Author Topic: Moving to LA. What to do with Seattle Condo? - Rented!  (Read 8525 times)

SeattleStache

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Moving to LA. What to do with Seattle Condo? - Rented!
« on: December 16, 2015, 01:59:41 PM »
Family circumstances are prompting a move to Los Angeles which means I need to move out of the condo I purchased in Seattle last February. I’m leaning towards renting it out for a few years due to the increasing real estate market in Seattle and so I don’t lose too much on fees selling so soon after I purchased. It’s also my escape plan should I hate living in Southern California. If I love it in LA, I'll sell the Seattle condo and perhaps purchase one there.

Here’s the numbers:

Original purchase price: $221,000
Original mortgage: $176,800
Current balance: $174,472
Amount owed to dad for help with down payment: $20,000
Interest rate on mortgage and loan from dad: 3.99%
Mortgage payment including principal, interest, and taxes: $983.40
HOA dues: $500 (just increased 63%-ouch-due to upcoming major plumbing work in the building. The dues include water/sewer/garbage.)
Total monthly payment: $1,483.40

Fees associated with move in/move out and change in occupancy: $1,250.

I estimate I can get between $1,400 - $1,500 in rent.
My guess is it is currently worth around $250,000.

I wasn’t planning on making this move otherwise I probably wouldn’t have purchased the condo, but this is how things are going and I want to make sure I’m making the right decision. Both real estate prices and rents are on an upswing in Seattle. For the locals, my condo is on First Hill within ˝ mile of the new Capitol Hill light rail station, 3 blocks from the future Whole Foods, 20 minute walk to South Lake Union, and 10-15 minute walk to downtown Seattle and all the bars and restaurants on Capitol Hill. I love the location and the ability to live car-free.

I’m exploring either hiring a professional management company to handle the rental for me since I will be out of state and unable to swing by if something comes up. Another option would be to find a tenant myself before I move and hire a friend to be on-call in an emergency. Then I would fly up to find another tenant when needed. Any opinions on this welcome.

Question: Is it best to hold onto the condo for a few years and rent it out or should I cut my losses and sell now?

Thanks to all for any advice.
« Last Edit: April 04, 2016, 01:27:49 PM by SeattleStache »

sammybiker

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Re: Moving “Home” to LA! What to do? (question regarding Seattle condo)
« Reply #1 on: December 16, 2015, 05:59:45 PM »
It's not a good rental but with Seattle appreciation, especially in that area and considering the relatively small payment, I would hold.

I'd also opt for a professional management company vs trying to save a few bucks managing yourself/using your personal network.  It will be money well spent and in a desirable location like yours, barring a horror tenant, you'll probably be 99% hands free.

That HOA is killer but nothing you can do about it.  Make sure you're getting every rent increase in that market.

If you want to get creative and the location will support it, airbnb may be a strategy that could bring you closer to break-even.  Management costs will be more but I think there are a couple of companies that perform this in Seattle?

GL.

SeattleStache

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Re: Moving “Home” to LA! What to do? (question regarding Seattle condo)
« Reply #2 on: December 17, 2015, 09:41:07 AM »
Thanks sammybiker, I'm leaning towards holding as well. Especially with all the transit improvements and neighborhood improvements coming up in the next few years. That makes sense with the management company as well since I will be so far away. I ran into a neighbor this morning who rents in the building and she thinks I can get closer to $1,600 or $1,650 with the improvements I've done to the place so I'll shoot for that.

My building doesn't allow for short term rentals such as Airbnb and requires a year lease for tenants. Fortunately there isn't a rental cap so I can rent it out at any time.

Thanks again for the suggestions.

CanyonMan

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Re: Moving “Home” to LA! What to do? (question regarding Seattle condo)
« Reply #3 on: December 17, 2015, 11:31:16 PM »
I'm guessing based on the price it's a 1 bed/1 bath? How many square feet? Unless first hill is far cheaper than I think, your estimate of $1400-$1500 is probably low. We lived in Fremont for the first half of 2015 and our crappy 1bd/1ba rental was $1650/month. Unless you think that the Seattle market is about to tank, or you have an urgent need to get out from under it I don't see a reason to sell it. Seattle is trying hard to be the next San Francisco (for better or for worse), and values show no sign of dropping in the near term.

Check out padmapper for your area and see what other stuff is going for to get a better estimate of potential rent. A quick look shows most of the 1 bedrooms in first hill are closer to $1800 than $1400.

adamcollin

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Re: Moving “Home” to LA! What to do? (question regarding Seattle condo)
« Reply #4 on: December 18, 2015, 01:59:11 AM »
I think you should rent the condo. It would give you good returns.

SeattleStache

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Re: Moving “Home” to LA! What to do? (question regarding Seattle condo)
« Reply #5 on: December 18, 2015, 01:07:22 PM »
I'm guessing based on the price it's a 1 bed/1 bath? How many square feet? Unless first hill is far cheaper than I think, your estimate of $1400-$1500 is probably low. We lived in Fremont for the first half of 2015 and our crappy 1bd/1ba rental was $1650/month. Unless you think that the Seattle market is about to tank, or you have an urgent need to get out from under it I don't see a reason to sell it. Seattle is trying hard to be the next San Francisco (for better or for worse), and values show no sign of dropping in the near term.

Check out padmapper for your area and see what other stuff is going for to get a better estimate of potential rent. A quick look shows most of the 1 bedrooms in first hill are closer to $1800 than $1400.

Correct, it's a 1 bedroom 1 bath and 540 square feet. It's on the small side but south facing and well laid out. I'm not in a rush to sell at all so I agree it might be a good idea to hold. I think the combination of the future Whole Foods, Madison Street BRT, the First Hill Streetcar, and the Capitol Hill light rail station will all work to increase the value over the next few years.

The building doesn't have any amenities other than a grill on the roof deck so I may have to charge a bit less than newer buildings with those amenities but I would love to get closer to $1,600 to $1,700 to break even after property management fees. I've installed upgraded/more efficient heaters, nicer blinds, and it is freshly painted (no more beige).

Thanks for your advice. It's really helpful to think through it with others who aren't personally/emotionally involved with it. I love living here (both Seattle and my condo) and it will be hard to leave.

SeattleStache

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #6 on: January 11, 2016, 01:23:22 PM »
A little update now that I have more accurate numbers.

I met with a property manager and the fees associated with renting the unit are:
-One month's rent each time a new tenant is brought in.
-10% of monthly rental income.
She estimates I could ask closer to $1,500 in rent (my total monthly payment including mortgage/HOA/special assessment is $1,483).
-I would be in the red every month but can deduct most expenses when I do next year's taxes.

My realtor gave me some information on what he thinks I could sell for if I chose to do so now. He puts my place at $249,000. After selling costs, net proceeds would be $228,000. I bought last February for $221,000 and have $174,210 outstanding on my mortgage.

I'm still leaning toward hanging onto the condo and renting it out for at least a few years. I anticipate the value to appreciate based on it's location and upcoming improvements to the area. I don't need the money tied up in it for any other real estate purchase.

Any advice based on this update would be appreciated!

J Boogie

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #7 on: January 11, 2016, 03:20:47 PM »
Since it's just about cash flowing, I'd say it pretty much all comes down to appreciation speculation and potentially hating LA and moving back to Seattle.

Sounds like there's a pretty good chance it appreciates and there's always the off chance you move back. 

A few years ago I helped my brother in law move from his townhouse outside Chicago down to his hometown of Miami.  Right before we drove off he said who knows maybe someday we'll be back.  He stayed in Miami for only about 4 months, then moved up back up to Chicago.

I think you've got a solid plan.  Hope things go well for you!






lhamo

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #8 on: January 11, 2016, 09:16:44 PM »
I think you can probably get more than $1500 for it in that location.  I would at least ask a couple of other agents, even if you end up sticking with the one you've got.

I'm renting a 2br/2ba condo, around 1000 sq ft, near Northgate for $1600/month, but that is REALLY good for this area and my landlady has already told me if I stay my rent will be going up to $1900 if I renew my lease.

The unit below us just sold a couple of weeks ago for $264.5k

dilinger

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #9 on: January 11, 2016, 09:57:53 PM »
If you want peace of mind (to just be done with it), sell. If there's a serious chance that you'll move back to Seattle within a year, rent it out. Those are the two factors I'd use to base my decision on.

I wouldn't hold onto it just for the sake of a potentially increasing housing market, unless you really like real estate speculation. When I moved from Boston to Seattle, I held onto my 550sf 1 bed condo for a few years and rented. Yes, it was decent income, but it was also a huge hassle. My taxes were more complicated, dealing with a flaky management company sucked, and doing stuff myself sucked even more (and I say that as a DIY-type person). If you want passive income, get a rental close to your home that you can manage well yourself.

Ricky

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #10 on: January 12, 2016, 09:12:08 AM »
Difficult to answer. Obviously if you knew an avenue (pun intended?) where you could put your money after selling and get higher returns then you should. So from a purely financial point of view, maybe you should sell if there are better opportunities that you think you can grab ahold of. If you firmly believe the stock market will always return ~7%, then you'd be better off in stocks. But the other side of that is indeed you may highly dislike SoCal, as plenty of people end up doing. You wouldn't be asking this question if it were predicated purely on financials.

Highly anecdotal - but I would 10:1 rather live in Seattle than SoCal (if I wasn't affected by SAD). SoCal, from what I've heard from people who've left it is just too congested with traffic, sprawly, not many interesting people or things going on unless you like think drugged out and miserable people is interesting. Not to mention that the place still probably wreaks of the stench of pretentious people - I mean you're going to be close to the 'Hills and Hollywood, so that's to be expected. Of course, that's an over-generalization I'm sure, but just reports that I've heard. There are "good" and "bad" things anywhere you go. But I did visit Seattle (never been to SoCal, only North) - and I know why people want to be there. It's fresh, modern, world-class food, close to amazing scenery and mountains, and lots of employment opportunities. Only thing that kills it for me is the cloudiness. Ah, can't have it all!

Truth is, humans are very bad at knowing what they want. You can't know whether there's a chance you'll move back or whether you know you want to be in SoCal or back in Seattle in the future or whatever. You just have to go with the flow. So with that said, since there is a chance of returning, no matter how big or small, I would hold onto it as you may be inclined to move back in the future and you'll have saved yourself some transaction fees. Make the move and keep reassessing how you feel and study your options. It's nice to know there is a place that you can always go back to or live in should you need/want to.
« Last Edit: January 12, 2016, 09:20:57 AM by Ricky »

norabird

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #11 on: January 12, 2016, 09:45:38 AM »
I'd keep and rent. Ask for $1600 at least to help cover the management. The market seems good there and you may be able to sell for more later (or move back as you say).

SeattleStache

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #12 on: January 12, 2016, 03:28:30 PM »
I really appreciate everyone's thoughtful responses. Ricky, you're right about my concerns about moving to LA and I'm trying to prepare myself for the culture shock. Going from the beautiful scenery, walkability, and social network here (not to mention city-wide composting and relatively low consumption lifestyle) will be a tough transition but I hope to bring some of that Seattle quirkiness to LA :) I do like the idea of having an escape plan, especially with the massive increases in rent and property values in the area, it would be tough to move back to the same neighborhood. I'm lucky that my employer will let me work from home in LA so I won't need to worry about a commute and can choose a neighborhood that is more pedestrian friendly.

I think my final plan is to try and find an initial tenant on my own through my acquaintance network which will save around $1,200 in finders fees and then go from there with the management company. That will give me 1-2 years to test out the LA lifestyle and see what's next.

Thanks again everyone, it's so helpful to talk through it with others who aren't directly involved or impacted.

ThriftyTechie

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #13 on: January 16, 2016, 06:10:40 PM »
How much has it already appreciated? If you did not live there for at least 2/5 years when you sell, you will have to pay capital gains tax, and 25% on depreciation you claimed while you rented it out. Probably California income tax as well.
I made the decision a few years ago not to sell, and the bet paid off, it appreciated. However, I missed out on some great Cali real estate because money was tied up, and I'd owe tens of thousands in taxes if I sell now. I'm hoping to move back some day to convert it back to a primary residence. Or never sell.
One other thing to note: management companies in Seattle are really expensive. 1 month rent on new tenant, 10% ongoing, and half month rent for just renewing the damn contract. I did not use them. It was great for the first few years, but now my tenant is moving out and I have to find a new tenant and handle the transition remotely.

Think

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #14 on: January 17, 2016, 08:51:43 AM »
I agree a property manager is expensive but I've found it so worth it for an out of town rental.  What will you do if there is a problem...take a day off work and travel to Seattle?

I had one woman I had to evict which was just bad luck.  She was out in less than a month and I actually made money on the eviction (late fees in lease) but it was awful.  I hired a property manager after this. 

I had one tenant get transferred after six months.  So the property manager found a new tenant in less than a week.  I guess if I didn't have a property manager I would have had to travel to check out the place after she moved out, change the locks and have cleaners come?

I wouldn't underestimate what you're getting into here. 

SeattleStache

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #15 on: January 18, 2016, 10:28:42 AM »
ThrifyTechie: my realtor estimates it has appreciated ~$30k since I purchased it last February. I hope to find a renter within my network of friends/acquaintances (already have a few potential people interested) and if I do find someone on my own, I avoid the one month's rent fee which would be helpful. This would give me at least a year to consider my options and see if LA is the place for me. I don't see myself buying property in LA in the near future and so won't need the money that is currently tied up in the condo.

Think: I totally agree with your points about managing from afar. If I were staying local, I would manage it on my own, but I don't see that being so possible while living two states away. I'm glad your property manager was able to find someone so quickly! The fees are a tough pill to swallow but most likely worth it if/when the unexpected happens.

clarkfan1979

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Re: Moving “Home” to LA! What to do? (question regarding Seattle condo)
« Reply #16 on: January 18, 2016, 02:50:44 PM »
It's not a good rental but with Seattle appreciation, especially in that area and considering the relatively small payment, I would hold.

I'd also opt for a professional management company vs trying to save a few bucks managing yourself/using your personal network.  It will be money well spent and in a desirable location like yours, barring a horror tenant, you'll probably be 99% hands free.

That HOA is killer but nothing you can do about it.  Make sure you're getting every rent increase in that market.

If you want to get creative and the location will support it, airbnb may be a strategy that could bring you closer to break-even.  Management costs will be more but I think there are a couple of companies that perform this in Seattle?

GL.

Getting a management company will only save you time and headache if it's a good management company. If you go that route, you have to spend a lot of time figuring out a good one. Do not pick randomly off of the internet.

okobrien

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #17 on: January 18, 2016, 03:19:15 PM »
I hate this deal financially.  You don't make any money, and that is before any maintenance costs are included. If it appreciates, you are in luck, but who knows if it will. It just might depreciate.  The only upside I see is a place to fall back on if LA turns out to be a bust. This is solely what I would base my decision on.

CanuckExpat

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #18 on: January 18, 2016, 06:25:26 PM »
I wouldn't hold onto it just for the sake of a potentially increasing housing market, unless you really like real estate speculation. When I moved from Boston to Seattle, I held onto my 550sf 1 bed condo for a few years and rented. Yes, it was decent income, but it was also a huge hassle. My taxes were more complicated, dealing with a flaky management company sucked, and doing stuff myself sucked even more

How much has it already appreciated? If you did not live there for at least 2/5 years when you sell, you will have to pay capital gains tax, and 25% on depreciation you claimed while you rented it out. Probably California income tax as well.

I'm curious about the tax implications of renting vs selling, also what might happen if you move back in. OP have you investigated this, is there a quick summary of the scenarios?

We might be in a similar situation soon, and I'd like to know more about each option.

Midcenturymater

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #19 on: January 18, 2016, 06:56:24 PM »
Welcome to socal.
I just want to counter the stereotypes of LA.
This is a city of many small towns. Find a small town you like and find a guest house to share to keep costs down. There us a meet up group called la for free which is worth joining. The weather alone makes us about 55 % happier than we have been living in places like Seattle in terms of weather. A place is as great as you make it. The beaches are free
 The amazing hikes in the foothills are free. LA is an amazing city. I would rent out the Seattle place myself.

SeattleStache

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #20 on: January 19, 2016, 04:26:29 PM »
I found a property manager through a good friend who is also a former realtor. The plan right now is to move forward with her after I find a tenant on my own.

I don't have a crystal ball but I would be extremely surprised if it doesn't continue to appreciate over the next few years based on location, upcoming neighborhood improvements, and availability of more affordable condos in the area (most new construction is very high end and expensive).

In my initial discussions with a tax adviser, I learned I would be able to deduct all expenses, improvements, and depreciation when I rent it out. I'm not looking to rent it over a very long period of time, mostly just for around 2-3 years while I figure out if LA is the place for me.

Midcenturymater, I would love to talk shop about the small towns! That's something I love about Seattle, that each of the neighborhoods have their own, unique character. I'll send you a PM.

Thanks again for the comments and questions, everyone.

CanuckExpat

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #21 on: January 19, 2016, 05:37:41 PM »
In my initial discussions with a tax adviser, I learned I would be able to deduct all expenses, improvements, and depreciation when I rent it out. I'm not looking to rent it over a very long period of time, mostly just for around 2-3 years while I figure out if LA is the place for me.

So do you know how it works in this scenario exactly?
Right now it's your primary residence, and has appreciated X amount. If you sold while it's your primary residence, let's say that appreciation is tax free capital gains.
But instead you rent it out, at that time it appreciates Y amount more, at the same time you claim Z amount of appreciation (because the tax code lets you).

You then move back in and make it your primary residence. Where does that leave you with taxes when you sell again?

dilinger

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #22 on: January 19, 2016, 06:43:02 PM »
In my initial discussions with a tax adviser, I learned I would be able to deduct all expenses, improvements, and depreciation when I rent it out. I'm not looking to rent it over a very long period of time, mostly just for around 2-3 years while I figure out if LA is the place for me.

Yes, you will be able to deduct expenses. But they're expenses, so it's not like it's free money or something.  Your tenant gives you $100, and you get to deduct $100 for random property management fees.  That's not an extra $100 in your pocket or anything.

Yes, you will be able to deduct depreciation.  Your tenant gives you $100 now, and you get to put the full amount (tax free) in your pocket because you've also deducted $100 worth of depreciation.  When you sell the condo, you will be forced to pay a depreciation recapture tax of around 25% (side note: if your tax advisor didn't explain this to you, get a new tax advisor).  This depreciation recapture tax will be on the $100 that you deducted, so what you've done is simply delayed paying taxes on that $100 of income.  That may work out better in your favor (maybe you're in a higher income bracket now?), or it may work out worse (maybe you're in a higher income bracket when you sell the condo?).  It depends on your situation.

Yes, you will be able to deduct improvements.  Your tenant gives you $100, and you buy a new washing machine with that $100.  Since you get to deduct depreciation on that washing machine, you pay taxes on $90 ($100 - $10) that your tenant gave you this year, tax on $80 that your tenant gives you next year ($100 - $20), and so on for 5 years.  You still spent $100 on a washing machine that you're not using.

Maybe you come out ahead in this scenario with depreciation deductions; maybe you don't.  Here's where you lose: you have to compute all of this stuff (or pay someone to do it for you).  You have to keep track of all improvements, depreciation, etc until you sell the property.  You have to track the basis of your property (ie, you bought for $100k, you took $10k in depreciation, you spent $5k on improvements: 100 - 10 + 5).  And if you didn't live in the property for 2 out of the past 5 years when you sell, you pay gains taxes on the profit you made.

EDIT: the point that I'm trying to get across is that this stuff is (unnecessarily, in my opinion) complex, tax-wise.  I had an accountant handle it for me when I was renting out my condo.  $400/year plus the hassle of having to save receipts/invoices and file stuff away, and then the standard landlord hassles.  I wouldn't do it again unless there was a strong chance I'd want to move back, and absolutely positively would HAVE to live in the same place.
« Last Edit: January 19, 2016, 06:56:20 PM by dilinger »

VladTheImpaler

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #23 on: January 20, 2016, 05:53:02 PM »
Good luck in L.A.!
I lived there for a few years and couldn't wait to leave.
The traffic is horrendous at all times of the day and night.
I'm not bilingual, but learning Spanish would be very helpful.
Best of luck in LaLa land, I hope you do better than I did.

Midcenturymater

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #24 on: January 21, 2016, 09:15:46 AM »
I wrote out a long message, sent it and it came back to me...not possible to send.
I have to be briefer now....
Places to live on  metro
Pasadena
Highland park
korea town...I hear of cheap rentals in this area.

Ways to find a place..the usual. We found two great homes via c list.

Search fb housing groups such as la sublets and housing. You could get a short term place without committing. Hope that helps. Hag :) a pet reduces the number of rentals that will consider you.  Turn up with all your paperwork as it is competitive to get places. But I stand by LA being great, not just for the sunshine.

VladTheImpaler

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #25 on: January 21, 2016, 12:14:09 PM »
Yeah, I second what Midcenturymater said about Pasadena and Highland Park being good places to live on the east side of things.
I lived in Pasadena for a couple years and really liked it. (The houses in Pasadena south of the 210 freeway are really nice, everything north gets worse as you get up to Altadena. Another little gem is Sierra Madre, just east of Pasadena.
Also check out Claremont, with all the elite colleges.
Thousand Oaks and Westlake Village, and most of Simi Valley is really nice too, if your job is out that way.
What part of town will you be working?

SeattleStache

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #26 on: January 21, 2016, 12:48:10 PM »
CanuckExpat: I didn't ask that specific question because I think if I am in that situation, I would move back in either way and not worry too much about the tax implications.

VladTheImpaler & Midcenturymater: thanks for the neighborhood ideas! I would ideally like to live somewhere between Pasadena and Silver Lake since that's where my family and good friends live. I grew up in Pasadena but haven't lived there since 2000 so I know it has changed a lot. I'm fortunate that my employer is going to allow me to work from home so I'm not too worried about a commute, as long as I have this job. I would like to live somewhere walkable and near amenities like grocery stores, a coffee shop to two, that sort of thing so I can try to recreate my Seattle lifestyle a bit. I have a dog and love taking long walks around the neighborhood/downtown now and hope to live somewhere where it is nice to do that.

jwright

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #27 on: January 21, 2016, 01:13:52 PM »
I wouldn't hold onto it just for the sake of a potentially increasing housing market, unless you really like real estate speculation. When I moved from Boston to Seattle, I held onto my 550sf 1 bed condo for a few years and rented. Yes, it was decent income, but it was also a huge hassle. My taxes were more complicated, dealing with a flaky management company sucked, and doing stuff myself sucked even more

How much has it already appreciated? If you did not live there for at least 2/5 years when you sell, you will have to pay capital gains tax, and 25% on depreciation you claimed while you rented it out. Probably California income tax as well.

If you convert your primary residence to a rental property; you can still qualify for the Sec 121 gain exclusion if you have lived in it for 2 of the last 5 years.   So the OP will have three years to sell and use the exclusion.

If you move back to the condo as your primary residence after having rented it out, then you run into issues with the exclusion.  You would have to pro-rate the exclusion between non-qualified use and qualified (personal residence) use.  If it is a rental for three years, then you live in it for two years and then sell; you would only get 40% of the exclusion.

The exemption to the pro-rate rule is that it only applies to time after the property was used as a rental.  So living in it first and then renting avoids losing the exclusion, but it doesn't work the other way around. 

I'm curious about the tax implications of renting vs selling, also what might happen if you move back in. OP have you investigated this, is there a quick summary of the scenarios?

We might be in a similar situation soon, and I'd like to know more about each option.

lhamo

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #28 on: January 21, 2016, 09:12:26 PM »
FYI, Curbed just posted an interesting summary of "what you can rent for $1300 in Seattle" -- mostly studios, including one on First Hill:

http://seattle.curbed.com/archives/2016/01/curbed-comparisons-seattle-1300-month-rent.php




Thinkum

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #29 on: January 21, 2016, 10:08:05 PM »

VladTheImpaler & Midcenturymater: thanks for the neighborhood ideas! I would ideally like to live somewhere between Pasadena and Silver Lake since that's where my family and good friends live. I grew up in Pasadena but haven't lived there since 2000 so I know it has changed a lot. I'm fortunate that my employer is going to allow me to work from home so I'm not too worried about a commute, as long as I have this job. I would like to live somewhere walkable and near amenities like grocery stores, a coffee shop to two, that sort of thing so I can try to recreate my Seattle lifestyle a bit. I have a dog and love taking long walks around the neighborhood/downtown now and hope to live somewhere where it is nice to do that.

Based on that, I think you'd like living in the South Lake Ave area of Pasadena. There is a TJ's and Target within walking distance. As well as coffee shops, and tons of retail. It's relatively safe and VERY pedestrian friendly. Then when you have time, just drive north on Lake till you hit the mountains and enjoy all the free hiking. The rents range from $1500 on up with a lot being way higher. You just have to find the right place. We used to live just east of Lake a few miles off Colorado and I still miss it. Good luck!

SeattleStache

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #30 on: January 22, 2016, 10:23:42 AM »
Thanks, lhamo, you can almost see my building from that First Hill studio :)

Thinkum, thanks for the tip on South Lake. I'll add it to my list!

Thinkum

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #31 on: January 22, 2016, 11:54:29 AM »
Forgot to mention that there is a Metro light rail station (Gold Line) at Lake and the 210 and with all the expansions they've done, it's pretty good. You can now take it east all the way to APU and west to KTown/Chinatown, Downtown (Union station), and south west, to East LA. Change trains at Union station and you can get to Hollywood, Long Beach, and I think the valley too. Dallas sucks in that regard, but it's gotten better since now there is a DART (Dallas Area Rapid Transit) that goes to DFW airport. LA was doing a dedicated bus from the metro to LAX, not sure if it's done yet.

Midcenturymater

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #32 on: January 23, 2016, 05:32:52 PM »
I would just focus on pasadena if your friends are there. It s a great city. There is the $2 cinema .....just find the right rental for you that takes pets. I recommend searching for housing groups on fb. You could find a short term sub let that lets you try an area first. You will know pasadena better than me....there is a great Thursday farmers market near mission I think.....on the metro too.

There is a great dog trainer who has classes at the rose bowl every Sat morning....near the kids museum...could be a good way to connect next with other dog people. Your dog may be trained. You may have enough dog and other people already=)

Midcenturymater

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #33 on: January 25, 2016, 01:09:59 AM »
http://losangeles.craigslist.org/lac/apa/5392445393.html

Just as an example. Or you get a room for less
 I don't think la is as expensive as everyone makes out. You can find value if you look or compromise.
Good luck!

redbirdfan

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #34 on: January 27, 2016, 01:41:51 AM »
As a renter in Seattle I can tell you that prices are definitely going up.  Four questions come to mind since you said your building has no amenities.  1. Does your unit have parking? If so, you might be able to charge $1,XXX for the base rent and tack on another $75-$150 for parking.  2. If rent prices in Seattle did not appreciate more than 3% per year would you still want to hang on to the condo?  Approximately 7,500 new units are going up this year between the downtown corridor and Cap Hill (more if you throw in SLU , Fremont, Wallingford and Ballard).  That new construction will initially be very expensive but it will create your rent ceiling. Most of the new construction has "affordable" studios with all the bells and whistles.  You don't have much wiggle room between expenses and expected rent and you lose a month of rent each time you get a new tenant.  This sounds like breaking even is your best case scenario.  4. How comfortable are you with the HOA board/ dues situation/possibility of a special assessment?  Those HOA fees are high which makes me believe the board didn't have sufficient reserves at some point in the not-so-distant past. 

If you sold now you wouldn't have to pay taxes on the gains.  Once you turn it into a rental you'd have to pay taxes on the cap gains (you haven't lived there two years) and you'd be subject to depreciation recapture.  If you're in a tax bracket of 28% or higher,you could still come out ahead by keeping it as a rental.  Keep in mind that if the Seattle housing market does stall, condos lose their value first and studios without amenities would lead the charge.  You can lower your selling costs by going with Redfin or another alternative realtor.   

The rental is good way to offset some taxes on ordinary income.  At that price point and mortgage interest rate it's probably not enough to put you significantly over the standard deduction if you have nothing else to itemize.  I don't think that particular condo by itself will help your overall tax situation by too much more than 2-3 grand.  You might even lose just as much if the rental makes you keep more money in cash than you would otherwise and/or if it prevents you from being able to purchase a (bigger/nicer) place in SoCal.  Renting to people in the family/friend arena can also lead to problems.  I think you'll be fine whether you sell or rent the condo.  Go with the option that you think will cause you to lose the least amount of sleep and money in the long run. 

SeattleStache

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #35 on: January 28, 2016, 12:14:22 PM »
redbirdfan, thanks for your questions and feedback, it is definitely helpful.

To answer your questions 1: No parking, but there is zoned street parking for $65 every other year. The location means that most people can be car free and I end up driving my car maybe 2-3 times a month. I could easily get rid of it. I know some people prefer to have dedicated parking though. I also know many neighbors who moved in with a car and then got rid of it after realizing it just doesn't make sense to have one there. Parking spots were selling for $40,000 when the building was first converted to condos. 2: The primary reason I want to keep it is so I have a place to return to if/when I do come back to Seattle. I'm already priced out of the market if I would want to purchase or most likely even rent here again. I know my condo can't compete with the prices charged by the fancy new buildings (I just saw one listed at $3,500/month not including parking for an open one bedroom loft on Capitol Hill in Pike/Pine) but I think it can compete in the older building market at around ~$1,600 for my true one bedroom since it has an updated kitchen and bathroom and great location. 3/4: The increased HOA actually includes a special assessment, I just lumped them together for this write-up. Typical HOA fees are closer to $300, with the additional $200 for an upcoming project/special assessment.

My realtor estimates the condo has appreciated around $30k in the last 12 months and I think I feel comfortable with keeping it at a short term loss for probable longer term gains. I know nothing is guaranteed but there are not many condos being built in the area with the exception of a high end building (Luma) down the street but those buyers will be different than those in my price range.

I think my gut is telling me to keep it for 1-2 years while I figure out of SoCal is the place for me so I can either return to it to live or sell it and deal with the tax consequences then. Hopefully the appreciation would make the taxes bearable at that point.

Thanks again for your thoughtful response, it's much appreciated.

lhamo

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #36 on: January 28, 2016, 12:49:34 PM »
I think you are wise to keep it.  Although I dream that the property market in Seattle might slow down (and fantasize that it might drop), I don't see prices going anywhere but up for the next several years, especially in desirable neighborhoods.  And the light rail to the UW is going to open in just under two more months -- that is going to make your hot neighborhood even hotter!

SeattleStache

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #37 on: January 28, 2016, 03:50:13 PM »
I'm so excited about the transit improvements! The First Hill Streetcar just opened, Capitol Hill light rail will be a ~10 min walk away, and the Madison Bus Rapid Transit is coming online in the not so distant future. An exciting time for transit in Seattle and I agree that centrally located property will continue to increase with the population and infrastructure improvements.

redbirdfan

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #38 on: January 28, 2016, 06:25:41 PM »
I have a feeling rental housing in Seattle will become a LOT more expensive over the next five years in the "close-in" neighborhoods.  A good deal of the older apartment buildings are being bought up by developers.  You should be able to break even with the actual rent payments and the depreciation should get you over the hump in years 1 and 2.  Rent increases should give you more reliable cash flow after two years.  You can get a home warranty and have your tenants pay you directly through Venmo, Cozy or RadPad if you feel brave enough to drop the property manager in the future.    If not, your fees to the property manager will be deductible so it's like you get a discount equal to your tax rate.  Congrats on the move and on having your first rental property!   

Dicey

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #39 on: January 28, 2016, 06:30:51 PM »
Thanks for the update. I'm still in the "Keep It" camp.
« Last Edit: February 03, 2016, 10:43:19 PM by Diane C »

dilinger

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #40 on: January 28, 2016, 07:43:27 PM »
ULink 2016 is going to be AMAZING.

Unfortunately, Madison BRT doesn't open until 2020.

Midcenturymater

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Re: Moving to LA. What to do with Seattle Condo? - Updated with New Numbers
« Reply #41 on: January 30, 2016, 08:17:20 AM »
We held onto our place near London when we moved to socal. It is always rented out and we are now over half way through the mortgage. We,have had unexpected expenses....but we pretty much break even. The area it is in is predicted to rise by 18 per cent in next couple of years.
We are glad we hung  on to it even though we won't make money till we sell. It us worth about double what we,paid so it should pay off one day.

SeattleStache

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Re: Moving to LA. What to do with Seattle Condo? - Rented!
« Reply #42 on: April 04, 2016, 01:26:44 PM »
Update!

Found a (hopefully) great tenant and the lease was signed yesterday with a 6/1 start date. Ended up charging $1,590/month. After paying the property manager, I'm losing around $60/month but feel good about my decision to keep the condo for at least the next 3-5 years.

Thanks again to everyone for your comments and helping me think through it all.

SeattleStache

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Re: Moving to LA. What to do with Seattle Condo? - Rented!
« Reply #43 on: May 03, 2017, 03:44:41 PM »
Another update now that I'm almost a year in.

My tenant just signed on for another year and I increased rent from $1,590 to $1,630.

The new numbers are:
Mortgage: $998
HOA: $397
Prop manager: $130.40

$1630 rent - mortgage, HOA, and prop manager = $104.60/month income.

Purchased in February 2015: $221,000
Current estimated value: $296,000
Remaining mortgage: $169,728

So far life in LA is going swimmingly so I think I'll at least hang on to the Seattle condo until the lease is up in spring 2018 and then reevaluate. I know I'm mostly keeping it for speculation at this point but I'm feeling fairly confident about the Seattle market.

I don't plan to buy in LA any time soon so proceeds from the Seattle condo would either go to savings or a more conservative investment. Would love any feedback if I'm missing something though.

CanuckExpat

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Re: Moving to LA. What to do with Seattle Condo? - Rented!
« Reply #44 on: May 03, 2017, 03:55:29 PM »
What would be tax situation when you sell with 70,000 plus gain?
At California rates as well?

SeattleStache

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Re: Moving to LA. What to do with Seattle Condo? - Rented!
« Reply #45 on: May 03, 2017, 04:58:58 PM »
What would be tax situation when you sell with 70,000 plus gain?
At California rates as well?

To be honest, I haven't explored all the tax implications as of yet but would assume I would pay as a California resident. This is definitely something I should research.

CowboyAndIndian

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Re: Moving to LA. What to do with Seattle Condo? - Rented!
« Reply #46 on: May 03, 2017, 06:46:41 PM »
What would be tax situation when you sell with 70,000 plus gain?
At California rates as well?

To be honest, I haven't explored all the tax implications as of yet but would assume I would pay as a California resident. This is definitely something I should research.

If you sell it within the next two years, you would have lived in it the 2 of the last 5 years (correct?). If so, you should get the $250k break in your taxes. Any gains made after you converted to a rental +depreciation would be taxed (both Fed and state)

I am not a CPA or a tax advisor

Dicey

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Re: Moving to LA. What to do with Seattle Condo? - Rented!
« Reply #47 on: May 03, 2017, 09:25:15 PM »
What would be tax situation when you sell with 70,000 plus gain?
At California rates as well?

To be honest, I haven't explored all the tax implications as of yet but would assume I would pay as a California resident. This is definitely something I should research.

If you sell it within the next two years, you would have lived in it the 2 of the last 5 years (correct?). If so, you should get the $250k break in your taxes. Any gains made after you converted to a rental +depreciation would be taxed (both Fed and state)

I am not a CPA or a tax advisor
I'm not either, but I'm thinking along the same lines ;-)

SeattleStache

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Re: Moving to LA. What to do with Seattle Condo? - Rented!
« Reply #48 on: May 05, 2017, 12:38:46 PM »
I unfortunately moved around 1.5 years into owning the place so will get hit with those taxes either way. No regrets though due to the family situation.