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# Is your equity working for or against you?
- URL: https://www.smdp.com/is-your-equity-working-for-or-against-you/
- Published: 2006-08-09T15:00:00.000Z
- Updated: 2026-10-25T00:34:39.000Z
- Author: Guest Author
- Tags: Opinion, Venice, #archive-import

*By ROB ROSE*

If you have been an owner of rental income property for the last few years, chances are you are holding a highly-appreciated asset. Investors have enjoyed seeing property values sky rocket. However, rents have not nearly increased at the same pace.

For example, suppose you own a two-bedroom, one-bath house now worth $750,000 in Venice. Market rent for a similar house is $2,200 per month and after expenses, you net $1,500 per month. Cap rates and cash flow are useful tools to compare different income producing properties.

In Southern California it is not uncommon to see properties cash flowing between 0 to 3 percent on their equity. When compared to the 7 to 10 percent available in other areas of the country, the obvious question is, what if anything should the investor do to address this disparity?

In any booming market, the capitalization (cap) rates are low because the price of real estate has been bid up in anticipation of further increase.

If you are willing to wait for your money, investments in such highly-appreciated markets can be a good way to go. If you need cash flow from your equity now, there are better alternatives available.

If cash flow is your objective, you need to invest into more appropriate assets that allow you to enjoy the benefits of your equity now, rather than later when the property is sold.

There are two ways to do this. One is to refinance your property and invest the proceeds in properties that provide cash flow, or you can sell your property and do a 1031 exchange and reinvest the proceeds.

SHOULD I REFINANCE OR SELL?

Refinancing can be a good strategy in an effort to have your cake and eat it too. The investor can keep some of the original equity in a highly-appreciating market while diversifying the portfolio to create greater income. Refinancing has the downside of not putting all your equity to work and incurring more debt.

The second approach would be to sell your property and do a 1031 Tax Deferred Exchange. This option allows you to defer your tax obligation resulting from the sale of your property until a later date. The benefit is to have as much built-up equity as possible working for you on your next real estate investment.

If you decide to sell, there are several things to consider.

SHOULD I STAY LOCAL?

Remember the reason you bought the property and why you want to sell. Will the next property appreciate as rapidly as the previous? Since the local area has benefited from tremendous appreciation, your property search may result in properties with low cap rates, and in poor condition. Chances are if you decide to stay local, the most positive attribute is that it is local.

WHAT ARE MY OPTIONS?

Some property owners also may want to relieve themselves of daily management. At a certain stage of life, the ideal situation is hands-free management with monthly income.

One option to consider is a net lease property. Net leases are a type of lease where the tenant pays some or all operating expenses. Net leases are offered in many different structures. The most desirable is the “absolute triple net lease,” with a credit tenant who pays all operating expenses including property taxes. Some popular triple net leases are Walgreens, Starbucks, CVS and Autozone Tenant in Common (TICs) ownership can be considered a “synthetic” triple net lease in that the investor has little to no management and receives a monthly check. The investor is relieved from day-to-day management. The strength of the TIC is the ability to build a diversified portfolio providing hands free income.

TICs allow investors to buy part of a larger asset such as a class A office building that traditionally has only been available to institutional investors such as insurance companies. TICs offer geographic and asset class (office, retail, industrial, multi family etc.) diversification, since minimums can be as low as $100,000.

As with all investments the goal is to maximize return while minimizing risk. A well-diversified portfolio is one of the best assurances of consistent income in the future.

Before doing a 1031 exchange or refinancing your property consult with your CPA or legal advisor to make sure the move is right for you. (You can reach Rob Rose at 1-877-4 TM 1031, or e-mail at to discuss your specific needs. TM 1031 Exchange assists investors in planning and executing successful real estate investment strategies. Visit www.tm1031exchange.com for a complete list of investment properties and to download the TM 1031 Tool Kit.)

*Originally published in the Santa Monica Daily Press print edition on August 9, 2006.* [Read the original PDF.](https://s3.us-east-1.amazonaws.com/smdp%5Fbackissues/080906.pdf?ref=smdp.com)