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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: heybro on June 21, 2015, 12:11:59 AM

Title: How/When To Leave A Condo
Post by: heybro on June 21, 2015, 12:11:59 AM

In 2006, I bought a condo for $120,000.  Of course, just a couple years later, the market crashed.

Half of the units in the building, which had not sold, were foreclosed on.  They were later all bought for $50,000 each.

I've been paying down my mortgage fast and even refinanced to a fifteen year loan at 3% interest.  My loan has 8 years left on it (only 5 years if I continue to pay it off early).

So, here is the deal.  As more and more owners move out, their only option has been to rent their units.  About 75% of the building is now renters.

It is a lot different living in a building with renters than it was with mostly owners.  They are loud and obnoxious.

It's come to the point where I want to move or at least make a plan to move.

How should I exit?

Right now, I have $70,000 left on the mortgage.  I am not exactly sure of the value anymore.  Online it says my house value is $85,000.  The only unit that shows up is a recent foreclosure that sold for $70,000.

A realtor said to list it for $75,000, which would leave me breaking even steven. 

I am going to talk to another realtor though.

At this point I am thinking of moving to a quieter more suburban area and not live in the city anymore.  Instead of a stack of condos, I'm looking at townhouses that are rows.  I don't think I would ever or could ever live in a house.  A house just isn't me.

So, should I:

A. Sell the condo immediately, cut my losses, and get a loan for the new quieter townhouse for $150,000 at historically low interest rates.  Walking away with nothing from my condo would hurt psychologically but I could reason that my new townhouse would have decreased in the same amount of value and thus will be cheaper now to buy.

B. Stay in the condo a few more years and at least be able to walk away with some profit.  In a few years, it should appreciate some and I'll have more paid off.  (The foreclosures in the building are going to stop eventually and then shouldn't the value start being worth what other places of similar size are on the market for?  There are places on the market for $120k that are the same size as mine but their buildings don't have foreclosures in them.  Is it reasonable to hope that once a unit sells for a normal price in my building (long after these foreclosures), that my place could be worth 120k again?)   I wonder if I'll ever be able to sell it because a buyer has to have 20 percent down in order to buy a place in a building filled with renters.

C. Stay in the condo until it is paid off.  Then buy the townhouse.

D. Stay in the condo until it is paid off and I've also saved up enough money to buy the townhouse.  This would take five years to pay the condo off and probably another five years to save the money needed to buy the townhouse outright (combined with the money earned from the sale of my condo).

In addition,
Should I continue to throw more money to my condo loan to get it paid off early (fives years versus eight) or should I start building up a huge savings (at 1 percent).

Thank you in advance.

My big worries are if I'll ever be able to sell this place for anything really.  My other big worry is what is the fastest way to get a new place and have the new place paid off.  To me, the fastest way to increase my wealth is to pay off my condo and then save for the entire price of the new townhouse.  This means no new loans and the interest works for me.  But, in ten years, won't the townhouse be a lot more expensive?  Of course, the market could crash again and then I could pounce.  Which leads me to think I should be saving money now and not pay any extra to my condo.
Title: Re: How/When To Leave A Condo
Post by: Roots&Wings on June 21, 2015, 07:57:02 AM
What are the units renting for in your building? Depending on the numbers, perhaps you could rent it out and get a quieter place until the selling market recovers (though that's not guaranteed).

If your building is low owner-occupant rate/mostly renters and has many late past due fees, it could be difficult for a buyer to even get a mortgage and you might have a limited buyer pool currently.

I personally sold my condo at a ~$35k loss several years ago due to unbearable noise issues/renters, declining condo reserves/poor management, and because it didn't work financially as a rental. It was worth it for me to take the financial loss, gain quality of life, and have peace of mind moving forward.
Title: Re: How/When To Leave A Condo
Post by: OneDollarAtATime on June 21, 2015, 09:13:12 AM
Can you save for the new place, buy it and rent out your condo?

I'm not sure about this option, but it might be worth looking into -- can you take out a HELOC and use it as the down payment on a new place, then rent out the condo above mortgage + taxes amount which essentially would allow you to use your existing equity on the new place (townhouse) yet still turn a profit on the condo.

I suspect a more experienced MMM 'expert' has better advice than mine, but these are just some thoughts that came to mind.
Title: Re: How/When To Leave A Condo
Post by: Ricky on June 21, 2015, 09:30:18 AM
I would also look into renting it out first.

Most areas have pretty much recovered, as evident by the ever increasing price of rent and real estate. Maybe your area will eventually recover, maybe it won't, who knows. If the stress is too much from an emotional standpoint then it may be worth just selling and walking away. I would strongly look into renting though as it will likely cover all your expenses and maybe even some cash flow. That way you could hold out a little longer for things to get better, gain some landlord experience, and not have to worry about it.

Something else you could do is get on the HOA board and fight to make changes that would improve the value of the units. Could be anything from better landscaping to pushing for a set ratio of owners to tenant occupied units.

If you do list, start it out at $80k to come to a middle ground between your realtor and yourself so they still work hard to get the sale and you're more comfortable.

The good news here is you probably haven't lost as much as you think. You still had a place to live for all those years even if you weren't building much (if any) equity.
Title: Re: How/When To Leave A Condo
Post by: Katsplaying on June 21, 2015, 09:38:39 AM
My sister is in a similar situation with rotten renters, though she had options because of the CCR's for her development. Condos typically have HOAs with rules about how many units may be rented. Have you checked your CCRs? Is there a HOA? Can you get involved and push the rental percentage issue? You likely pay dues for outside maintenance at the least; who collects and what are their responsibilities?

She also discovered refi is nigh unto impossible (same for manufactured homes) so selling is probably her best option, even though she won't realize any profit.

Good luck.
Title: Re: How/When To Leave A Condo
Post by: Joel on June 21, 2015, 11:01:05 AM
What you originally spent on the condo is a sunk cost. If you didn't have this condo, what would you do?
Title: Re: How/When To Leave A Condo
Post by: heybro on June 21, 2015, 11:34:38 PM
If I rent it, I break even.  Unless I have a company rent it for me, I would rent it at a loss of 100 bucks a month due to their fee.  I don't know if I want to rent it by myself.

Step-in-Time, What kind of place did you move to?  House, Townhouse, Condo with more owners?

A HELOC would be impossible since there is no equity.  I am also told I cannot get another loan while renting this condo because the mortgage on the condo counts against me when figuring how much they can afford to loan me per month.  The option would be to start saving for the new place and in 8 years once the condo is paid for, then get a new loan and let the condo renter help me pay it.  This seems an ok option but I thought they said on this board that renting out one place is not a good investment.  My money would work harder for me in the stock market if I sold the place at that point.

The HOA involvement is a lost cause.  Doing things to improve the property misses the point - since they are not valuing this thing based on that and are only appraising this thing based on 'the comps' - how much other units have sold.  Right now, they are the foreclosures.

I don't know how I can get the HOA to enforce the renter percentage.  How can you force people to sell at a loss or to move back in?  And doesn't them selling at a loss only hurt me?

The trouble with walking away from this is this place was my ticket to freedom.  Once it was paid off, I was going to go part time at my job and live the good life of no mortgage.  Now this place isn't the place I want to be in but I can't just let it go for nothing.  I've paid extra on the mortgage for the past 9 years; so, saying 'i had a place to live for 9 years' isn't going to cut it since I could have rented for far less during that time.

Joel said 'if you didn't have this condo, what would you do?"  I'd go buy a townhouse in a quiet neighbhood.
Title: Re: How/When To Leave A Condo
Post by: Roots&Wings on June 22, 2015, 05:49:08 AM
Yeah, it's a tough decision to weigh. And being on the board is no guarantee that anything would change significantly (I was on my condo board, and although it helped some, it was a largely futile effort).

I've mostly sworn off condos and properties with HOA's since that experience, and now live in a single family home. Similar to Ricky, I rationalized my loss sale as having a place to live for all those years (albeit more expensive than if I'd been renting), and moved on. Expensive lesson though.
Title: Re: How/When To Leave A Condo
Post by: alsoknownasDean on June 22, 2015, 06:09:04 AM
If you really think you'd be happier selling up and moving, then do that. It sounds like you've already given up on the place.

I'm surprised they won't even lend you another $150k while renting the other place out. It's not like you're borrowing much overall.
Title: Re: How/When To Leave A Condo
Post by: ShoulderThingThatGoesUp on June 22, 2015, 08:26:42 AM
There's no reason to believe prices will increase over the next few years from what you've said. If the building is 75% renters and maybe 20% original owners, that means that a big portion of the residents are still underwater.
Title: Re: How/When To Leave A Condo
Post by: Bearded Man on June 22, 2015, 09:25:05 AM
I'd rent it out if you can. If you have the money to buy a new place then rent this one out. Otherwise, I'd say sell before this place goes downhill further. When lot's of renters move in, the community becomes less attractive to buyers or owner occupants. Cash flow investors may not care.
Title: Re: How/When To Leave A Condo
Post by: Axecleaver on June 22, 2015, 09:32:09 AM
but I can't just let it go for nothing.
That's an emotional reaction to a math problem. Real estate will sell when it is priced right. Your condo is worth between 70 and 85k. My advice would be to get into a place you want to be. If you are willing to wait a while, list it for 80 and take 70. If you want it to sell fast, list it for 75 and take 65. Remember you'll be out the 6% for a real estate commission. Before you list, consider talking to renters in the building who might be willing to buy.

Real estate agents have a powerful incentive to convince you to list as low as possible, because the lower you list, the faster it sells. Your profit is of little to no concern to them. Freakonomics cited a study that an agent will on average get 3% more for their own properties than they do for a client's property. Article with discussion here:

That article also gives great advice. When is the best time to sell your home? When you want to live somewhere else.

Regarding renting, decide whether you want to be in the rental business. If you are able to rent it out for close to the mortgage amount, your rental income will factor into loan decisions, and you might qualify to buy a new place. If you don't want to be in this business, consider calling up those signs you see everywhere saying "I buy homes." Some real estate investors also advertise in the want-ads and newspapers.
Title: Re: How/When To Leave A Condo
Post by: frugaliknowit on June 22, 2015, 11:47:07 AM
I own and live in a building that has taken a big hit.  My unit bottomed out at down 50%, now it's down around 42%.  The owner occupancy is around 50%.  There are now restrictions on renting out units ("older" owners are grandfathered in; younger owners get on a waiting list).

Financially, the best thing to do is continue to live there.  When folks are noisy, document and complain to the management.  Do the same when things aren't being managed right.  Know your rights and demand them.

Renting out a unit with a mortgage on it is very slippery unless you have A LOT of reserves!
Title: Re: How/When To Leave A Condo
Post by: le-weekend on June 22, 2015, 03:37:45 PM
Remember, if you become a landlord there will always be potential unforseen costs such as vacancy, damages, and time / money lost if you need to evict someone.

I personally fear that I could never stomach the potential headaches and uncertainty, but if you have a decent cushion of cash savings and/or you can afford to use a good property manager, it could be worth keeping the place if the cash flow can at least cover your mortgage + HOA payments.