All Forum Posts by: Steve O'Keefe

@Dylan Vargas Thank you, it's nice to be here!  I finally feel like I'm taking control of my (very fortunate) situation.  I've been on auto-pilot for too long and thankfully it hasn't cost me in any significant way.  Your post is basically how I've always looked at it.  Sure, it's not cash flowing now but in 8.5 years it will be hugely supplementing my income.  I certainly don't think I will "lose" by holding on to the properties long-term, it's more a matter of how much I could be squandering the opportunity cost of investing elsewhere.  There are lots of good strategies in this thread however, so I'm excited to sit down with my wife and figure out how we want to proceed.

@Michael Swan I just finished your podcast episode and you almost made me regret listening at 1.25x speed.  You're hard to keep up with!  Obviously you have a ton of energy and passion for what you do and thanks for being such a great member of the community.  I got a lot of great takeaways and will be sure to start looking into the books you recommended.  I am definitely interested in OOS investments, so my wife and I will be discussing and researching that over the next few weeks in detail.  I'll be sure to reach out as questions come up.

@Travis Rasmussen Thanks for the reply!  I would not say we need the cash flow.  We both work full-time and make good money doing it.  I would like to retire early (I'm 33 now - so hopefully by 45) so cash flow will be more important at that stage than it is now.  I was primarily concerned that my equity wasn't working hard enough for me and there was a black and white answer of which I was on the wrong side.  It seems like that is not 100% the case.  The idea of a cash out refinance or just saving up more money for OOS investments in the near future is appealing if we decide to keep the properties.

@Dan H. Thanks for the reply! I'd seen you in some of the other posts that I'd found that were San Diego related and was hoping you'd chime in. The investment basis for both properties was 20% down (so ~$57k on my Kearny Mesa rental and ~$72k on our Santee property). I do have a CAP rate in the original post in the spreadsheet screenshots I included. I suppose it's all relative to your comfort level, but if it were paid off today, is a NOI of ~$20k from a property worth $465k the type of return you'd be striving for? Obviously the x factor in San Diego is how much that NOI will appreciate year over year. Is that the right way to be looking at it from a profitability standpoint?

@Sam Josh Thanks for the reply!  There are definitely a lot of parallels in San Diego to the Bay area.  My in-laws own a house in San Francisco and my childhood best friend bought in Mill Valley a few years ago so I'm at least familiar with the market there.  I do like the idea of hanging on to my San Diego properties and working on just making future acquisitions that are better cash flow investments.  Cash out refinance is something I'm looking into or possibly even just trying to squeeze out an even higher savings rate between my wife and I so we can save enough over the next year or two to begin our OOS investments.

@Matt R. Thanks for the reply!  I have to agree with you on the money pit analogy being a bit of a stretch.  I think most primary residences feel that way just because there is always something to fix or improve, but especially in a market like San Diego just going to bed at night and waking up the next morning tends to mean property appreciation.  The challenge I face is having bought our two rental properties as primary homes first, we never saw them as short-term investments and so finding a way to make money today on equity built is a goal but not a requirement.  I feel like I've been getting a lot of great advice for whatever we decide to prioritize in this thread so this helps give me an idea of all my options.

 That's awesome, thank you Swanny!

@Lee Ripma Thank you for the reply, I appreciate the help!  I am going to look into cash out refi as an option.  I know that we need to take some action and really determine our short-term and long-term goals for the properties, but your post provided a lot of good ideas and options available.  I'm going to listen to @Michael Swan's episode tomorrow on my way to work!

Speaking of "Swanny", thanks for your response as well.  I look forward to hearing your episode of the podcast!  I have several friends who live in Mira Mesa and one of them was lucky enough to buy at the bottom like I did.  It's crazy seeing a $250k house go to over $500k in less than a decade!

@Thomas S. Thank you for your reply.  I am on here to try and learn and get better with my real estate investments.  I realize that I have been lucky thus far with timing, but I think it's a little harsh to say I don't understand the value of money.  It may be accurate to say that I don't yet understand how to properly utilize the equity I've built in my properties, but I plan to learn.

Thanks for the response, Twana! I think my main goal at this point is not squandering a good opportunity (if one exists outside of keeping our properties). I am brand new to REI, so my inexperience is an obvious limitation to going OOS in the near future. I have never felt that selling our places would be to our advantage because I just expected it to become relatively simple passive income once paid off. As I learn more about REI however, I worry that we're just holding property because that's what my parents did without any real thought or analysis. Their SFH has appreciated about 600% since they bought it in the early 80s and while I don't expect similar appreciation for our rentals, I know that significant appreciation is definitely a likelihood based on historical San Diego data.

 Hi Chris,

Thanks for your reply! I know the big question is what to do with the money if we decide to pull it out. I am still learning about REI (a little late to this party, I should've been learning about it much sooner) but it seems like OOS would be our best bet for monthly cash flow. In the interim, while we learn more, I was thinking about just using the funds as an accredited investor in a crowdfunded commercial real estate platform. We have about a 50/50 split with our funding in the stock market and in real estate so we'd be looking to maintain a similar balance moving forward.

I am okay with putting off gains until further down the road, I just don't know if the expected rental appreciation over time is enough to offset the tax-free equity we can apply towards something that will pay us now.  We're not really hurting for the money, but I just want to make sure I'm not making a poor financial decision because it's easy to just stay the course and not deviate from what we've already been doing (buying as a primary residence and just holding on to it after we move on without any real thought or analysis).

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

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