Sell my investment property or keep as a rental?

Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes

3y

@Hans Olo welcome to BP! I'd keep it, normally I hate condos but this one it not on the thirtieth floor of tower F. It even has a basement and a 4% mortgage. So yeah I would not sell.

2 Reply

Richard F.

Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes

3y

Aloha,

You really need to factor in the actual financial condition of the condo association. What have the regular monthly fees done over the past 10 years? remained the same, or maybe a couple small bumps? You could easily have a major Special Assessment just around the corner which will foul all of your planning. It does not matter how much they actually have in Reserves based on their "balance sheet"; it matters what their Reserve funding plan looks like for the next 30 years.

Annually you should receive copies of the Annual Budget and the Reserve Funding Plan. Odds are your 2024 Budget and Plan are being prepared right now, and you will see them by early December. Very few Owners OR Board members, actually understand these very important funding plans.

1 Reply

Theresa HarrisPro Member

Member since 2019 · 15k+ posts · 11k+ votes

3y

What is the interest rate on your HELOC?

if the market crashes, people will need a place to live, so it doesn't flow that rents will also drop. Many people who rent fall into 3 categories: 1) those who don't want to own a home, 2) those who are starting out and saving to buy a home and 3) those who will never be able to afford to buy because they can't save the down payment and can't get a loan.

Run the numbers. If you did the renos and rented it-how much would you net each month? If you did the renos and sold it, what would you do with that money and how much would it net you each month? Then ask yourself if you want a rental, how do you feel about the market and risks?

2 Reply

Hans Olo

OP

Member since 2023 · 10 posts · 3 votes

3y

Quote from @Bjorn Ahlblad:

@Hans Olo welcome to BP! I'd keep it, normally I hate condos but this one it not on the thirtieth floor of tower F. It even has a basement and a 4% mortgage. So yeah I would not sell.

Thanks so much for the warm welcome and for the reply! Yeah, no units above me or below. It's really more like a townhouse development with the units side by side. That was a primary reason I even considered buying it....Did not want to be above or below anyone else, and the HOA fees were not bad. As a follow-up, would you consider a $600-$700 per month net cash flow a good return on the unit, considering the details? This is my only investment property, and it was originally my home before I moved and started renting it out. I was sort of forced into it being a rental at the time because it was a bad time to sell (values low, not enough equity based on mortgage balance at the time to make any meaningful gain, etc). So I didn't really know what I was doing and had to get a renter in fast. In hindsight I'm glad I held onto it as value has increased nicely while paying down the mortgage over the years and now excited about getting a good rent, but i am curious what experienced investors would think of the new expected monthly cash flow. All very interesting stuff! Thanks again!

0 Reply

Joseph Dasmerces

Rental Property Investor · Myrtle Beach, SC · Member since 2017 · 22 posts · 12 votes

3y

I have sold 2 investment properties and if i had to do it all over again i would have kept them, they all worked out, i was able to still purchase more properties with the sell and money went to good use but looking back i was still able to achieve the same portfolio without selling those 2 properties.

1 Reply

Hans Olo

OP

Member since 2023 · 10 posts · 3 votes

3y

Quote from @Richard F.:

Aloha,

You really need to factor in the actual financial condition of the condo association. What have the regular monthly fees done over the past 10 years? remained the same, or maybe a couple small bumps? You could easily have a major Special Assessment just around the corner which will foul all of your planning. It does not matter how much they actually have in Reserves based on their "balance sheet"; it matters what their Reserve funding plan looks like for the next 30 years.

Annually you should receive copies of the Annual Budget and the Reserve Funding Plan. Odds are your 2024 Budget and Plan are being prepared right now, and you will see them by early December. Very few Owners OR Board members, actually understand these very important funding plans.

Thanks so much for the reply! Over the past 10 years the HOA fees have increased from roughly $175 per month to the current level of roughly $300, spread accross small increases during the 10 yr period. It's a large development with very many units. There have not been any one-time special assessments dueing this time perios. Any insight based on this additional info?

Thank you!!

0 Reply

Richard F.

Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes

3y

Quote from @Hans Olo:

Quote from @Richard F.:

Aloha,

You really need to factor in the actual financial condition of the condo association. What have the regular monthly fees done over the past 10 years? remained the same, or maybe a couple small bumps? You could easily have a major Special Assessment just around the corner which will foul all of your planning. It does not matter how much they actually have in Reserves based on their "balance sheet"; it matters what their Reserve funding plan looks like for the next 30 years.

Annually you should receive copies of the Annual Budget and the Reserve Funding Plan. Odds are your 2024 Budget and Plan are being prepared right now, and you will see them by early December. Very few Owners OR Board members, actually understand these very important funding plans.

Thanks so much for the reply! Over the past 10 years the HOA fees have increased from roughly $175 per month to the current level of roughly $300, spread accross small increases during the 10 yr period. It's a large development with very many units. There have not been any one-time special assessments dueing this time perios. Any insight based on this additional info?

Thank you!!

Since it has not even doubled in over 10 years, it is not very likely it is keeping up with inflation, let alone any accelerated deterioration that often happens near end of life. How many units total? When was the project completed? What do you observe across the property as a whole? Well manicured, Very Good overall conditions? Or tired appearances, deferred maintenance, and complaints by Residents? You can post a link to the reports I mention if you have some from the last year or two. They are public documents.

1 Reply

Hans Olo

OP

Member since 2023 · 10 posts · 3 votes

3y

Quote from @Theresa Harris:

What is the interest rate on your HELOC?

if the market crashes, people will need a place to live, so it doesn't flow that rents will also drop. Many people who rent fall into 3 categories: 1) those who don't want to own a home, 2) those who are starting out and saving to buy a home and 3) those who will never be able to afford to buy because they can't save the down payment and can't get a loan.

Run the numbers. If you did the renos and rented it-how much would you net each month? If you did the renos and sold it, what would you do with that money and how much would it net you each month? Then ask yourself if you want a rental, how do you feel about the market and risks?

Thanks so much for the reply! My variable rate on my home HELOC is roughly 7% currently.

Regarding my thinking that market rents would drop if home values drop is because i thought the main reason market rents have increased so significantly over the past year or two is because the surge in home values and surge in interest rates have made it so many people can't afford to buy a home, and therefore more people have to rent, therefore increasing demand/lowering supply and causing rents to surge. Am i thinking about this incorrectly?

In my main post i commented on projected cash flow from renting vs projected net sale proceeds, and I think I'm leaning towards renting, but trying to get all of your input as you all are far more experienced than me!

Thanks again!

0 Reply

Theresa HarrisPro Member

Member since 2019 · 15k+ posts · 11k+ votes

3y

Quote from @Hans Olo:

Quote from @Theresa Harris:

What is the interest rate on your HELOC?

if the market crashes, people will need a place to live, so it doesn't flow that rents will also drop. Many people who rent fall into 3 categories: 1) those who don't want to own a home, 2) those who are starting out and saving to buy a home and 3) those who will never be able to afford to buy because they can't save the down payment and can't get a loan.

Run the numbers. If you did the renos and rented it-how much would you net each month? If you did the renos and sold it, what would you do with that money and how much would it net you each month? Then ask yourself if you want a rental, how do you feel about the market and risks?

Thanks so much for the reply! My variable rate on my home HELOC is roughly 7% currently.

Regarding my thinking that market rents would drop if home values drop is because i thought the main reason market rents have increased so significantly over the past year or two is because the surge in home values and surge in interest rates have made it so many people can't afford to buy a home, and therefore more people have to rent, therefore increasing demand/lowering supply and causing rents to surge. Am i thinking about this incorrectly?

In my main post i commented on projected cash flow from renting vs projected net sale proceeds, and I think I'm leaning towards renting, but trying to get all of your input as you all are far more experienced than me!

Thanks again!

I think the market value for rents has a lot to do with supply and demand. In areas with low vacancy rates, rental prices will go up.

As to whether or not a home makes sense as a rental, has to do with what you can get for rent and how much it will cost you to hold it. As the cost to buy a house increases through higher interest rates and higher home prices, if rents don't increase; then fewer people will be buying rentals (well fewer people should be buying rentals).

Each market is so different. I invest in two markets that are quite different. One has super low vacancy rates and house prices (and rent) have gone up a lot in the last 10 years. The other has more typical vacancy rates (it depends on the type of property-condo vs single family home), prices have not gone up anywhere near as much over that same period of time. It has been quite interesting to watch and see the differences. The result is now the cost of entry for a single family in either place is ~$300K vs $600K whereas before they were a lot closer together (one was still cheaper, but $200K vs $250K).

1 Reply

Eric Gerakos

Investor · Costa Mesa, CA · Member since 2016 · 1k+ posts · 1k+ votes

3y

Welcome. With all due respect, saying you’re currently getting “far under market rent because the tenant has been there for a long time” shows that you’re not managing your rental like an investor but running a nice charity for your tenant. That’s $7,200 a year you’re missing. Keep your rents at market value. Not raising rents for fear of tenants leaving is a newbie mistake that greatly reduces your profits. Best of luck.

3 Reply

Carlos Ptriawan

Member since 2019 · 7k+ posts · 4k+ votes

3y

Quote from @Hans Olo:

Greetings all!

Hoping to get some insight from you real estate gurus! My long time tenant is moving out because they bought a home, so I am faced with the decision whether to keep the property and continue as a rental, or to sell it. Here's the facts -- condo unit, 2 bed, 1.5 bath, fully finished basement, end unit with side deck, very close to community pool, playground, basketball court, etc. The unit is in an average quality condo development in an average location in terms of desireability. But alot of rental demand in the area (barely any availability on the market right now). Market value is currently about $230k. Mortgage balance is under $100k with a rate of under 4%. Under years remaining on mortgage.

I'm currently getting only $1600 per month in rent which is far under market rent right now because the tenant has been there for a long time. Current market rents would be $2200. So after mortgage payment, taxes, insurance and condo association fee, I would net about $700 per month at current market rental rates. Renovations needed amount to about $10k-$15k, which will have to be done whether renting or selling. With tenant being there so long, alot of wear and tear, kitchen and bathroom need some updating, etc.

If I sold it for $230k right now, after closing costs/realtor commissions, capital gains tax, cost of the needed renovations, and mortgage payoff, I expect I'd net about $80k. My plan for that $80k would be to payoff or significantly paydown a home equity line of credit on my primary home (balance of about $70k) and do a bit of renovations to my primary home.

Monthly payment for the HELOC on my primary home is about $400, vs the monthly net rental cash flow I'd receive of $700 on the condo rental, so from an overall monthly cash flow perspective, I benefit from keeping as a rental (vs selling condo and paying off the HELOC on primary home).

With inflation being crazy and cash losing value by the day, I understand that real estate is considered to be a good place to store wealth because real estate values rise with inflation generally. But then the risk is that property values crash, making it easier for people to buy homes, meaning market rents will drop too, which could result in me losing the new tenant at lease expiration and then monthly rent on replacement tenant dropping significantly. And of course there's the risk that if the time does come that I wish to sell in the future, values may be down from where they are now.

I'm presently leaning toward keeping as a rental unit due to the additional monthly income, and the fact that the mortgage ends in under 10 yrs will be an even nicer increase to monthly income at that point (and will help eventual retirement!). But of course I see the pros in selling too (and risks of keeping it) as described above.

So overall, these are the things running through my head about it. What do you all think? What would you do in my shoes? Keep as a rental or sell?

Thank you!!

This one is easy: hold.

The only case for sell is only if you plan to retire or you want to buy another home either for primary or rental.

1. market rent would not go down
2. there's no market crash

1 Reply

Cara Sherman

los angeles, CA · Member since 2014 · 3 posts · 3 votes

3y

I’m a huge fan of keeping cash flowing long term rentals. At a $700/mo cash flow you’re getting $8,400/yr, which is the equivalent of having $120k saved in cash that you are drawing from at 7%/yr. You won’t get $120k in clear profits if you sell. Plus you get tax benefits with write offs. But don’t forget to put some money aside for things that come up (new garbage disposal etc) sk your $700/mo should maybe be more like $625. But even at that cash flow, I still would hold.

2 Reply

Hans Olo

OP

Member since 2023 · 10 posts · 3 votes

3y

Quote from @Eric Gerakos:

Welcome. With all due respect, saying you’re currently getting “far under market rent because the tenant has been there for a long time” shows that you’re not managing your rental like an investor but running a nice charity for your tenant. That’s $7,200 a year you’re missing. Keep your rents at market value. Not raising rents for fear of tenants leaving is a newbie mistake that greatly reduces your profits. Best of luck.

Thank you for the reply! I don't have much of a defense.... Was more concerned with the prospect of losing the tenant. The more I read and learn though, the more I realize how foolish that was. Will not make that mistake again. Thanks!

1 Reply

Hans Olo

OP

Member since 2023 · 10 posts · 3 votes

3y

Quote from @Joseph Dasmerces:

I have sold 2 investment properties and if i had to do it all over again i would have kept them, they all worked out, i was able to still purchase more properties with the sell and money went to good use but looking back i was still able to achieve the same portfolio without selling those 2 properties.

Thank you! Yeah, I do worry that I'd regret selling.

0 Reply

Hans Olo

OP

Member since 2023 · 10 posts · 3 votes

3y

Quote from @Carlos Ptriawan:

Quote from @Hans Olo:

Greetings all!

Hoping to get some insight from you real estate gurus! My long time tenant is moving out because they bought a home, so I am faced with the decision whether to keep the property and continue as a rental, or to sell it. Here's the facts -- condo unit, 2 bed, 1.5 bath, fully finished basement, end unit with side deck, very close to community pool, playground, basketball court, etc. The unit is in an average quality condo development in an average location in terms of desireability. But alot of rental demand in the area (barely any availability on the market right now). Market value is currently about $230k. Mortgage balance is under $100k with a rate of under 4%. Under years remaining on mortgage.

I'm currently getting only $1600 per month in rent which is far under market rent right now because the tenant has been there for a long time. Current market rents would be $2200. So after mortgage payment, taxes, insurance and condo association fee, I would net about $700 per month at current market rental rates. Renovations needed amount to about $10k-$15k, which will have to be done whether renting or selling. With tenant being there so long, alot of wear and tear, kitchen and bathroom need some updating, etc.

If I sold it for $230k right now, after closing costs/realtor commissions, capital gains tax, cost of the needed renovations, and mortgage payoff, I expect I'd net about $80k. My plan for that $80k would be to payoff or significantly paydown a home equity line of credit on my primary home (balance of about $70k) and do a bit of renovations to my primary home.

Monthly payment for the HELOC on my primary home is about $400, vs the monthly net rental cash flow I'd receive of $700 on the condo rental, so from an overall monthly cash flow perspective, I benefit from keeping as a rental (vs selling condo and paying off the HELOC on primary home).

With inflation being crazy and cash losing value by the day, I understand that real estate is considered to be a good place to store wealth because real estate values rise with inflation generally. But then the risk is that property values crash, making it easier for people to buy homes, meaning market rents will drop too, which could result in me losing the new tenant at lease expiration and then monthly rent on replacement tenant dropping significantly. And of course there's the risk that if the time does come that I wish to sell in the future, values may be down from where they are now.

I'm presently leaning toward keeping as a rental unit due to the additional monthly income, and the fact that the mortgage ends in under 10 yrs will be an even nicer increase to monthly income at that point (and will help eventual retirement!). But of course I see the pros in selling too (and risks of keeping it) as described above.

So overall, these are the things running through my head about it. What do you all think? What would you do in my shoes? Keep as a rental or sell?

Thank you!!

This one is easy: hold.

The only case for sell is only if you plan to retire or you want to buy another home either for primary or rental.

1. market rent would not go down
2. there's no market crash

Thanks for the reply! But my thought peocess is that if/when interest rates drop, far more people will be able to afford buying a home, and therefore the presently large tenant base would drop accordingly, therefore causing market rents to drop. Am I looking at that incorrectly? Thank you!

0 Reply

Hans Olo

OP

Member since 2023 · 10 posts · 3 votes

3y

Quote from @Cara Sherman:

I’m a huge fan of keeping cash flowing long term rentals. At a $700/mo cash flow you’re getting $8,400/yr, which is the equivalent of having $120k saved in cash that you are drawing from at 7%/yr. You won’t get $120k in clear profits if you sell. Plus you get tax benefits with write offs. But don’t forget to put some money aside for things that come up (new garbage disposal etc) sk your $700/mo should maybe be more like $625. But even at that cash flow, I still would hold.

0 Reply

Hans Olo

OP

Member since 2023 · 10 posts · 3 votes

3y

Quote from @Cara Sherman:

I’m a huge fan of keeping cash flowing long term rentals. At a $700/mo cash flow you’re getting $8,400/yr, which is the equivalent of having $120k saved in cash that you are drawing from at 7%/yr. You won’t get $120k in clear profits if you sell. Plus you get tax benefits with write offs. But don’t forget to put some money aside for things that come up (new garbage disposal etc) sk your $700/mo should maybe be more like $625. But even at that cash flow, I still would hold.

Thanks very much for the reply! These are great points. Now in my scenario, if I did sell, I would use the proceeds to payoff a $70k HELOC that I have on my primary home. Presently paying about $400 per month on that. What are your thoughts in this scenario? Still more of a benefit keeping as a rental? Thank you!

0 Reply

Hans Olo

OP

Member since 2023 · 10 posts · 3 votes

3y

Quote from @Richard F.:

Quote from @Hans Olo:

Quote from @Richard F.:

Aloha,

You really need to factor in the actual financial condition of the condo association. What have the regular monthly fees done over the past 10 years? remained the same, or maybe a couple small bumps? You could easily have a major Special Assessment just around the corner which will foul all of your planning. It does not matter how much they actually have in Reserves based on their "balance sheet"; it matters what their Reserve funding plan looks like for the next 30 years.

Annually you should receive copies of the Annual Budget and the Reserve Funding Plan. Odds are your 2024 Budget and Plan are being prepared right now, and you will see them by early December. Very few Owners OR Board members, actually understand these very important funding plans.

Thanks so much for the reply! Over the past 10 years the HOA fees have increased from roughly $175 per month to the current level of roughly $300, spread accross small increases during the 10 yr period. It's a large development with very many units. There have not been any one-time special assessments dueing this time perios. Any insight based on this additional info?

Thank you!!

Since it has not even doubled in over 10 years, it is not very likely it is keeping up with inflation, let alone any accelerated deterioration that often happens near end of life. How many units total? When was the project completed? What do you observe across the property as a whole? Well manicured, Very Good overall conditions? Or tired appearances, deferred maintenance, and complaints by Residents? You can post a link to the reports I mention if you have some from the last year or two. They are public documents.

Hi, I am gathering some info and will reply back. Thank you!!

0 Reply

Cara Sherman

los angeles, CA · Member since 2014 · 3 posts · 3 votes

3y

Quote from @Hans Olo:

Quote from @Cara Sherman:

I’m a huge fan of keeping cash flowing long term rentals. At a $700/mo cash flow you’re getting $8,400/yr, which is the equivalent of having $120k saved in cash that you are drawing from at 7%/yr. You won’t get $120k in clear profits if you sell. Plus you get tax benefits with write offs. But don’t forget to put some money aside for things that come up (new garbage disposal etc) sk your $700/mo should maybe be more like $625. But even at that cash flow, I still would hold.

Thanks very much for the reply! These are great points. Now in my scenario, if I did sell, I would use the proceeds to payoff a $70k HELOC that I have on my primary home. Presently paying about $400 per month on that. What are your thoughts in this scenario? Still more of a benefit keeping as a rental? Thank you!

I would still keep it. Use all the cash flow to pay down the HELOC faster. The HELOC rate is probably variable and ideally will go down substantially in the next 12-18 months. $70k isn’t nothing but its manageable and you can pay it down w your cash flow over a few years and still have this cash flowing asset. but please for the love, make a hard promise to yourself to raise rents annually. Nothing crazy, maybe 4%. If you’re worried about losing a tenant, offer them half off the first month w the increase. The key is to not get yourself years and years behind.

0 Reply

Trevor Neale

Rental Property Investor · Newark, NJ · Member since 2023 · 57 posts · 23 votes

3y

@Hans Olo keep it!!!

0 Reply

Eric FernwoodBusiness Member

Realtor · Las Vegas, NV · Member since 2014 · 997 posts · 1k+ votes

3y

Hello @Hans Olo,

There are some excellent comments on this thread. I do have two additional considerations for you.

Rents and Prices

Prices and rents are driven by supply and demand. If there are more sellers than buyers, prices will decline, or at best, remain static. If there are more buyers than sellers, prices will rise until there is an approximate balance between the number of buyers and sellers.

Population growth is the driving factor behind demand. If the city where your property is located has experienced sustained and significant population growth, property prices will continue to rise over time. In this case, I would keep the property. On the other hand, if the population is static or declining, it may be better to sell the property.

What to Renovate

Renovation is the process of transforming a property to increase rent, decrease the time it takes to rent, and reduce maintenance costs. Renovating a property to your personal taste can be a waste of money.

For example, a few years ago, I saw a rental property in a familiar location. All the other properties in the area rented within a week or two, but this particular property remained on the market for almost three months. I visited the property. The owners had installed beautiful marble floors, Bosch kitchen appliances, and many other enhancements. I am certain that they thought the property looked great and would rent for well above market. It didn’t. The property remained on the market for months until the asking price was lowered to about $25 or $30 higher than similar properties that were only upgraded to what I call "market ready" and properly priced.

We determine what to renovate based on:

Condition of similar properties for rent.
Payback period.

Regarding the payback period for your renovation costs, my understanding is that if you spend between $10K to $15K, you can increase your rent from $1,600/month to $2,200/month. That is a $600/Mo increase. What is the payback period for updating the property:

$15,000 / ($600 x 12) = 2 years.

2 years is an excellent payback period. If you decide to keep the property, I would do the upgrade. However, only do what is necessary to maximize rental income, minimize the time to rent, and minimize future maintenance costs. What you like or do not like does not matter.

In Summary

Paying off your HELOC loan might seem like a good idea in the short term. However, if you have a property that is doing well and will continue to do so for the foreseeable future, it can provide passive income for the rest of your life.

[email protected]702-358-8884

FERNWOOD Team, KW VIP Realty520 Reviews

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0 Reply

Konstantin GinzburgPro Member

Member since 2021 · 376 posts · 242 votes

3y

@Hans Olo

I think you answered your own question. If the cash flow balanced you calculated suggests that you will have higher cash flow if you keep it as a rental, then this is the direction I would lean into. If you had an alternate plan for the capital you would get from a sale that would net you a better return, then that would be something to consider but purely based of financials, the better short term move would be to keep it as a rental. If your concern is a drop in rental prices or real estate; I have 2 comments that are worth considering. 2008 was still recent enough that many people remember this event and the real estate value drops that resulted. This is not a common occurrence. While real estate prices can drop; historically they have gone up far more often than they have gone down. I have no crystal ball so I can not predict the price of real estate in the future but I think there is a higher probability in prices continuing to rise in the future rather than fall based mostly on the low inventory that I don't think will be resolved in the near future. The other thing to keep in mind is that rental prices and home prices are two separate markets so a drop in home prices will not necessarily lead to a drop in rental prices. Just like house prices, rental prices have gone up far more often than they have gone down historically and previous home price drops have not led to rent rate reductions in most cases.

One last thing to remember: the choice to sell or rent is a personal matter and comes down to what would work for your personal situation and this is not always a financial decision. If you are tired of being a landlord or if paying off your HELOC would let you sleep better at night, then selling could be a better route for you personally. If your goal is long term wealth accumulation and you don't mind continuing to manage tenants; then continuing to rent is likely a better option.

0 Reply

Sell my investment property or keep as a rental?

Sell my investment property or keep as a rental?

Most Popular Reply

22 Replies

Rents and Prices

What to Renovate

In Summary