Author Topic: Sell for a large down payment, or keep and rent?  (Read 2439 times)

divsnowball

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Sell for a large down payment, or keep and rent?
« on: January 28, 2015, 12:14:52 PM »
I currently live in a condo building downtown in a midsized city.  I currently own a small apartment worth about 90k with a 50k mortgage balance.  Within a year or two I will be looking to buy an actual house.  So the question is... sell the condo for a sizable down payment, or keep it as a rental.  According to my estimations I would clear about $500 a month on the rental, factoring in HOA and mortgage payments.  The HOA takes care of small maintenance issues and since ive lived there (2 years) there is little to no upkeep

Thoughts?

waltworks

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Re: Sell for a large down payment, or keep and rent?
« Reply #1 on: January 28, 2015, 12:28:14 PM »
What does the latest HOA reserve study say? If you don't know what that is, or the HOA doesn't have one, you should probably sell the place, special assessments will kill you. Gotta replace the roof and repave the driveways someday...

Is property taxed differently in your area if not owner-occupied? What do your HOA covenants say about renting?

Have you priced insurance for using the property as a rental?

Will you self-manage?

Do you have enough DP to avoid PMI on your new place without selling?

You really gotta provide more details.

-W

divsnowball

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Re: Sell for a large down payment, or keep and rent?
« Reply #2 on: January 28, 2015, 12:37:11 PM »
Okay so I believe they do have a reserve fund.  I've lived there for 2 years and they have done some pretty major renovations with no additional costs to the owners. 

I don't believe taxes are different.  Taxes are included in my $500 income (its pretty low since its only 600 square feet or so).  HOA permits renting

Not sure about insurance costs.

Planning to self manage.  Its next to a law school and multiple universities where I would target grad students as renters. 

Im too far away from purchasing  to really figure out how much of a down payment I wound need.  Probably looking in the range of 150-200k purchase price of a new place, or possibly even renting. 

coffeehound

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Re: Sell for a large down payment, or keep and rent?
« Reply #3 on: January 28, 2015, 02:04:50 PM »
Okay so I believe they do have a reserve fund.  I've lived there for 2 years and they have done some pretty major renovations with no additional costs to the owners. 

I don't believe taxes are different.  Taxes are included in my $500 income (its pretty low since its only 600 square feet or so).  HOA permits renting

Not sure about insurance costs.

Planning to self manage.  Its next to a law school and multiple universities where I would target grad students as renters. 

Im too far away from purchasing  to really figure out how much of a down payment I wound need.  Probably looking in the range of 150-200k purchase price of a new place, or possibly even renting.

Not just a reserve fund - a reserve *study*.  In some states, HOAs are required to pay for Reserve Studies every 5 or so years.  It's not about how much is in the reserve fund now.

A Reserve Study looks at the age of the building and its infrastructure, the expected date for repair/replacement of things like roofs, elevators, boilers.... and how prepared the HOA is to fund those repairs.  The study actually forecasts out how much money the HOA will have in the future, based on current/potential future HOA dues.

Look, I'm not trying to troll you - BUT, serious face-punch here.  It doesn't seem like you know anywhere near enough about the ins and outs of property ownership to be taking on renting out this place, especially given the financial risks around owning a condo.   I'd sell the place, buy a house, and read everything I could get my hands on about this topic before I'd consider purchasing a rental property.

Edited b/c I got you confused with someone else.......... sorry 'bout that.
« Last Edit: January 28, 2015, 04:15:01 PM by coffeehound »

waltworks

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Re: Sell for a large down payment, or keep and rent?
« Reply #4 on: January 28, 2015, 03:55:18 PM »
A lot of the RE queries here should basically be filed under "you didn't do any prior research/clown question, bro".

C'est la vie. It's the internet.

-W

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Re: Sell for a large down payment, or keep and rent?
« Reply #5 on: January 28, 2015, 04:16:44 PM »
I currently live in a condo building downtown in a midsized city.  I currently own a small apartment worth about 90k with a 50k mortgage balance.  Within a year or two I will be looking to buy an actual house.  So the question is... sell the condo for a sizable down payment, or keep it as a rental.  According to my estimations I would clear about $500 a month on the rental, factoring in HOA and mortgage payments.  The HOA takes care of small maintenance issues and since ive lived there (2 years) there is little to no upkeep.

Thoughts?

Based on your numbers, you think you could clear $6000 (pre-income-tax gross) per year if you rent the condo out.  If you self-manage, as you say you plan to, then you would qualify to get a lot of business cost deductions from the rental (of which the juiciest one might be "depreciation".)  And that might make a good portion of the $6000 actually post-tax net.  If you actually cleared $5000 net, that would be giving you a 12.5% return on your $40,000 equity.

That sounds very nice -- until you factor in the WORK you are going to have to do to keep the place rented and kept up, and the paperwork up to snuff.  You're going to have to decide how much that time is worth.  (And you can't outsource the work, or you will become a "passive" owner and lose the deductions.)

Good luck!