Denver, CO · Member since 2015 · 3 posts · 0 votes
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?
$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.
Investor · Panama City, FL · Member since 2015 · 378 posts · 183 votes
11y
I believe 1031 is identify in 45 day close in 180 days you can 1031 into 3 modest homes and get 1,000 a month each with no HOA dues. HOAs can go crazy get an attorney on the board who wants to sue developer for some minor defect 100k in legal fees special assessment manager embezzles dues special assessment roof goes out special assessment. My dad owns condo all above happened to him.
This is a really interesting post. Thanks for bringing it up. As I see it you have a property worth $335,000 and cashflowing roughly $645 per month. Let's assume that you have roughly $225,000 in equity in the property (assuming you financed it at 20% down when you bought it at $155,000, and have been paying the mortgage down steadily for 5 years). Your cashflow, therefore is generating you about a 3.5% return on your equity.
Let's also assume that in addition to that cashflow you are paying down your mortgage at a rate of about $300 per month - another 1.5% return on equity.
As a Real Estate Investor, I'd hope that you are looking for 10% + total returns on your invested capital, unless you have a good reason for holding on to the property. That means that you will need the condo to appreciate in value at at least 5% per year for every year that you hold onto the property without selling.
Now we enter speculation mode.
It is my belief that a reasonable person can expect Denver property values to appreciate at a rate of 5% or more for the next decade or so - we've got a great, booming economy and lot's of infrastructure being developed.
That said, I believe that you are investing in the one asset class that I am skeptical of in terms of long term appreciation potential here in Denver - condos.
Currently, we have a tremendous shortage of condos due to some questionable builder defect laws and opportunistic attorneys that have made a killing suing builders for relatively minor problems. What this has created is a marketplace with a tremendous number of apartment complexes that are easily convertible to condos. After a holding period of 7-8 years (after which the builders are less likely to be sued through the silly laws currently in place), these complexes will likely be sold off to homebuyers as condos and the condo will no longer be an endangered housing type here in Denver.
At that time, I see condo prices falling back down to earth.
I think now is a wonderful time to sell condos, and if I had one to sell, I'd be unloading it. I'm skeptical of the potential for those assets to appreciate at a rate of 5% or more of the medium to long term.
Investor · Decatur, TX · Member since 2015 · 52 posts · 20 votes
11y
@James Felder, the way I look at these situations is: where is my money producing the most value? For me, I will take a dozen $80k houses that are cash flowing well to one larger one. This might be a great opportunity for you to break new ground in larger units. I say, let the numbers tell you what to do.
Yes, there are more condos about to come to market, but it wont happen all at once. Inventory levels are historically low right now. I speak regularly with the YCRE guys, and Lon is full steam ahead on condos.
Call it speculation, but you are throwing money away if you sell right now. Check market rents for your area and see how much you can bump it. Assuming this property is worth $335k — if you can get this property to cash flow $800/month and it appreciates a minimum of 5% you're looking at a gain of $26,350 if you hold it just one more year.
Let's say it appreciates at 7%, which is more realistic - your one-year gain will be $33,050. I’ve been watching new comps on my cash flowing properties come in with gains of $5k a MONTH since December. These are model match properties with lesser finishes. Some people buy for cash flow, some for appreciation. You’ve got both, why throw that away?
Engineer · Portland, OR · Member since 2014 · 1k+ posts · 1k+ votes
11y
It has a crappy cash flow realative to its ARV. I don't understand these arguments to keep it when you are losing the opportunity cost of better investments. Accidental landlording isn't usually an effective use of capital despite its conveinance
