Renting still worthwhile?

4 Replies

I bought a condo for personal residence 5 years ago.  It has dropped in value as most have seen in that time.  My wife and I are now looking to buy a larger home.  We are able to qualify for both mortgages, so we are entertaining renting vs selling.

We currently owe 150K and the last 2 comps in my complex went for 146 and 150K.  While I may break even on what I owe, I have put 13K (though the 7K tax credit helped) into renovations on this condo on top of paying two closings on this condo out of pocket.

Alternatively, I could rent at a $100-125 loss each month. I am 3.5 years from PMI being removed from my mortgage, which would probably put me in the positive if I decided to keep renting. I've never been a landlord before, so I guess my questions are:

1) Is it probable that I recoup the $1500-2000 I take out of pocket each year come tax time, while my principal is paid down?

2) Would the risks of having vacancies and repairs urge you to take a definite but defined loss now vs a possible loss later?

To be a good landlord takes commitment and knowledge and time and work. Hiring out to a property management company takes money and oversight. 

Entering into a negative cash flow situation doesn't seem favorable, even if you anticipate appreciation in the future. Your greatest risk is a bad tenant who does major damage or stops paying rent. Having enough money in reserves is essential before entering into real estate investment, especially buy and hold. 

Also, is there a condo or home owners association that you need to contend with? Run your idea by them to find out their requirements. Unless you intend to move back to this unit some day or are saving it for a member of your family to live in, I would sell. A lot less headache. 

You could lose a lot of money while learning the skills of being a landlord. You could also make some gains in future appreciation and depreciation tax breaks. What is your level of enthusiasm and passion for landlording? How good a people person are you? Do you have the interest and the time?

Sorry, more question than answers, eh? 

Originally posted by @John Schnyderite:

We currently owe 150K and the last 2 comps in my complex went for 146 and 150K.  While I may break even on what I owe, I have put 13K (though the 7K tax credit helped) into renovations on this condo on top of paying two closings on this condo out of pocket.

If you break even on what you owe, you will be fine. Consider the cost of the property, renovations and closing costs as a fair exchange for 5 years of living in a nice place. I think you will see you have done well and it was worth it. Sell now and use your time and money for what you really want to be doing. You can intentionally enter real estate investing at any time and perhaps with an investment that has greater potential for profit.

Also, if the Condo Association will allow...you could sell on a lease-option. Take a large down payment and the tenant would have the option to buy later (2-5 years) at a price you agree on (typically above current market). 

I wouldn't say I have a desire to be a landlord.  It would be more like a chore, unless it nets me some good money -- which this seems unlikely unless the property appreciates considerably or I hold it for a long while.

The complex does allow renting, many others do -- and that is where I got figures for how much I'd stand to lose monthly by renting.

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