Sell or rent the condo I inherited?

[ClimateMind]

(This is a follow up to the smoke-odor removal odyssey I've been on over the last few months)

I have inherited my mom's 2 BR condo.

Redfin estimate is: $616,000
Zillow estimate is: $632,000

Zillow rent estimate is ~$3000 (and that's my best guess looking at other units on the market)

Condo dues are $600/mo.
Other costs (tax, insurance) are about $400/mo so I estimate $2000/month cash flow, not counting repairs.

The condo is in a desirable neighborhood in Seattle, close to a lot of tech jobs (assuming people really do start going back to the office!)

By the numbers, it seems like I should sell - I'm looking at a max 3% rate of return. Maybe I can count on housing values in Seattle to continue to rise? But maybe not. My instincts say, "you got lucky and you were handed a house in Seattle. People want to live here. Hold onto it." How to decide if I should listen to my instincts?

Side story- in 2000, my mom tried to convince me to to go in with her on a 1BR condo in the same neighborhood. She was going to put up the down payment for me. For various reasons related to family dynamics and where I was in life back then, I said no. In retrospect, this would have been a really good offer to accept, financially; and a really bad offer to accept, in terms of family dynamics. But now I find myself with a condo in Seattle, 23 years later, and not want to make the same "mistake" of giving up on a property that might be good to hold onto it. So all that might be clouding my judgements.

Another complicating factor is that my kids will be out of the house in 7 years or so, and I might want to live in this condo at that point. The location is really good. But 7 years is a long time and it doesn't have to be THAT condo. Another aspect clouding my thinking.

Any thoughts/slaps in the face/or suggestions about what I might be overlooking welcome!

[Dicey]

I believe there's a lot of uncertainty ahead. Of course, there's always uncertainty ahead. What's different right now is timing. If you sell it now, your tax liability will be virtually nothing. If, in seven years, you decide to sell it, taxes and depreciation recapture will be a PITA.

If you were going to buy yourself a condo, would you want that exact one, or would you be settling because it's "free"?

How far is it from where you live now? Do you have any LL experience? Even at 5%, there is still a smoke smell. Would that bother you in the future?

Most important: if a half a million (or more) were dropped in your lap right now, would you know how to invest it? Because seven years is about what it takes for equities to double. Do you want to be you with another $1M+ in your stache, or you with a condo that smells faintly of smoke and needs all new appliances? Also, the condo building's overall state of repairs and the health of their reserves are worth looking into.

Barring more information, I'm in the "Sell" camp.

[Sibley]

I don't really see a strong argument from you that you want to keep this condo, more that you think that you should want to keep the condo. So, throw out the should. Do you want this condo, as it is, now?

[iluvzbeach]

Based on what you've described, I'm in the "sell" camp for all the same reasons Dicey outlined above.

[Freedomin5]

You might want to live in that neighborhood? Or you do want to live there? Has real estate appreciated at a higher rate than the average market return in that particular neighborhood? If yes, then you want to keep a foot in that particular market.

I ask because in HCOL cities, my experience has been that real estate in certain neighborhoods will rarely tank to the point that you lose money. It often simply stagnates or fails to grow at as quick a clip, but during those times usually the stock market is also stagnating.

If real estate in that particular neighborhood has tended to appreciate ar a greater rate than general market returns, I’d hang onto the unit. If, seven years down the road, you don’t want to live in that neighborhood, then sell and buy somewhere else. If you want to live in that neighborhood but not in that condo, then sell and trade for a different condo in the area.

I’m speaking from personal experience. We bought a 1-bedroom about 10 years ago in a HCOL city with a strong real estate market. Within a few years, it doubled in value. At that time, I considered selling and was told by forum members to sell. We kept the condo instead. Good thing too because the value continued to rise more quickly than market returns. If we had sold, we would’ve been priced out of the market now. Our current plan is to hold until we are ready to move, then sell and use the funds to buy something else. Meanwhile, rent from the condo continues to cover its own costs and generate a decent bit of income each month, and its value continues to rise. It’s more work and possibly a bit more risk to have a tenant, but in our case it’s worked out.

[FINate]

You inherited a $600k asset. Other than potential sentimental value and issues around taxes, the question you should be asking is how best to invest $600k. Is speculating on a condo that you "may" want to use in 7 years based on FOMO a good investment? Probably not.

A quick thought experiment: Pretend you didn't inherit a condo and instead got cash. Yep, you have $600k sitting in your savings account. In this situation would you buy this specific condo? There's your answer.

[Cassie]

I think the biggest question is will you be priced out of the Seattle housing market if you sell and in 7 years want to move back. Now if you own a house in Seattle that you live in and could sell then it’s a moot point.

[ClimateMind]

You inherited a $600k asset. Other than potential sentimental value and issues around taxes, the question you should be asking is how best to invest $600k. Is speculating on a condo that you "may" want to use in 7 years based on FOMO a good investment? Probably not.

A quick thought experiment: Pretend you didn't inherit a condo and instead got cash. Yep, you have $600k sitting in your savings account. In this situation would you buy this specific condo? There's your answer.

Good questions. Unfortunately I don't know! I guess that's part of the problem.

My 2010-era brain says, "I'd put it all in Vanguard total stock market index, obviously"

My 2023 brain is saying, "Don't overdo it on stocks, who knows what's happening to the economy? And who knows when I'll want to retire. Real estate is a good thing to have, unless the tech sector crashes I'll always have tenants, and I can live there in a pinch."

My anticipating-2030-brain is thinking, "Climate change, political disfunction, and AI are coming - I'm going to buy some land and put up a yurt"

[ClimateMind]

If you were going to buy yourself a condo, would you want that exact one, or would you be settling because it's "free"?

How far is it from where you live now? Do you have any LL experience? Even at 5%, there is still a smoke smell. Would that bother you in the future?

I would at least strongly consider this one for post-kid life. It's in a great location.

It's about 7 miles from my home. I live on the periphery of the city, and this is in the heart of the city.

Most important: if a half a million (or more) were dropped in your lap right now, would you know how to invest it? Because seven years is about what it takes for equities to double. Do you want to be you with another $1M+ in your stache, or you with a condo that smells faintly of smoke and needs all new appliances? Also, the condo building's overall state of repairs and the health of their reserves are worth looking into.

Barring more information, I'm in the "Sell" camp.

I hear you. About the half million, see my other reply. I'm uncertain!

[ClimateMind]

You might want to live in that neighborhood? Or you do want to live there? Has real estate appreciated at a higher rate than the average market return in that particular neighborhood? If yes, then you want to keep a foot in that particular market.

I ask because in HCOL cities, my experience has been that real estate in certain neighborhoods will rarely tank to the point that you lose money. It often simply stagnates or fails to grow at as quick a clip, but during those times usually the stock market is also stagnating.

If real estate in that particular neighborhood has tended to appreciate ar a greater rate than general market returns, I’d hang onto the unit. If, seven years down the road, you don’t want to live in that neighborhood, then sell and buy somewhere else. If you want to live in that neighborhood but not in that condo, then sell and trade for a different condo in the area.

I'll have to look into this - rate of increase for real estate in that neighborhood. Yes, I can imagine wanting to live there - seven years seems both long and short - I've lived in my current house for 7 years and it seems like nothing. Another factor is there's a chance that one of my kids will be able to live there, if they go to the nearby state college (big if, of course).

Thanks for your thoughts on the 'keep' side of things!

[ClimateMind]

I think the biggest question is will you be priced out of the Seattle housing market if you sell and in 7 years want to move back. Now if you own a house in Seattle that you live in and could sell then it’s a moot point.

Interesting point - I am already priced out of the Seattle market for a house that would fit my family; but I could probably sell my current house in 7 years and buy something similar to this condo, in Seattle - it would just be significantly smaller.

[FINate]

You inherited a $600k asset. Other than potential sentimental value and issues around taxes, the question you should be asking is how best to invest $600k. Is speculating on a condo that you "may" want to use in 7 years based on FOMO a good investment? Probably not.

A quick thought experiment: Pretend you didn't inherit a condo and instead got cash. Yep, you have $600k sitting in your savings account. In this situation would you buy this specific condo? There's your answer.

Good questions. Unfortunately I don't know! I guess that's part of the problem.

My 2010-era brain says, "I'd put it all in Vanguard total stock market index, obviously"

My 2023 brain is saying, "Don't overdo it on stocks, who knows what's happening to the economy? And who knows when I'll want to retire. Real estate is a good thing to have, unless the tech sector crashes I'll always have tenants, and I can live there in a pinch."

My anticipating-2030-brain is thinking, "Climate change, political disfunction, and AI are coming - I'm going to buy some land and put up a yurt"

What I'm hearing is a missing Asset Allocation. Figure that out and the decision of what to do with the condo will follow.

Somewhat related: I grew up in a VHCOL area where real estate prices went up like crazy, so I understand the FOMO, and the fear that selling may mean you can't buy in the same location in the future. Yet IMO fear is a terrible investing strategy that often leads to investments that one later regrets. If you already have some assets in addition to the inherited $600k, you will probably be fine buying in Seattle if or when this becomes a thing. And, if you can't afford Seattle, is it really a big deal if you buy someplace else?

[lhamo]

Sympathize with your dilemma!  We're likely selling our house/downsizing next year and I am already stressing about the transition.  Gonna PM you some additional info in case there might be a win-win here....

[sonofsven]

My opinion is that since you do see yourself living there in the future and it does cash flow now as a rental then you should keep it and revisit that decision yearly.
You're guessing as to what asset (stocks vs this particular condo) will appreciate faster. If you really want to live there than there is more to the decision than just dollars and cents, but I'm speaking as someone who has sacrificed some potential wealth building for lifestyle choices, so YMMV.
Also, just curious, my family up there (I was in Bremerton last weekend) was just telling me about all the tech layoffs in Seattle. Between that and the high interest rates is it still a white hot sellers market?

[trollwithamustache]

Since you are asking the internet, you should probably sell it and not have to deal with it. But, since you asked the internet, we get to spout off!

What are your other assets like? stocks? other rentals? businesses?   Since we are semi-fire from stocks/traditional financial assets, I would want to keep the real estate for diversification.   2k of income per month is real money, and its not correlated to the stock market. when tenants turn over you would have your "downturn" for however long it takes up there.

[ClimateMind]

It's been a while - 3 months! So I thought I'd give an update. I kept the condo, fixed it up (mostly smoke treatment, which was successful! and a new fridge), and rented it. The cost of fixing it up and paying condo dues while it was empty was about $10k (that included moving out my mom's belongings) and took 2 months. It took no time to rent the place - I signed a lease a week after posting the ad. The tenants are financially solid and seem very appreciative of the space, which means, I hope, that we can just coast and all be happy.

The big question will be expenses - besides condo dues, insurance, and taxes, there have been no expenses since I rented it, giving me a cash flow of about $2500/mo. Meanwhile, In July, I spent about 1 hour on "property management", so I'm pretty happy so far. Obviously there will be more repair costs over time, and rare, bigger expenses. I will see where things stand in 1 year, but overall I'm pretty happy getting revenue equivalent to 1/2 of my income each month. I feel I have a new level of diversification, and  Thanks, mom!

I'm tracking home valuations over time, too, to see. So far home value has increased over a few months, so I'm glad I didn't sell the property back in May!

Thanks for everyone's advice and thoughts!

[lhamo]

Thanks for the update!  Hope it works well for you as a rental.  After an attempt to extract equity from our home to buy a fixer-upper, we made the decision to put it on the market so that we can be cash buyers for our next home. Part of the decision was finding a nice rental in our neighborhood for a pretty good price ($3445 for a 3 br 2 ba house).  We have spent the last two weeks packing, moving and getting the house ready to hit the market, which it will today.   Hoping we can still get a good price!

Lease goes through next June.  May just rent for awhile while we see what the market does. 

When I recover from the last two weeks (been logging 20k+ steps a day and working 12-16 hours lugging boxes and cleaning) I'll try to set up a northend MMM meetup.  Maybe in my empty (but hopefully under contract) house!