CA Real Estate: HODL it or sell it

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CA_Meerkat's picture
CA_Meerkat
Status: Member (Offline)
Joined: Jan 25 2017
Posts: 3
CA Real Estate: HODL it or sell it

Hi all,

I would love to get some perspective here. We just bought a new (overpriced) home in CA which leaves us with a fundamental question - do we sell our (overpriced) first home or HODL and rent it out (i.e. they aren't making more land and CA has a housing shortage).

How do you all see real estate as an investment going forward? Would you keep cash ready for the next market downturn or diversify and become a landlord?

Arguements to keep:
- I like that real estate is not a form of tertiary wealth.
- I like that it can eventually generate consistent income.
- I have a smokin' 3% mortgage I hate to give up (w 9 years left)

Arguements to sell:
- CA real estate is insanely priced (before anyone asks, I cannot move out of state so am stuck here).
- keeping it would keep my equity locked up and require me to use most of my free cash to finance my new home and I will have a higher mortgage payment on my principle residence.
- the rental property doesnt initially cash flow. While my rent would cover all fixed and variable expenses, the shortened mortgage is more expensive and would require us to kick in an additional 25% of the rent per month (towards principle) for the duration of the mortgage. Assuming we could cover this expense plus the increased payments for the new primary mortgage, this is cash I don't have for other investments.

My options:
1.Sell and be done. Keep saving for a market correction.
2.Keep. Though tight for the next 9 years! I will eventually end up with a great new source of income. Capital appreciation might be nice too.
3. Sell but keep my equity and look for another real estate investment.

Would love to know your thoughts.

DowntownDB's picture
DowntownDB
Status: Member (Offline)
Joined: Dec 29 2017
Posts: 1
CA Real Estate

Meerkat

273 reads and no responses. Kind of disappointing. I’ll give my 2 cents. Remember advice is worth what you pay for it. First of all remember asset and liability rule. If it cost money to keep it’s not an asset. Sounds to me like your hoping one day this property will become an asset. I understand completely about giving up any real estate in California. My experience there tells me never sell. I lived through several boom bust cycles there and it’s always about location. The last one on 2008-2010 was a biggie but if you had property near the coast you weren’t hit near as badly as if you were inland. Anyway I guess you know all this if you were there. So I would just offer this. Look at the history of previous cycles, specifically in your area. How long has the current up trend been running in comparison to previous. How long and deep are typical downturns and from that guess the odds of things continuing in the current direction. I’m a member here and understand the idea that things can’t go on as they have for the last ten years indefinitely but nobody can tell you when things will change or how exactly. One thing is true though California real estate is one of the best long term values in the world. Don’t feel bad about staying in California if you leave you will probably never be able to go back. Don’t believe all the hype about low tax states. The tax man is going to get his share no matter where you are. Bottom line is if things do go bad what’s your plan B and how long can you hold out. Develop a plan based on your own beliefs and circumstances and stick to it no matter how things turn out you won’t regret it. Good luck wish you the best. Wish I could have helped more. 

New_Life's picture
New_Life
Status: Gold Member (Offline)
Joined: Apr 18 2011
Posts: 366
DowntownDB
DowntownDB wrote:

Meerkat

 Remember advice is worth what you pay for it.. 

Sorry not wanting to detract from your excellent and kind answer, but I cant say I immediately agree, sometimes you can pay for advice that is naive and bias, meaning you lose out....

 

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