Should I sell my rental property?

34 Replies

I'm a new member and would really appreciate everyone's feedback. I purchased a condo in 2010 for $155k. The property was a foreclosure. In 2005, the original owner purchased the condo for $305k, but foreclosed on the property. The condo was built in 2005. We've had tenants renting the property over the last four years but they informed us they will not be renewing their lease. Our mortgage/HOA is $980 a month and we charge $1625 a month for rent. As you can see, we have nice cash flow. We consulted with a realtor as we are considering selling and learned we could get $335k if we sold. What would you do in my situation? Would you sell or continue to rent? We don't mind being landlords and the experience has been great thus far as we haven't put much money into the condo. I'm not sure if we will have the same luck with new tenants. The area is a highly desirable area and could easily rent. I'm just not sure if I should keep the property since it has appreciated so much. That's a lot of money to leave on the table if we didn't sell. Again what would you do?

@James Felder

$1625 / mo on rent vs. 335k sale price puts you on the wrong side of the 1% rule (or theory as some are calling it). When you bought it, you were on the right side, so well done. I recommend selling it off and turning it into several investments in properties where the rent is 1% or higher than the value of the home.

I am also assuming, based on your location and that price, that it's in Denver. Denver is a very hott market right now, and is flooded with retail buyers. Take advantage of this great opportunity to make a smart exit. Just don't spend the difference, make it into more cash-flowing investments in the Midwest.

In some markets like Indy, Kansas City, Memphis or Atlanta, you could turn that into 4 single family deals. I don't see Denver going out of fashion anytime soon, but it's a great time to make a payout and spread the risk.

Why would you ever sell? Just get it paid down then leverage again.  It's like your own ATM :-)

I'd hold it.  It's newer and sounds like you haven't had to put much into it.  The tenants are paying your mortgage for you.  If it really is in an easy to rent market I'd put it out there for a new tenant about a week before the current tenants move out and hopefully you can get a new tenant in with only a few weeks of vacancy.  Post pics on an ad and say it will be available after the current tenants move out.

I'd either sell and buy several cash flow properties in markets such as Memphis, Kansas City, Indianapolis and the like (with leverage if you can qualify) or keep it and get Home Equity Line of Credit and then buy cash flow properties (with leverage if you can qualify). That's a good problem to have.

if you want more cash flow then sell it and buy in at louis, Kansas city or Toledo oh. If you don't want more cash flow then hold it and apply the positive cash flow to loan balance to pay it off sooner. You can buy 7 house for 170k and get 4200 in gross rents every month. Take the net cash and buy another house free and clear every seven months. 

Denver is an extremely hot market. I would take the profit and 1031 it into a multifamily deal in the Midwest. Depending on your cash position you can get into a 500k apartment complex with a solid 10+ CAP in the Midwest that will provide long term cash flow and Rent appreciation gains.

I would do a cash out refi and use the cash towards your next down payment, on your next investment property.  You can decide where to invest based on comfort level.  If you are not comfortable out of state, look for areas 1 hour outside of Denver that may have better cash flow.  Cashing out would mean quick cash, with a tax hit, but would not contribute to longer term financial goals.  At the end of the day, do you need the cash now?  As long as it cash flows, you can ride out any market cycles.

Buy low (like you did) and sell high (where you are).

We don't know the details like you....but personally I would sell.

Very easy to answer these questions by reversing it. Would you buy this condo for $335k to rent for $1700? Clearly get out. Particularly since its a condo, with an HOA, which means a big portion of your property you don't actually control personally.

1031 is a great thing if you can pull it off. Takes some extra work, but enough money on the line for it to be worthwhile.

Also..being able to diversify would be a big positive. 

Thanks for the replies thus far. I don't really need the cash but thought about cashing out and taking advantage of the hot market. I thought about taking the money and using it to buy a few mutual funds. I'm not sure I want to buy investment property out of state. I would prefer to self manage within state. I haven't given much thought to using the sales proceeds to purchase additional properties. Based on the feedback thus far, maybe I should. As stated earlier I have no big plans for the money. I was just going to invest it. I also never considered a HELOC. Ultimately I just want enough money to seek out early retirement in 15 years when I'm 50. I'm pretty good at saving and want to make sure I make the best financial decision possible regarding this property so I can reach my goal.

@James Felder I am selling something similar. Not a condo but a house on land. This is my thinking about your situation. Condo's will not do so well in the future when Colorado gets the construction defects law figured out so we can build and sell condos again. Once that happens you have about 18 months until new condos start hitting the market. They can also turn all the new apartments into condos. At that point the condo market will be over. For me, even in the hot Denver market, I can find something better (more cash flow) than what I have. Leverage your equity again and you will ramp up your cash flow. 

BTW I don't like condos either. HOAs control my destiny too much but that's another post that has been beat to death.

@James Felder

If you want enough money to seek early retirement, and that is your main goal without concern for monthly cash flow, I suggest you do the following:

Refinance into a 15-year ~2.8% mortgage. Without knowing your condo fee, this may or may not increase your monthly payment. If values stay exactly flat, you'll have a property worth $335K in 15 years. Ideally the values will go up to maybe $425K+. Take that plus the $6K-$7K you're making a year, in 15 years you will have given yourself over half a million dollars. Assuming you put out ~$30K on your purchase in 2010, you will have turned $30K into $500K in 20 years. Nice work. 

@James Felder

Since you like renting I would tend to the keep side. I hear that Denver is a great appreciating town. I might refinance to get some equity out, you should be able to get 80% LTV and lower your interest rates.

If you sell and don't do a Section 1031 exchange, your capital gains tax will be minimum 20% and your recapture tax will be 25%, not counting any state or local taxes, plus of course costs of selling like real estate commissions, transfer taxes and settlement charges.  By refi you same all those costs and possibly continue to grow the value of the property. 

@James Felder , all of the replies have merit ranging from refinance to 1031 transfer to cash out.  The only thing I have to add is how fast is the property appreciating?  The rate of appreciation is nothing to sneeze at.  In the long run listen to @Bill S. .  He knows your market and gave very specific information on your market.   Good luck

@James Felder

Most of us focus on ROI but often neglect to look at return on equity. You have $180K in equity which is a nice chunk. What you want to look at is whether that equity is working as hard as it can for you. Your ROI on the purchase price of $155K is probably pretty good but your return on equity probably doesn't look so good. I don't know what your cash flow is so I don't know what that number looks like.

This post has been removed.

This post has been removed.

@James Felder

I would Cash out Refinance and purchase more of the same properties and watch them go up as you have watched this one appreciate in the last 4 years!! HELOC, 1031 exchange soooo many options here great place to be in congrats!!

Keep it. The Denver market is showing no signs of slowing down. You can probably bump rent and increase your cash flow as well - vacancy rates for the area where this condo is likely located are less than 2%.

Condos have done just as well as SFRs in Denver over the long run - that is a fact. Keep it and watch the market over the next 18 months - there is still a considerable amount of appreciation you can capture before selling.

@James Felder you mentioned putting the cash into a mutual fund?  That's such a foul word to put on this forum - I'm surprised the admin hasn't banned you! 

Just kidding, but seriously, all good points above.  I'm going with the sell and run crowd on this one.  Just don't put the cash into a negative cash flow vehicle like a mutual fund.

IMHO - I love low APR leverage and I would buy a $500k complex as mentioned earlier.

I'm sure you should be able to find something affordable within a couple hours of you.  If not, you're always welcome here in Indianapolis!

Josh here from Atlanta. First of all, two strikes against me (1. I know nothing about the Denver market and 2. I am a new buy/hold investor in my first year), so take my advice lightly!

That said, I love the combination of ideas I am reading here. Sounds to me like holding onto the property and raising the rents keeps you in a good position for monthly cash. And, there is plenty of equity in the property to take a loan against it, which will give you a nice down payment on a new acquisition. You could keep the cash machine going and expand your portfolio at the same time. Awesome position to be in! Well done, sir.

The primary variable in my opinion is whether you want to be a landlord of ONE property or of MULTIPLES. Certainly you could achieve much better cash flow and equity buildup if you sell and purchase more. However, doing so would require you either increase your time to self-manage or hire a property manager, which also has downsides.

@James Felder

I would keep it. Take out a heloc or cashout refi on it to purchase more properties. Nice purchase!!

@James Felder A lot of directions offered, based on your responses it doesn't sound like you are in love with rental property, mostly because you are considering putting the money in mutual funds, nothing wrong with that if that is where your comfort is. @Bill S. shared great points - there has never been a better time to be a seller in the Denver market, although we don't know when, the pressure on the local government regarding condos is likely to give. Seems like a great time to free up the cash to me. Be sure to discuss the tax implications with your CPA.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here