Thinking of renting my condo in a few years. Need opinions please.

[RobsEG]

I live in Jacksonville Fl. I am 25 years young and been reading mmm for the past year and a half. I need some guidance and wisdom.

current condo value: $40k-$45k
bought for: about $68k
currently owe: about $63k
mortgage: $440/month @ 5.5% interest
hoa fee: $195/month
current rent for the same unit: around $850

clearly I am underwater, and apparently condos don't hold their value like houses. luckily in about 4 months we will be debt free (thanks to this site!) except for the mortgage. so my wife and i are planning on making extra payments and should be able to pay the mortgage off in 4-5 years. I wouldn't mind settling here and be debt and mortgage free but I don't really like the location. so I'm thinking of eventually renting it out. I would love to have a successful rental property investment. so either:

a) pay the mortgage off in 4-5 years then rent the condo out.

b) pay down 25%-50%, refinance for lower monthly payments, then rent it out.

c) sell it. would the profits even be worth it, taking future property expense into consideration? I've read houses make better rental properties than condos. so should I just sell it when I have the opportunity? or would I be making good profits to keep it?

[rmendpara]

I live in Jacksonville Fl. I am 25 years young and been reading mmm for the past year and a half. I need some guidance and wisdom.

current condo value: $40k-$45k
bought for: about $68k
currently owe: about $63k
mortgage: $440/month @ 5.5% interest
hoa fee: $195/month
current rent for the same unit: around $850

clearly I am underwater, and apparently condos don't hold their value like houses. luckily in about 4 months we will be debt free (thanks to this site!) except for the mortgage. so my wife and i are planning on making extra payments and should be able to pay the mortgage off in 4-5 years. I wouldn't mind settling here and be debt and mortgage free but I don't really like the location. so I'm thinking of eventually renting it out. I would love to have a successful rental property investment. so either:

a) pay the mortgage off in 4-5 years then rent the condo out.

b) pay down 25%-50%, refinance for lower monthly payments, then rent it out.

c) sell it. would the profits even be worth it, taking future property expense into consideration? I've read houses make better rental properties than condos. so should I just sell it when I have the opportunity? or would I be making good profits to keep it?

First of all, you are underwater in the property, right? You owe $63k and it's worth $45k? So, you can't sell it otherwise you immediately lose $18k (which you have to come up with somehow).

Maybe you are asking whether to sell it if/when the price recovers to break even?

Let's run the math on renting (annual):

Gross rents - 850 x 12 = $10,200
HOA - 195 x 12 = (2,340)
Tax/ins - 100 x 12 = (1,200) <-- just a guess?
Maintenance/leasing fees/vacancy - 5% x 10,200 = (510) <-- this is a low estimate

Gross profit before mortgage = +$6,150
annual mortgage = 440 x 12 = (5,280)
net cash flow = +870

Let's assume some miscellaneous costs of ~$1k... so you more or less break even if you rent it out?

A is probably your best option. Once your mortgage is paid off, you will be making around ~$6k/yr in cash flow... not bad at all (assuming this is sufficient to cover eventual maintenance/repairs/tenant costs).

B is not a good option. The cost to refinance will wipe out any savings from getting a lower mortgage rate. Even if you could get your rate down today to 4%, you're only saving 1.5%/yr. On a value of $45k, your maximum loan will be $36k (80% loan to value). At these amounts, your refinance fees will probably exceed any savings and it will be a big pain in the rear end! Just pay it off...

Once paid off, you will make ~$6k on a (assuming good appreciation) value of $60k... so 10% net yield. This assumes you can rent it out easily and keep it occupied.

Conclusion:
- You won't save money by refinancing, so just pay it off as you are able.
- If maintenance/leasing is not an issue, I would keep it and rent it out.

[RobsEG]

yes I am underwater so if I did sell it wouldn't be until i make enough extra payments and I build enough equity and at least break even.

your guess for tax/ins of $1,200 a year won't be valid because tax/ins is covered with the mortgage and hoa. and when I do rent it out I will use a property manager.

so plan b to refinance and rent is out the window. and your basically saying the condo is worth keeping, paying off early, and renting. sounds good to me thanks for your suggestion! definitely helped.

if any one else can offer any more opinions/suggestions it would be much appreciate!

[waltworks]

I concur - rent it out. It's not a terrible rental assuming your numbers are correct, and your other options all suck.

-W

[clifp]

Being a landlord is a part time job,it may only be a few hours a year, but sometimes it is a couple hours a day for a month or so, if you are dealing with a bad tenant and issue with the property.

One of the advantages of renting it out is that once you have rented for 3+ years AND if the property still is worth less you paid for it then you MAY be able to deduct the loss from your taxes.
In contrast if you sell your personal residence for a loss, that is not deductible.

[RobsEG]

looks like I'll be renting it out after its paid off in 4-5 years :D