Multi-family in SD or SFR in SJ?

[Brian Tremaine]

Hi,

I'm trying to decide if I need to change my strategy with a SFR I own in SJ clear & free. The market value is $675K and the rent is $2400 (below market but includes a recent increase). My NOI as a % of equity is 3.5%. I have owned it for 25+ years so taxes are low. I have taken 100% depreciation on my taxes.

I'm considering a MF Triplex in San Diego. If I assume a 700K purchase with 590K down in a 1031 exchange and I can get $3300/mo total rents my NOI is 2.6%. Cash flow is $1525/mo compared to $1943/mo for the SFR.

The numbers seem to indicate I should continue to hold and not move up to a MF. I own 3 other similar SFR in the same scenario. The only advantage might be getting a newer building.

Also, I am in my mid 60's and plan to semi-retire in 5 years so these properties are needed for cash-flow.

Thanks in advance for your help,

Brian

[Jim OConnell]

@Brian Tremaine

I think focusing on the SFR you have would be your best route. Collect the cash flow and leverage and act on possible appreciation.

What area is the Triplex in? If it is in Del Mar, Cardiff, Encinitas, north park (E of the 15) high end areas I would say DO IT. $700k is a killer price for those areas. (you are still gambling on appreciation, but the odds are good the rents are rock solid)

If it is in National city, chula vista, vista, oceanside, etc.. You are gambling and I would rather raise rents where your at slowly for good long term tenants. Leverage current low interest rates or ride the cash flow.

Factors to consider:

- Availability to manage the SD property or cost of property management. If you are retiring soon you can expect setup and legwork for the first year on the new property.

-Age and condition of SFR you are thinking of 1031 exchanging. If you are due for a new roof, foundation work, costly repairs in coming years. I would do a cost analysis and determine if any of those factors would impact your cash flow compared to trading up.