Author Topic: What to do about rental condo?  (Read 2330 times)

blueinthecity

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What to do about rental condo?
« on: September 15, 2014, 07:06:37 PM »
I own a studio condo in an older building in a certain large mid-Atlantic city.  I bought the condo in 2006 for $245k, with a mortgage at 6.125% for 30 years.  I've been renting the place out about 3 years (same great long-term tenant), as I couldn't afford to sell and life changes made it necessary to move out.  I now owe around $170k, PITI is $1350 per month, condo fee is $460 (going up annually), and rental income is $1675 per month.  I am losing money but come tax time, I generally break even.  Prices have recovered a bit - I'm hoping if I listed, it would close at $210-220k?  I would like to sell, but in the mean time my tenant is stable and communicative with me, and the locale has very tenant-friendly laws, so I'm not keen to damage our relationship by attempting to sell out from under her.  About 9 months ago I offered to sell to the tenant but she had no interest in owning. 

Here is the biggest problem:  the unit above me has had a leak into my ceiling three times in the last 18 months.  In general, it "costs" me nothing to have the leak, because either the building or the woman above me has to take care of it.  It is simply an inconvenience.  However, in practice it has cost me $1000, because each time there is a problem it drags on and on for months before resolution.  The first time, after two months I refunded $500 rental payment to my tenant because the leak was dripping on her bed - I could have had to pay a lot more to put her up in a hotel but luckily she opted to stay with family and demonstrated great patience while I pressured the board and the management to resolve the problem.  I thought it was eventually fixed, but unfortunately, it re-occurs, seemingly during the hot summers.  Last month, I again refunded her $500 rental refund to demonstrate I understood how inconvenient it is for her to put up with a leaking ceiling for several months.  She has to have friends stop by and check on the unit when she travels for work and she rarely complains about this.  I know if she opted to move out, I would have difficulty re-renting or selling the place without a permanent resolution to this leaking situation, so I figure I need to spend the refunds to prevent being stuck with an empty condo.

I am sure the water problem is an issue related to the convector of the unit above me, and in the humid weather the condensation leaks and drips through the ceiling and down into my unit.  I have spent most of the summer pressuring the building, the board, and even the woman above me to address this situation immediately.  We thought repairs were complete, but my tenant says it continues to drip occasionally.  Now, the building says the contractor can't find the source of the problem unless/until we have another hot/humid day, but it's now much cooler.  I am starting to wonder if this will drag on until next summer and happen all over again - what a nightmare.

Before people suggest legal action, I am a lawyer myself and the people I'm dealing with know that - but I realized that the woman above me is holding everything up by threatening legal action (she isn't a lawyer and hasn't retained one  yet).  I know this will only delay a resolution and waste condo fees - the legal argument would be about who should pay for repairs, and either way it is not me so it should not hold up repairs.

To complicate matters, I'm 8 months pregnant so I can't be planning anything drastic right away, and I don't think it would be fair to my tenant (or maximize my sale price) to list around the holidays.  I guess that would put me into spring for a possible sale, but there's also the issue of the unresolved ceiling leak.  I've also considered refinancing (for years I couldn't because I am self-employed, and now I could but it is not my primary residence so the rates aren't great) - but that would make sense mainly if I planned to hold the place for at least several years.  Honestly, I am tired of arguing with these people over things I cannot control and would prefer to get out of the rental condo business altogether!

What would you do in this situation?

jmusic

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Re: What to do about rental condo?
« Reply #1 on: September 16, 2014, 10:40:49 AM »
All the info you need to make a decision is right here:

I am losing money but come tax time, I generally break even.  Prices have recovered a bit - I'm hoping if I listed, it would close at $210-220k?  I would like to sell, but in the mean time my tenant is stable and communicative with me, and the locale has very tenant-friendly laws, so I'm not keen to damage our relationship by attempting to sell out from under her.  About 9 months ago I offered to sell to the tenant but she had no interest in owning. 


1.  If you're "breaking even," then it's a TERRIBLE investment.  What happens if there's a special assessment by the HOA, or a vacancy?  You also don't have any wiggle room for repairs, which is causing your second issue.

2.  I understand about not wanting to sell out from under the tenant, but you need to make a business decision that works for YOU.  This condo seems to be a major source of stress for you.  Definitely READ the laws in question, but typically as long as you give >30 days notice to the tenant then you should be covered. 

3.  I understand about the moral high ground of "I shouldn't be responsible for repairs," but if it costs less than $5k to fix, I'd seriously consider just paying in order to get out of the situation ASAP. 




waltworks

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Re: What to do about rental condo?
« Reply #2 on: September 16, 2014, 06:06:41 PM »
You are losing money, and if *anything* goes wrong (tenant gets fed up and moves out, appliance breaks, big assessment from the HOA, etc) you will lose lots. Sell it ASAP.

-W

aspiringnomad

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Re: What to do about rental condo?
« Reply #3 on: September 21, 2014, 06:36:55 PM »

I bought the condo in 2006 for $245k, with a mortgage at 6.125% for 30 years.  I've been renting the place out about 3 years (same great long-term tenant), as I couldn't afford to sell and life changes made it necessary to move out.  I now owe around $170k, PITI is $1350 per month, condo fee is $460 (going up annually), and rental income is $1675 per month.  I am losing money but come tax time, I generally break even.  Prices have recovered a bit - I'm hoping if I listed, it would close at $210-220k?  I would like to sell, but in the mean time my tenant is stable and communicative with me, and the locale has very tenant-friendly laws, so I'm not keen to damage our relationship by attempting to sell out from under her.  About 9 months ago I offered to sell to the tenant but she had no interest in owning. 

I think I may live in the same tenant-friendly city (see my signature). The problem with your situation, besides the obvious water leakage, is your interest rate. It's crazy high as compared to where rates have been and currently are. I bought an investment property with a 3.875% mortgage earlier this year. So I would refinance, and if you don't then sell. Also, you are only breaking even in a cash-flow sense, not an economic sense. Figuring out whether you are actually breaking even should account for the principal paydown as well as the opportunity costs of owning the property.

Final bit of advice: many people here will caution against timing the market in real estate as well as stocks. But if you do in fact live in DC and have a good sense of the local market, it's pretty straightforward to understand where amenity gaps are going to close and where there is likely to be significant price appreciation in the near future. If your condo is located in one of those neighborhoods, I would hold.