This duplex in Dana Point could be the ideal 1031 exchange or straight purchase for long term use.
($995,000 price, great area and condition, 2,198 square feet)
I am a big advocate of future planning. Many homeowners buy their first house, sell it and trade up when the kids arrive and then eventually face retirement in a large empty house. What is the next step? Sell the home and look for a nice condo near the beach? While all that is achievable, it does add stress, coordination and tax implications to the mix when you may not want them.
My simple plan:
Once you own your first starter home, and before the family starts growing, buy a rental property somewhere. It doesn't need to be in Dana Point or some other luxury location. It just needs to be a deal that will increase in value and cash-flow over time. As a current Orange County resident, I would look at small SFRs in Santa Ana, Long Beach, Westminster, Garden Grove. There are many other places to consider - I happen to like the growth patterns there.
Keep the house rented and in good shape for 10+ years. Sell eventually when the market is hot in that segment and 1031 trade into a 2 unit (in this case in Dana Point) where the market is less hot.
Now keep that property for another 10+ years until the kids go off to college, finish college and can support themselves. Be careful not to downsize too soon - some kids come back! You probably have traded up the small starter home and bought a larger home in that same time frame. Assuming it is in a good neighborhood, rent it out. Move to the duplex in Dana Point.
Why?
If you have a nice house in a good neighborhood with low property taxes, you stand to get good, stable rental income and are advantaged by Prop 13 taxes and you get tax depreciation. All with no sales costs to eat into your equity.
Your duplex in Dana Point is also Prop 13 tax advantaged, sitting in a nice location where your family will want to come visit and again no new purchase hurdles and costs.
Finally, your large rental house is a great asset to keep up with rising living costs. Rents should increase every year and you continue to build equity. If values are going up 3-5% per year and your house if worth $800k - that is $24,000 - $40,000 of equity growth that you earn in your sleep.
Plan for the margaritas by the beach in your 60s now before it gets there too soon!
- Mario, almost 50...
