Should I rent out my 1br Condo and get a studio apartment

[heybro]

Question!

Should I rent out the one-bedroom condo that I live in and move in to a studio?

This is my thought process.  Tell me if you think it makes sense or see any red flags I should consider.

I own a one-bedroom newly renovated condo.  I have been paying off the mortgage like mad.  I hate having debt.  I have refinanced it.  It has 12 years left on it.

But in recent years there is awful noise at night outside due to new businesses that have opened.

This was my dream to live here and pay it off and never having a mortgage again.  However, I will keep having property taxes and condo association fees to pay even after the place is paid off.

A lot of people have moved out and rented their units.  I know how much they are getting and they never sit empty.

So, my genius idea is to keep the one bedroom condo and simply start renting it out.
I myself move in to a studio apartment.

Initially, it seems I will have extra money by doing so.  Once the condo is paid off completely, I'll get even more money from renting.

Here are the numbers:

Condo has 80,000 left on it.
Condo Fee is 200/month.
Mortgage is 900/month.
I can get 1,000 a month rent.
(Therefore, I am only technically paying 100.00 a month out of my pocket to have a renter).

Studio Rent is 600/month.

So, my expenses are 100.00 to rent my place plus my new studio of 600 = 700/month.  (Instead of 1100 a month).  I'd save 400/a month.

Once the mortgage is paid off, I'll keep getting income from the rental to pay for my modest studio, the condo fee I still owe, my yearly property taxes, and still have money left over.  My 700/month housing expense becomes zero/month.

My only fear is not having a renter some months or having them not pay rent or damages, etc.
Plus my housing insurance will go up, I'll need rental insurance.  Maintenance seems mute as I'd have it if I simply stayed in the one-bedroom anyway.

But, in the long run, I am thinking I will still come out ahead.

I have thought of waiting until it is completely paid off.
I basically, will at most, save about 4500.00 a year by doing this up front.  (The place can sit empty for 4 months a year before that 4500 savings is taken away, that seems unlikely?)
Once the mortgage is paid, I no longer have any expenses for housing.  I would just have to make sure the place is being rented out enough to pay for my studio.

Seems like the best of both worlds "rent vs. buy."  I get to be in the game having a property that increases in value and amount of rent that can be charged in order to offset the studio's rent where I choose to live (and can move around).  For any year the market makes my studio rent go up, guess what, my one bedroom condo will surely go up in rent I may charge.

[dragoncar]

I'm sure the professional landlords will chime in here but on the surface this doesn't look like a good deal.  The alternative is to just sell the place and rent the studio.  Or buy the studio if the rent v. buy numbers look good on that.

Edit:  to clarify, it looks like you will have negative cashflow on the 1br, so I'm not sure I understand the incentive to keep it unless you expect massive appreciation.  Let us know.

[Rural]

In a nutshell, renting out the place is better for you than living in it, but selling it is even better than that.

[_JT]

Don't. If you don't want to live there, sell it and invest somewhere that actually returns you money.

[fidgiegirl]

I would not personally rent out a property that costs me anything out of my personal monies.  I think you'd be better off selling.

If no owners want to live in the units, what is the rationale behind thinking that they will appreciate?  Are housing prices going up in your area, or just a generalized "housing always appreciates" approach?  I am honestly asking, not trying to be snarky.

What are units selling for, or do you think you could reasonably sell for?  Would you make the $80K remaining on your mortgage or more?

[.22guy]

Maybe make the tenant pay the condo fees?

[daverobev]

You also have to factor maintenance, vacancy, insurance, management fee if you have someone run it for you.

You didn't say how much the condo is worth, but if it's losing money every month to let it out, sell it, and buy somewhere that actually does make money... Eg, that $80k could buy *two* houses that rent for $600 *each* somewhere with no condo fees or anything...

The general rule is that very roughly 50% of your gross rent will go to taxes, fees and so on.

[KingCoin]

What's the value of the apartment?

The general rule is, if monthly rent is less than 1% of the property value, it's not a great investment property. This is especially true for condos, whose fees generally make the economics even less interesting.

Your best bet is almost certainly going to be selling it and rent the studio. If you want to be a landlord, buy a property that makes more economic sense.

[SunshineGirl]

There's no harm in trying it out and seeing what happens. Not much harm, anyway. "Live free" is a good goal.

[_JT]

Well, yes and no. There's not much harm in having your equity tied up in an investment property with a crappy return in the same way as there's not much harm in having all of your cash tied up in a no-interest savings account. As in, nothing bad physically happens to you. But if the goal is early retirement/FI, then your money needs to be working for you. This is a horrible way to do that most times.

[heybro]

Wow; Thank You so much!

This is why I'd want to do it:
Right now I am paying 1100 a month to live in housing.
If I were able to rent it, I'd be paying 700 a month in housing.

But, after sleeping on it, it just does not seem like a good thing.  Why rent out a nice place that I like in order to live in a more run down studio.  Seems the money is easier to spend when you like the place a lot (despite the noise in the summer).  Maybe I can just buy some kind of noise insulation for my bedroom wall or something (padded room anyone?) hehe.

The place is worth......maybe 60,000 right now.  Housing is going up in my area but not extremely much so.........Renting is what everyone is doing here.  I have seen similar places listed for 100k.  I think the reason my place prices low is because half the building's units were foreclosed on.

You guys and your mustaches are so neat.  =)

[richschmidt]

Wow; Thank You so much!

This is why I'd want to do it:
Right now I am paying 1100 a month to live in housing.
If I were able to rent it, I'd be paying 700 a month in housing.

But, after sleeping on it, it just does not seem like a good thing.  Why rent out a nice place that I like in order to live in a more run down studio.  Seems the money is easier to spend when you like the place a lot (despite the noise in the summer).  Maybe I can just buy some kind of noise insulation for my bedroom wall or something (padded room anyone?) hehe.

The place is worth......maybe 60,000 right now.  Housing is going up in my area but not extremely much so.........Renting is what everyone is doing here.  I have seen similar places listed for 100k.  I think the reason my place prices low is because half the building's units were foreclosed on.

You guys and your mustaches are so neat.  =)

This information helps quite a bit.

Selling isn't really an option for you right now.  Good to know.

If you decide to rent out the condo, there are a lot of details you need to consider.  Some were mentioned earlier.  My guess is that in the end your $700 monthly cost might look more like $800-900.

So… if you want to super-aggressively move toward FI, then it might make sense to rent it out & move someplace cheaper.  You could pour that extra money each month into that mortgage to speed the day when the condo is putting more money in your pocket than it's taking out.  But it's not exactly an exciting investment opportunity… and you'll have to decide if you want to be a landlord.