Author Topic: Opinions on selling vs renting my condo? Cash flow is tempting  (Read 2088 times)

OutlierinMA

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Thank you in advance for your time! I am a long-time reader of the blog and relatively recently joined the forum. I've been doing a lot of reading here and have learned tons. We're moving to a new place, and we've been leaning towards selling our condo since cash flow didn't look great, but rents have been going up so I'm wondering if we should keep it to give us an alternative cash flow vs stock, and some diversification. I have to admit I wouldn't buy this property for rental (doesn't make the 1% rule AND condo fees and RE taxes are high), but since we own it already, does it make sense to keep it?

The condo is in a well-kept development and is a desirable unit on the river with an extra covered parking space, FWIW. The rents have been going up and the latest "going rate" for units in this complex in general (not waterfront) is $1,900.

The monthly costs including mortgage, taxes, condo fees etc are $1,617 per month, broken out as follows:
Mortgage $1,248 (last statement: principal $303, interest $595, escrow $350 - about $350 annually for insurance, the rest is RE tax)
Condo fees $346
Water $23
Total $1,617

The original purchase price was $225,000 October 2012, with a mortgage of $180,000 at 4.375%. We never refinanced because we've been planning to move (and sell the condo) since I discovered MMM. The current balance is $163,305.

Another unit on the river just sold for $242,000, so we are asking $245,000. We are estimating a possible net of $65,000-$75,000 depending on closing costs, not getting asking price, etc.

So best case gross revenue is $22,800, with expenses of $19,404, or $3,396, or 4.5% of the $75,000 highest expected net sale proceeds. That seems fairly decent to me since it will require very little of my time - the condo association does all landscaping and snow removal, etc.

Also, we could probably rent the covered parking spot separately. I have no idea what this would rent for, but I'm thinking maybe $50 per month? That would increase the return to 5.3%.

Any thoughts?

The biggest downside I can see is that vacancy would eat up any profit fairly quickly; on the other hand I don't expect too much vacancy based on the way things sell around here. This condo is in Chelmsford, well north of Boston but within commuting distance.

Thank you,
Susan


Jim2001

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Re: Opinions on selling vs renting my condo? Cash flow is tempting
« Reply #1 on: May 14, 2016, 12:11:44 PM »
Outlier,

  Granted it doesn't meet the various criteria for a purchase, but you already own it and so you don't have the additional transaction costs (escrow, title insurance, inspections, loan fees, etc.), but I would be happy with 4.5% return net of expenses.  Add to that the consideration that much of that will be tax sheltered by interest and depreciation.   

Do some research on what you can get for the parking space and a good number for fair market rent to confirm your estimates. 

When I turned my first home into a rental in 2000, I had the same feeling; "I wouldn't buy this as an investment", but I hung in basically because I was lazy and didn't want to deal with the sale at that time.  Six years later I sold it and did a 1031 tax deferred exchange with the equity into two other properties in other parts of the country.  Those properties sold in 2014 and via a series 1031 exchanges I now own interests in multiple properties.  Those investments are a big part of my projections to FIRE in 2 years at the age of 52.  Turning that house into a rental was one of the best investment decisions I've ever made. 

Of course I live in LA, a HCOL area and not all markets will perform the same, but I say definitely keep it.

OutlierinMA

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Re: Opinions on selling vs renting my condo? Cash flow is tempting
« Reply #2 on: May 15, 2016, 07:26:16 AM »
Hi Jim,

Thanks for your reply. I have put out a question on our community Facebook page regarding the carriage house; that's where we got the info about the rent, and yesterday I saw a unit advertised for $1,950 on Craig's List!

I go back and forth between wanting to be done with it and wanting to keep it; does anyone list property for rent and for sale at the same time and just go with whatever happens first? I'm considering it.

-Susan

Weedy Acres

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Re: Opinions on selling vs renting my condo? Cash flow is tempting
« Reply #3 on: May 15, 2016, 02:38:19 PM »
You've got nothing budgeted for maintenance. Or vacancies.

OutlierinMA

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Re: Opinions on selling vs renting my condo? Cash flow is tempting
« Reply #4 on: May 16, 2016, 01:19:21 PM »
Okay, I think I've decided to sell - I can always reinvest the proceeds in another rental property if I decide I want to be a landlord.

Thank you, Jim, thank you Weedy.

thedayisbrave

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Re: Opinions on selling vs renting my condo? Cash flow is tempting
« Reply #5 on: May 19, 2016, 09:08:52 AM »
Okay, I think I've decided to sell - I can always reinvest the proceeds in another rental property if I decide I want to be a landlord.

Thank you, Jim, thank you Weedy.

Good decision.  I wouldn't be a landlord for a 5% return.  I wouldn't do it for even 7%.  Only double digits for me :)

Jim2001

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Re: Opinions on selling vs renting my condo? Cash flow is tempting
« Reply #6 on: May 19, 2016, 08:03:36 PM »
Okay, I think I've decided to sell - I can always reinvest the proceeds in another rental property if I decide I want to be a landlord.

Thank you, Jim, thank you Weedy.

Outlier,

  You're welcome.