Should I Sell This Rental Property?

[Jean Rhem]

Should I sell this rental property? The main reason I want to hang onto it is because it has a sub-3% interest rate on the mortgage. The cash flow is non-existent and it's a townhome/condo that I feel won't appreciate. The property is very nice and in a nice neighborhood so there's no money to be made from upgrading. The current rent is at market rate. My main concern is that there are thousands of new luxury apartment units around my unit; so there's lots of competition that I feel will keep cash flow low long-term. I don't want to regret giving up this unit at this low rate but I guess it's looking like it will never be profitable until it's paid off? And that's a long way off. Am I missing anything. Thanks so much in advance!  

[Jeremy Horton]

How much money do you have tied up in it? 

I don't see a big downside other than opportunity cost, if your return on equity is low. That equity may be able to make more money elsewhere. 

Consider that you are still getting your mortgage paid off by someone else, you'll have decent tax benefits (either now or passed to the future), and you will likely get appreciation over time. Make sure you calculate those two things in your overall return. 

You also said it's near the new Costco. Costco is not going to build in a crappy affordable area. You can bet they are doing research on where they build/open a store. Being near a Costco is a good thing - the costco itself will likely bring in even more business (big anchors like that support other business). I believed you mentioned luxury apartments around too - this is another good thing for your area. Not only that - you can likely beat the new luxurious places on price. So you'll stay rented. I personally welcome properties that are nicer and newer than mine. 

Also - even if the cashflow is low, the RE helps diversify your portfolio. If the stock market dips 20-30%, your townhome will likely help stabilize your portfolio. 

TLDR - look at ROE, determine opportunity cost of equity left in the house, consider your diversification