Property is increasing in value, sell ?

Question

Quick synopisis : I purchased condo ten years agao for 219,000. It is currently valued at 245000 and is increasing. It's in a multiunit highrise in quincy mass with a pool on roof. Price per sq ft in building is on the rise because its a growing area and close to downtown. I owe 134,000, my taxes are 2780, condo fee's $334/mnth, mortgage $931. I have a great tenant who pays $1300 plus her own utilities. My question is should I sell and take money to buy a multi unit home in a less desirable area or hold on to it. I want to try being a landlord but thus far I am not making any significant money. I like the idea of selling and using the equity to buy a multi unit home. Or I could hold onto it, save some more money and buy a multiunit but it will take me longer. Any ideas would be great.

Mike Hurney · Answer

@Mark Chapman Welcome to BP!

When I'm doing a Mortgage for one of my Buddies in our MassRealEstate.net (REIA) I have to use the Fannie Mae guidelines and derate their rents to 75% which they're not happy with, However when you look at upgrades or emergencies that number is not too far off.

I think you may want to look at the life value to you of the Condo:

When your town Appreciates, which type of Property increases the most?

How about the Appreication in neighboring towns?

Point of Entry (Boston $ vs Fall River$)??

Potential rent increase to Market Rent?, etc

I'd have coffee with @Gualter Amarelo !

Sharon Tzib · Answer

Thanks @Shaun Reilly not sure what happened w/ the tax number there - I have no good excuse :)

I don't think his mortgage payment includes taxes mostly because he stated them separately, but yeah, a "cool" $35 is still majorly depressing considering it doesn't begin to account for all costs. Thanks!

Shaun Reilly · Answer

I agree with the general point that this is a crappy cash flow investment, since there is negative cash flow!

I think Sharon made a small typo in the taxes, I get $2780/12 = $231.67

However the conclusion is the same since if you put my number into her equation you still get the $1497.  :)

Seems like best case is that your stated mortgage payment includes the taxes in escrow in which case you case flow a cool $35 as long as you have no repairs, no vacancy, no assessments, and unless it is also included in the mortgage payment no insurance (Unlikely you are having a HO6 policy included in your mortgage).

The only reason to hold onto this is if you want to roll the dice that it will appreciate even more and you are willing to carry the negative until it does.

Jeff Kehl · Answer

Couple additional things to think about. If you're 10 years into the mortgage you're probably paying down equity at a good rate by now so although you're just breaking even you are gaining equity every month. Also how long has it been since you lived there? You may have to pay capital gains tax if you haven't lived there in 2 out of the past 5 years.

If you want to hang onto it for awhile but still invest in another property, you could get a Home equity line of credit on it and use that for your downpayment on another property.

Not something you would want to do unless you have reserves and or a good income to back it up. But just wanted to throw it out there as an alternative to sell and buy something else.

Aaron Montague · Answer

@Mark Chapman

I'd sell and take the equity.  Hit the current tenant up, they'd probably be interested in the property.

93k down + FHA 203k loan = http://www.realtor.com/realestateandhomes-detail/16-Baird-St_Boston_MA_02124_M39608-60237 as a finished, livable property.

Or something like it.

Gualter Amarelo · Answer

@Mark Chapman If you are seriously considering checking out real estate in Fall River, let me know and I'll hook you up with an excellent Real-Estate agent/investor who knows exactly what a good deal looks like. A good realtor saves you a lot of time not having to chase all of the bad deals.

Cheers!

Gualter Amarelo · Answer

I would encourage you to invest in multifamily in the beautiful city of fall river!! I would definitely stay in the 02720 & 02724 zip codes as these have the highest rent and lowest turn over. I currently own property in 02720 also referred to as the north end or lower highlands. A good deal looks something like a tripled for around $140-170k. Rents are averaging right around $750 per unit. Higher on first floors and 3 beds. Lower on 3rd floors or 1 beds. I currently cashflow near to $200 per unit per month.

Viva La Fall River!

Cheers!

Pete T. · Answer

Either way, that place is negative once you add in repairs/maint and vaccancy.  I would sell and use the proceeds to find a better CF investment.

Shaun Reilly · Answer

Well it sounds like it is doing exactly what you had hoped for.

Question is do you want to take the gain now or hold onto it and see how much more it goes up.  You will always have short term ups and downs, but no reason to expect that area to not have some amount of appreciation consistently for however many more years until you hit those milestones.

I'll address some of the options you put out there:

Boston:  With the equity you will get out and that cash you can certainly get something in the city and it should be turnkey.  You won't get much better rent to price ratios then you currently have though.  With enough down (So don't get the most expensive thing you can with the down payment but only get like a 50% loan) you MIGHT cash flow off the bat okay.  People buy in Boston hoping (without much issue if you are in it long term) for appreciation in both value and rents.  Pretty much just taking the same situation you already have and pumping it up to the next level.

Fall River:  You can probably buy half the city for that much money.  :)

Seriously though you will be able to get a lot more "doors" and they will cash flow much better there than any other thing you mentioned.  However without a major turnaround you will be looking at minimal appreciation and I have heard that it isn't the easiest rental market to navigate (Maybe you know the area well in which case less of an issue).  Of the places mentioned this will undoubtedly the most cash flow you will get off the bat.

East Bridgewater:  I like the Bridgewaters actually.  They are pretty nice areas and have the built in rental population with the state school there.  This might be the happy medium where you could find something that will cash flow okay, will probably appreciate okay over time and is right in your back yard so very easy to deal with things that come up.  This is conjecture as I do not know the rental market down there but I do know you aren't going to be paying Greater Boston prices and the reputation is far better than Fall River so I have to imagine it is a better area to get a little of both sides of the coin.

Mark Chapman · Answer

Thank you guys for the time and advice. You know what, yes the taxes are included in my mortgage . So that said I am just barely in positive cash flow area. My school of thought with the unit has always been try not to lose money, hold onto it for as long as possible, and then use it for one of two things, sell it to pay for one of my three kids education, hold onto it and when I am 60 it will be income. Now though it starting to appreciate and if it keeps going i invision selling it, using the equity plus 50k of my savings and buy a money maker in boston (expensive) or Fall River (cheap) or in my own town which is a college town.

Property is increasing in value, sell ?

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