Author Topic: Sell Condo or rent !!  (Read 3508 times)

Scientist

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Sell Condo or rent !!
« on: April 16, 2014, 01:57:16 PM »
Hi All,

We had bought a condo 4 yrs ago for about 440K with 10% down and 3.99% rate and approx 370$ HOA. It is in the best location in town for renting and also many people are interested in buying at this location. Now we get calls from agents if we are interested in selling for about 550K. Ofcourse this is not sure until we actually get buyers. But it is tempting to think we can get back the money we put in. Now remaining mortgage is ~370K. Due to job changes, we will move this year end out of this place. So I need advice from you experienced people on whether to rent this condo or keep it.

If renting: we will get 2300$ in rent and that will not cover about 300$ of the HOA. We will be managing it remotely. The hope is that the value will steadily increase and someone is paying our mortgage for us and at some point the rent will cover the entire costs of the mortgage.the low interest rate is another reason I am tempted to keep it. Is there any reason to keep this condo in terms of future net worth increase,diversification, leveraging at low 3.99 interest rate etc etc...tax deductions etc etc...not sure whatelse.

If selling: we will get back almost everything we put into the condo in terms of improvements (~20K) and monthly payments etc. we can use this money for downpayment for a house/condo where we will move if we get good deals or invest in a couple of smaller rental properties elsewhere. We dont want to actually rush into buying a house and dont mind renting for a few years. Although the prediction is that the market will continue 5% increase next year...we cannot predict a few years from now what the situation will be.

Please give us pros and cons of selling vs renting this condo. A financial analysis for this would be appreciated.

Thanks so much.

skunkfunk

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Re: Sell Condo or rent !!
« Reply #1 on: April 16, 2014, 02:35:18 PM »
I don't have a financial analysis for you, but you will not be getting anywhere near enough in rent to make me comfortable with renting it out. I do believe you will be taxed for some of the money you make from selling it, but your rate of return on that 550K it is worth is a mere 5% annually - and that is before HOA, insurance, maintenance, taxes, etc. I am guessing that your real rate of return will be somewhere around 1-2%, which will not cover the 4% mortgage on 370K or inflation.

So one vote for sell it.

CowboyAndIndian

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Re: Sell Condo or rent !!
« Reply #2 on: April 16, 2014, 02:53:42 PM »
First of all, remote land-lording does not work. If some thing breaks or when a tenant leaves and the next one has to be selected you need to be there.

If you rent, you have negative cash flow. In your calculations, you did not include the impact on your taxes due to the income that you are making.

So, sell it and use the money to buy something free and clear in the new place.

I would suggest that you make your decision real soon, since prime real estate buying season is from March thru August. Most people prefer to be in the house by September so that kids can start school there.

Best of luck

tryan

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Re: Sell Condo or rent !!
« Reply #3 on: April 17, 2014, 08:56:40 AM »
This is a no-brainer ... Sell .

I would not accept a negative cash flow to speculate on future appreciation.

Rebecca Stapler

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Re: Sell Condo or rent !!
« Reply #4 on: April 17, 2014, 09:03:51 AM »
I see where you're coming from, but at a minimum you know you'll lose $3600/year because the rent won't cover the HOA fees. If you raise the rent 3% each year, you won't cover those fees for 3 more years. And that's what you're guaranteed to lose -- you will probably also have to pay for times when the apartment is empty inbetween tenants, a management company to manage the property because you're not local, and maintenance on the condo.

If you want to invest at least $3600/year for 3-4 years before you break even each year, then that's your calculated risk that you want to take. But if you'll need cash for a new home, or you would need it to make your rental payments, then sell the condo.

thesinecure

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Re: Sell Condo or rent !!
« Reply #5 on: April 17, 2014, 09:51:13 AM »
we had a similar situation - owned a house for several years we bought at $220k, was worth about $450k when we decided to buy a new house in better school district

thought about renting out the old one, had a remaining mortgage of $150k or so and had property taxes of course

based on expected rent of $2,500/month it was easily cash flow positive by around $800-1,000 month

ultimately decided that despite the positive cash flow, the return profile was nowhere near enough to do it, especially when computing that based on the expected value at $450k versus what we had tied up in it

but that's really a return question you have to ask yourself - are you happy with lower returns in exchange for potential appreciation on what is ultimately an illiquid asset that will "depreciate" in quality over time?


dragoncar

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Re: Sell Condo or rent !!
« Reply #6 on: April 17, 2014, 11:18:29 AM »
As for you, Scientist, can you provide some more info?  Are you in the US?  Which city?  You probably won't get taxed on the capital gains from selling.  Also, with deductions (depreciation, HOA, mortgage interest, property taxes) you may end up cash flow positive.  But once you start renting it out, you lose the capital gains exemption (it's reduced by the proportion of years that you rented it vs. lived in it) AND the capital gains increase (increase as value goes up, and also as you depreciate the property basis goes down).  I'm still guessing you'll come out slightly cash flow negative, but positive equity.

Sorry to hijack, but I have a friend with a similar problem in SF:

Low positive cash flow (he said a few hundred dollars/mo)
Low interest rate (sub 4%)
Property taxes locked in under Prop 9 (can only go up a few percent per year)
Not subject to rent control

Unfortunately, he doesn't know exactly how much it would rent for, or how much it would sell for.  There aren't a lot of comps for either, but I'm guessing the cap rate would be relatively low -- 4% maybe?  It's almost always low in SF, which is why I personally wouldn't get into the rental game.

On the other hand, he thinks it would be a shame to give up the great interest rate and locked-in property taxes.

So how should he proceed?  List the property for sale and see what offers he gets?  List the property for rent and see what the market will bear?  Both?

Scientist

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Re: Sell Condo or rent !!
« Reply #7 on: April 23, 2014, 04:00:51 PM »
Hi All, Just an update. The other condo in my building has been listed for 550K. It is not as updated as ours. We easily have about 25K worth of upgrades we ourselves did after we bought it. Now we dont know if we will get all what we put in. Dilemma about lsiting it now or wait and see what it goes for? The other one is owned by a corporate...so maybe they dont mind loosing few dollars. We would want to get best price.....what should be we do?

LinCO

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Re: Sell Condo or rent !!
« Reply #8 on: April 24, 2014, 06:51:45 AM »
I had to make this decision with a retirement condo I inherited last year from my dad. Issues I added in to the calculation was the lost opportunity of investing the $20-30k I stood to lose, in some other way. The key, though, was the area-the condo is outside of Washington DC, where high home prices and appreciation are much more likely. Very important-what is the area like where your condo is? Also, the whole development had originally sold higher, and we expected prices to rebound. In less than a year, it has appreciated 12% according to the very rough Zillow, and units in the building are listed now for 15% higher than the condo's value last summer. We have used a management company-this does not stress me out and it's actually in a way better for my husband and real estate management partner-it's so far away he CAN'T rush over there if the doorbell stops working!! But yes, it is about $370 per month negative cash flow right now. That's kind of a bummer. I'm thinking if the value keeps climbing, we may sell next summer to reduce our hassle.

Scientist

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Re: Sell Condo or rent !!
« Reply #9 on: April 24, 2014, 01:17:10 PM »
As for location, it is the best location. About half a block from a major university so renting is not a problem. Older people also want to rent here due to proximity to restaurants/shopping/groceries/hospitals etc. The main reason we invested in this was due to its location so we know even if the market tanked the value will not go below what we purchased it for. New condos near to ours are selling for $1 Mill. so for rich retirees this might be a good deal even if a bit older.

Even though we love the location/the city and it would be a ideal retirement area one day- for practical reasons, we feel maybe it is time to list due to several factors. 1) we will move due to jobs latest at the end of this year. 2) as we put in only 10%, the rent will not cover the HOA 3) Any rental losses due to vacancy/repairs will have to come out of pocket. 4) any special assessments for building maintenance etc will come out of pocket. 4) Better chances of making good investments now rather than have the money ties up.

The question now is sell now depending on how the other condo goes for this summer (rent someplace meantime) or wait 6 more months until we are ready to move and then sell next spring- only downside I see here, I am not sure how the market will be next spring. Redfin forecasts 5% growth. Worth it to wait for the extra 5%?

Thanks all.