The story: Two years ago, my dude and I decided to buy a house together. (His apartment lease was up and it was TIME.) I was pretty fond of him, but I always like to have a plan B. So, I kept my cozy little condo in Bonsall, CA and rented it out. Thus, I became a bit of an accidental landlord. Fast forward two years, my tenants are looking to move out and me and the dude are still doing well. I no longer feel the need keep the condo for possible relationship escape purposes. So, now I need to decide whether to keep it as an investment property or to sell it an invest the equity in a more traditional investment.
Goal: I don't exactly have a money mustache, but I've got some sexy girlie stubble coming in. I'm financially secure. No debt except the two mortgages. I'm in the 'growing my stache' phase of FIRE, so my goal is to grow my money as much as possible.
The details:
Condo: 1,125 square feet; 2 bed/2.5 bath in Bonsall, CA, a semi-rural patch of land at the nothern most edge of San Diego County. It attracts retirees and young people who can't afford to live in San Diego. It's also close to Camp Pendleton, a truly massive marine base.
Original Purchase Date: 2016
Original Purchase Price: $214,000
Current Loan Balance: $172,740
Mortgage (includes property tax and insurance): $1094.32
- Principal: $329.50
Interest Rate: 3.75%
Loan Type: 30-year standard
HOA: $295/mo (includes water and trash)
Maintenance requirements: New carpet. New paint. Furnace is original from the 1990s and will have to be replaced in the next five years.
Rent Potential: I rented this place for $1,900/mo for the past two years. Another, identical unit in the complex is advertising at $1,990 per month
Property Management: These past two years taught me that I DO NOT want to be a property manager, so if I were to hang onto this property, I would want a property management company. I found a company that charges a flat $395 placement fee and an 8% monthly management fee. For $1,900 rent, that would be $152.
So, monthly costs of mortgage + HOA + management = $1,541.32/mo
This DOES NOT include maintenance, vacancy, or placement fees, so the true cost would be higher.
Earnings are rent + principal pay down = $2,229.50/mo
Additionally, the house is appreciating at a good clip. The original purchase price in 2014 was $214,000. Other condos in the complex (identical footprint) are selling for around $320,000.
Equity growth is roughly $17,650 per year or (if my math is correct) about 8.2% growth.
If I decide to sell the place, here's some basic assumptions:
Sale price: $320,000
(Mortgage balance is: $172,740)
Repairs before sale: $3,500 (paint and carpet and misc.)
Agent fee: $16,000 (5% assumption)
I also learned from my accountant, that I would have to pay $5,850 in taxes on the depreciation I've been taking
So, rough estimate of earnings on the sale is: $121,910
This would be the amount (roughly) that I could then invest freely in index funds or maybe REITs.
One other MAJOR factor to consider is that if I sold the house this year or next year, I would NOT have to pay capital gains, since I would have lived in the house for two of the past five years. If I hold onto the house for more than two years, I'll be paying a 15% tax on all capital gains.
So, how can I make the most money? My thought is that keeping the house will earn the most. The rent pays the mortgage, HOA, and management fees and chips away at the principal. The main earnings come from the appreciation. San Diego is still growing, which means more and more people will be pushed out of the city and into outlaying areas like Bonsall. As a community, Bonsall is growing, too. I forsee that property values will continue to rise. Am I missing anything? What does the community think? Since I am an accidental landlord, I worry that there may be factors I'm not considering or that maybe my math is off. Any feedback or advice would be greatly appreciated!
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