Question:
“Hi Gary. We have a pretty nice house in UC, worth around $850,000. We want to scale down and buy a condo. Do you think we should keep the house as a rental?”
Answer:
Expensive homes make no financial sense as a rental in San Diego. Your cash on cash return will likely be 2-3%. Not a good investment at all.
If you want rental property, I suggest you sell the house and buy a small apartment building, or at least buy a few smaller houses or condos.
Yes, I know. It sounds like I’m just trying to convince you to sell and buy so I can make a buck. Not the case.
I’ve personally owned inexpensive rental condos, houses, duplexes, fourplexes, and bigger apartment complexes with up to 44 apartments. I’ve NEVER owned a rental house worth over the San Diego median at the time.
…By the way, there also may well be tax reasons to sell the house now. Without going into detail, if it’s been your principal residence for at least two of the past five years, you and your wife can sell and pay ZERO taxes on up to $500,000 of gain. But if you move out for too long, that tax benefit disappears.
