New to R/I. Looking for advice on whether to sell or rent my condo.

[Mike Downey]

I have no rental properties at the moment, and I am in real estate investment learning mode at the moment. I am in the military and will be moving at the end of 2023. I currently own (not paid off) a condo and I am looking for advice on whether to sell or rent the condo when I move. I paid $225k for the condo and my current mortgage is at $206k. If I use the $225k in the BP calculator, this property is slightly negative cash flow. I initially bought this condo without the intent to rent. Now that my total mortgage is down, should I use the $206k price when calculating in BP? Using $206k will give me a slightly positive cash flow. Thank you. 

-Mike 

[Dan H.]

Quote from @Rick Albert:

Quote from @Mike Downey:

Quote from @Rick Albert:

What is it worth if you sold today? After commissions and closing costs, what would you net? From what I see, it doesn't look like you would net anything worth wild if the current market value is $225,000.

Whenever someone is on the fence about selling, the question they have to ask themselves is "what would I do with the money?" Can you buy a new owner occupied duplex? That might make more sense.

When did you buy it? Could you rent it out for two-ish years and then sell? If that's the case, even if it cash flows negative, you have loan buy down, which might make up the difference for when you sell. As long as you live in the property 2 out of the last 5 years, up to $250K if single and up to $500K if married in profits is tax free. 

You also need to figure out how the HOA is doing. Although it may cash flow today, one HOA special assessment or a raise in HOA dues and you are stuck.

Rick, thanks for the reply!

I will net around $30k based on the market and what I put into the condo at purchase.

I will use the money from selling to look for a different rental property. Ideally one with better cash flow, but I have some learning to do. Renting this condo will be a good way to get my feet wet in renting a property, but I don't want to force it if this property isn't worth holding onto. Do you think finding a new owner occupied duplex will be a better option and feasible for a first investment? I will be moving to San Diego for 2 years and then again to Arizona after that so I would probably look to invest somewhere in Arizona.

I purchased the condo in August of 2021. I can rent it for a couple years and then sell it if the market is still high.

I should meet the 2 year mark $250 tax free profit.

That is a great point about the HOA. I need to look into that.

Thank you.

A duplex would do better for you in the long run over a condo (typically). I think the challenge is how far will that $30,000 take you? FHA would probably be the route you would have to take. Take a look in those markets and see what you can buy and then do a Return on Equity calculation. For example you may be able to buy a duplex in the San Diego area, which with the high rents and loan buy down, might be a better option than keeping the condo. Then two years later, sell and buy in Arizona and then start the portfolio. The San Diego property is more as an appreciation play to push forward your long term investment goals.

I understand where you are coming from as with that small of an investment amount, a high LTV loan is optimal. High LTV is easiest to obtain for owner occupied. He is going to be living in San Diego ...

However, I would recommend against buying in San Diego unless your hold is 5 years or more (10 years would be safer).  It will be cheaper to rent than to own.  You would need appreciation/mortgage paydown to be in excess of the cost to acquire, sell, and make up the cost difference between owning and renting.  In high appreciation years, the appreciation would work to accomplish this.  However, in low appreciation years it could fall way short. Expecting that level of appreciation in the near term is too risky for me.

By the way my underwriting is showing no near-term appreciation (5 years).  I may be conservative, but I want my underwriting to be conservative.  I do believe long term San Diego will continue to have appreciation in excess of inflation, but I am reluctant to expect this over a short duration.