TUSD Irvine Condo - Rent/Sell

[yes2]

I own a attached condo that is on the TUSD side of Irvine closer to the 5 fwy, bought in 2005 for 550k and rode the 2008-2012 down wave, at one point during the down cycle comparable units sold for around 420k. Last year I moved up and rented the condo, the condo rent takes care of the mortgage, hoa, insurance and leaves me about $150-170 per month. I did not factor in any upcoming major issues and vacancy factor as for last 1 year had no issues and the tenant is willing to continue for another year or two as the unit is close to high school and walkable. I probably can get north of 675k if I list now as per most recent comp and cash out about 250k to reinvest in a different location/invest or pay down primary residence mortgage.

Having held the property for almost 13 years, I will only gain about 100k factoring commission and closing costs, I think it is the location, attached and TUSD are factors for property not appreciating as much as similar units on IUSD/east of culver.

I am torn between the decision of continuing to rent as is and be prepared to ride another downturn and loss of value or sell and move on to better avenue.

What would you do in this situation? Appreciate your suggestions.

 

[usctrojancpa]

I own a attached condo that is on the TUSD side of Irvine closer to the 5 fwy, bought in 2005 for 550k and rode the 2008-2012 down wave, at one point during the down cycle comparable units sold for around 420k. Last year I moved up and rented the condo, the condo rent takes care of the mortgage, hoa, insurance and leaves me about $150-170 per month. I did not factor in any upcoming major issues and vacancy factor as for last 1 year had no issues and the tenant is willing to continue for another year or two as the unit is close to high school and walkable. I probably can get north of 675k if I list now as per most recent comp and cash out about 250k to reinvest in a different location/invest or pay down primary residence mortgage.

Having held the property for almost 13 years, I will only gain about 100k factoring commission and closing costs, I think it is the location, attached and TUSD are factors for property not appreciating as much as similar units on IUSD/east of culver.

I am torn between the decision of continuing to rent as is and be prepared to ride another downturn and loss of value or sell and move on to better avenue.

What would you do in this situation? Appreciate your suggestions.

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I own a attached condo that is on the TUSD side of Irvine closer to the 5 fwy, bought in 2005 for 550k and rode the 2008-2012 down wave, at one point during the down cycle comparable units sold for around 420k. Last year I moved up and rented the condo, the condo rent takes care of the mortgage, hoa, insurance and leaves me about $150-170 per month. I did not factor in any upcoming major issues and vacancy factor as for last 1 year had no issues and the tenant is willing to continue for another year or two as the unit is close to high school and walkable. I probably can get north of 675k if I list now as per most recent comp and cash out about 250k to reinvest in a different location/invest or pay down primary residence mortgage.

Having held the property for almost 13 years, I will only gain about 100k factoring commission and closing costs, I think it is the location, attached and TUSD are factors for property not appreciating as much as similar units on IUSD/east of culver.

I am torn between the decision of continuing to rent as is and be prepared to ride another downturn and loss of value or sell and move on to better avenue.

What would you do in this situation? Appreciate your suggestions.

Unless you have an immediate need for the net proceeds, you have up to 3 years after moving out to the sell the property and capture tax free gains and since you are cash flow positive with a good tenant I'd hold onto the property.  Sell it before you hit the 3 year mark from moving out of it.

 

[ChiKid24]

USCTrojan is spot on that you can rent it up till three years after you moved out to avoid the cap gain tax. However, looking at the numbers and doing a straight ROE analysis, I'd say it's time to sell.

First, we calculate the return. You say the unit nets you $150-$170 a month. You excluded things like vacancy, maintenance costs and management fee from this calculation, so I'd say its overstated. There's always a risk the tenant loses his job and can't pay the rent or relocated. Also, even if you are managing the rental yourself, time is money. If you spend even 1 hour a month dealing with landlord issues there's a cost to that. So let's take the low end of your range and use $150/mo. For 12 months,  that's an annual return of $1,800.

Sounds like your cash out equity is $250k. So the question you should ask yourself is whether an $1,800 annual return makes sense on that size equity. This is a 0.7% return on your equity. Even if you were clearing $200/mo your ROE would still be less than 1%.  That are many better and safer investments that generate higher returns than that. So I say sell and invest in something else.

As I pointed out in a separate thread, this assumes no appreciation on the house. Again, most real estate investors run these numbers without betting on appreciation. It sounds like you also worry about the market peaking.

Good luck! If you do sell....you should PM USCTrojan to get you a great price!

 

[Rizdak]

Sounds like your cash out equity is $250k. So the question you should ask yourself is whether an $1,800 annual return makes sense on that size equity. This is a 0.7% return on your equity. Even if you were clearing $200/mo your ROE would still be less than 1%.

As I pointed out in a separate thread, this assumes no appreciation on the house. Again, most real estate investors run these numbers without betting on appreciation.

Irvine is an anomaly. Investing for cash flow is very difficult especially for a condo presumably with MR and HOA. The play is more for speculative appreciation than anything else.

 

[zubs]

I would assumed that you refinanced your $300,000 mortgage when it was around 3% a few years back.
So the renter is paying back your mortgage and also giving you $150/month extra.

I'd rent it forever and give it to my kids.

A lot of property owners would love to be in this position.

You're not getting 3% mortgage anymore and your tax basis is around $580,000.

 

[usctrojancpa]

Sounds like your cash out equity is $250k. So the question you should ask yourself is whether an $1,800 annual return makes sense on that size equity. This is a 0.7% return on your equity. Even if you were clearing $200/mo your ROE would still be less than 1%.

As I pointed out in a separate thread, this assumes no appreciation on the house. Again, most real estate investors run these numbers without betting on appreciation.

Irvine is an anomaly. Investing for cash flow is very difficult especially for a condo presumably with MR and HOA. The play is more for speculative appreciation than anything else.

This is definitely true, plus there is a serious shortage of sub $800k resale inventory in Irvine/Tustin Ranch so I can definitely see further moderate price appreciation over the next year or 2. 

 

[Liar Loan]

Sounds like your cash out equity is $250k. So the question you should ask yourself is whether an $1,800 annual return makes sense on that size equity. This is a 0.7% return on your equity. Even if you were clearing $200/mo your ROE would still be less than 1%.

As I pointed out in a separate thread, this assumes no appreciation on the house. Again, most real estate investors run these numbers without betting on appreciation.

Irvine is an anomaly. Investing for cash flow is very difficult especially for a condo presumably with MR and HOA. The play is more for speculative appreciation than anything else.

All of coastal California is an anomaly actually.  If you look at the Case/Shiller index, the top 3 markets for appreciation nationwide since the year 2000 are San Francisco, LA/OC, and San Diego.  This is a trend that has been going on since the early 70's that I don't expect to change any time soon.

So yes, for traditional markets it makes sense to ignore appreciation and measure the investment based on cash flow metrics.  In California, that's not advisable in my opinion.  Even somebody that owns a property free and clear in California is making more money off of appreciation than they are off of cash flow.  So you have to factor that return from appreciation into your projections.

Now the drawback to California real estate is it's more cyclical than other markets and has a down cycle roughly every 11 years.  We are nearing that point right now, and in the midst of a red hot real estate and employment market.  It makes sense to be cautious right now, as most people agree we are much closer to the top of the cycle than the bottom.  Of course, nobody has a crystal ball so all we can do is study the market and make our best projections into the future.
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Now let's look at two alternatives during a crash:  CA Real Estate vs. the stock market

Stocks have a long history of 40%+ crashes during almost every recession.  You can almost take it to the bank.

Real estate has had only one 40% crash in our lifetimes and it was the most recent recession.  All other recessions have had much milder declines in real estate values.

So I think CA real estate is much less volatile, and therefore, much less risky than investing in stocks.  That's not to say there is no volatility in CA real estate prices, but it's just a much lower level of volatility and in return you get some pretty amazing returns.

If your condo is cash flowing, then it's almost a no-brainer to hold onto it in my opinion.  The main reason to sell would be if you no longer want the hassle of management.  (I did this recently for one of my properties that wasn't returning enough in exchange for the amount of work involved.)  Stocks will always be more passive. 

If you don't mind the extra work, I think real estate will make you richer.

 

[Mety]

I own a attached condo that is on the TUSD side of Irvine closer to the 5 fwy, bought in 2005 for 550k and rode the 2008-2012 down wave, at one point during the down cycle comparable units sold for around 420k. Last year I moved up and rented the condo, the condo rent takes care of the mortgage, hoa, insurance and leaves me about $150-170 per month. I did not factor in any upcoming major issues and vacancy factor as for last 1 year had no issues and the tenant is willing to continue for another year or two as the unit is close to high school and walkable. I probably can get north of 675k if I list now as per most recent comp and cash out about 250k to reinvest in a different location/invest or pay down primary residence mortgage.

Having held the property for almost 13 years, I will only gain about 100k factoring commission and closing costs, I think it is the location, attached and TUSD are factors for property not appreciating as much as similar units on IUSD/east of culver.

I am torn between the decision of continuing to rent as is and be prepared to ride another downturn and loss of value or sell and move on to better avenue.

What would you do in this situation? Appreciate your suggestions.

Sounds like you don't really love the property nor hold on to it any longer because of the location and the school district.
If you can get enough appreciation to invest in another home with a better location and a better school zone, then why not sell it?

If you get couple hundred Ks, then you should be getting couple thousand dollars a year by just putting on a CD bank with 2-3%. Then buy when the RE price goes down. But you never know when it will go down or how it will turn out to be so the decision is yours to make.

 

[paperboyNC]

USCTrojan is spot on that you can rent it up till three years after you moved out to avoid the cap gain tax. However, looking at the numbers and doing a straight ROE analysis, I'd say it's time to sell.

First, we calculate the return. You say the unit nets you $150-$170 a month. You excluded things like vacancy, maintenance costs and management fee from this calculation, so I'd say its overstated. There's always a risk the tenant loses his job and can't pay the rent or relocated. Also, even if you are managing the rental yourself, time is money. If you spend even 1 hour a month dealing with landlord issues there's a cost to that. So let's take the low end of your range and use $150/mo. For 12 months,  that's an annual return of $1,800.

Sounds like your cash out equity is $250k. So the question you should ask yourself is whether an $1,800 annual return makes sense on that size equity. This is a 0.7% return on your equity. Even if you were clearing $200/mo your ROE would still be less than 1%.  That are many better and safer investments that generate higher returns than that. So I say sell and invest in something else.

As I pointed out in a separate thread, this assumes no appreciation on the house. Again, most real estate investors run these numbers without betting on appreciation. It sounds like you also worry about the market peaking.

Good luck! If you do sell....you should PM USCTrojan to get you a great price!

Two counter arguments:
- The renter is paying down the mortgage which should be included in an ROE
- Rent can go up every year while the costs stay relatively flat.

 

[qwerty]

USCTrojan is spot on that you can rent it up till three years after you moved out to avoid the cap gain tax. However, looking at the numbers and doing a straight ROE analysis, I'd say it's time to sell.

First, we calculate the return. You say the unit nets you $150-$170 a month. You excluded things like vacancy, maintenance costs and management fee from this calculation, so I'd say its overstated. There's always a risk the tenant loses his job and can't pay the rent or relocated. Also, even if you are managing the rental yourself, time is money. If you spend even 1 hour a month dealing with landlord issues there's a cost to that. So let's take the low end of your range and use $150/mo. For 12 months,  that's an annual return of $1,800.

Sounds like your cash out equity is $250k. So the question you should ask yourself is whether an $1,800 annual return makes sense on that size equity. This is a 0.7% return on your equity. Even if you were clearing $200/mo your ROE would still be less than 1%.  That are many better and safer investments that generate higher returns than that. So I say sell and invest in something else.

As I pointed out in a separate thread, this assumes no appreciation on the house. Again, most real estate investors run these numbers without betting on appreciation. It sounds like you also worry about the market peaking.

Good luck! If you do sell....you should PM USCTrojan to get you a great price!

You are forgetting the return he is getting from from the renter paying down the principal, probably another $500-$600 per month.

 

[zubs]

It is possible that your condo will drop from $675 to $600 in the coming years.  But it prob won't drop down to 550 where you bought it with a 3% mortgage.
The best play is to keep it.

I bought my house in 2012 before the run up in housing.  I am turning it into a rental now.  I will likely keep it forever.  It is unlikely I will ever be able to buy that house again for the 2012 price with a 3.5% mortgage.  You are in the same circumstance.  I could sell it and have hundreds of thousands of dollars in cash, but where would I put it?  Hookers and blow can only go so far.

 

[Burn That Belly]

x

 

[meccos12]

Rather than getting peoples opinion on a forum, I would follow the numbers.  Would you make any other investments solely based on the opinions of people you do not know (or even know)? The numbers say you state say you should sell. 

 

[Burn That Belly]

x

 

[Burn That Belly]

x

 

[meccos12]

yes2- right now based on the information you provided, your money is invested in a home that looks like this:

But what you should be doing is moving that money into another Irvine home that looks like this:

You need a portfolio rebalancing.

Sounds like speculation.  If that the case, go buy some bitcoin. 
In all seriousness, lets assume BTB was correct and Irvine housing keeps going up at its current rate (which many of us doubt btw).  why would you put all your eggs in one basket, especially one that is leveraged so much? 

 

[Liar Loan]

There are also transaction costs to think about.  Is this a good enough opportunity to justify zapping 8-10% of your equity on shuffling properties like this?

 

[zubs]

When you got your motgage back in 2005, you got the owner occupied mortgage.  If you sell now, and buy a rental in a couple of years, it is now an investment property mortgage.

 

[Burn That Belly]

x

 

[eyephone]

There are also transaction costs to think about.  Is this a good enough opportunity to justify zapping 8-10% of your equity on shuffling properties like this?

Is it 8-10%? I thought Redfin only charges 1% on listing plus the 3% on the buyer.  ;D

How about purple bricks?