we are in the 24% bracket and both properties at this point mostly offset the principal gains with only ~$250/yr due for our KM condo and ~$100/yr due (estimated) for our Santee condo.

Now that I am really attempting to understand these numbers for the first time, I see that we have a ton of equity that is producing zero cash flow. Is it worth holding on to these properties or should we be taking advantage of the already rather large appreciation and the fact that we could stagger the sales of them as our primary residences and keep the capital gains tax-free? Is there another strategy you could recommend with financing to make them cash flow now without selling?

Thank you very much for your time and any assistance you can offer!

Respectfully,

Steve and Jessica