Did I make the right move in renting my place?

Question

Hi,  so I made this post on Reddit and got ripped pretty good saying I made a bad decision.  The math tells me a made a great decision!  Curious on the community’s perspective.  I was going back and forth and pulled the trigger to rent my place in the greater Boston area.

Purchased condo 5 years ago for 340k with 30k down at 3% interests.  My monthly nut including taxes /insurance/hoa/mortgage is 1970.  We got it rented at 2800 monthly.  We were going to sell it for 395k and use that to purchase a new home .  We got a full asking price offer and went back and forth and decided to decline.  Instead we took 125k out of vti to purchase the new home and kept the rental.  We owe 278k on the property,

9960-cashlow-yearly

7200/- principal pay down yearly

2-5% appreciation yearly.  What am I missing??

JD Martin · Answer

One thing you're going to find is that people either understand real estate or they don't. Don't take advice from people that don't.

Janice Carter · Answer

@Jeff Dimambro I guess I am not understanding why you need confirmation of your decision. If your monthly payment is $1,970 and you rented it for $2,800, that seems like a pretty strong position especially with a 3% interest rate. What exactly do you think you are missing?

Fulton Abraham Sanchez · Answer

@Jeff Dimambro, hi. Based on the numbers provided, keeping the property appears reasonable, especially with a 3% mortgage and positive cash flow. The key is making sure you've factored in vacancies, maintenance, capital expenditures, and the opportunity cost of the funds withdrawn from VTI. If the returns still make sense after those adjustments, holding the rental can be a solid long-term decision.

Jim Johnson · Answer

Based on the numbers you've shared, I can see why you made the decision to keep it.

A few things that stand out:

• A 3% fixed-rate mortgage is a valuable asset in today's rate environment
• The property appears to cash flow before factoring in principal paydown
• Tenants are helping pay down the loan balance
• You maintain exposure to potential long-term appreciation in a strong market

That said, I'd also be looking at:

• Vacancy assumptions
• Maintenance and capital expenditures
• HOA increases
• Future insurance and tax increases
• The opportunity cost of the equity tied up in the property

The way I see it, the question isn't whether selling would have been wrong. It's whether keeping the property offers a better risk-adjusted return than the alternatives available to you.

One thing I wouldn't overlook is the financing. A lot of people would love to own an asset today with a 3% mortgage and positive cash flow. That's not something that's easy to replace once it's gone.

Looking at the information you've provided, it doesn't strike me as an obviously bad decision at all. The bigger question is whether the property still performs well if you run the numbers with realistic reserves for maintenance, vacancy, and future capital expenses. If it does, I can understand why you chose to hold it.

Ashish Acharya · Answer

Hey Jeff, Reddit is probably not the best place for help when it comes to your situation. Honestly the math here looks pretty solid to me. Let me add a few things from the tax side that make your decision look even better than the surface numbers suggest.

The $9,960 in annual cash flow and $7,200 in principal paydown is a good start but the piece Reddit probably didn't factor in is depreciation. On a $340k property you're likely looking at somewhere around $10,000 or more in annual depreciation deductions depending on the land value allocation, which can offset your rental income and potentially more depending on your overall tax picture. That's a real economic benefit that doesn't show up in the cash flow number.

At 3% interest you're also sitting on one of the best financing situations in the current market. That loan is an asset in itself, you'd never get those terms on a new investment property today. Giving that up to sell would have been hard to justify purely on the numbers.

The one thing worth making sure is set up correctly is the tax side. Depreciation being captured properly, rental income and expenses tracked cleanly, and understanding how this property interacts with your overall tax picture especially if you have strong W-2 income. That's where a lot of landlords leave real money on the table without realizing it. Definitely worth looping in a CPA to make sure you're capturing everything available to you on this one. Happy to connect!

J Castro · Answer

Hi @Jeff Dimambro, welcome to BP!Based on the numbers you've shared, I don't think anyone can definitively say you made a bad decision. In fact, there are several reasons why keeping the property may prove to be a strong long-term move.

You have a 3% interest rate, which is an asset in itself in today's lending environment. Your property is generating positive cash flow, your tenant is helping pay down approximately $7,200 of principal annually, and you're maintaining exposure to potential appreciation in a strong market.

That said, I think the Reddit criticism is likely centered around a few factors that aren't included in your calculation:

• Vacancy and turnover costs• Maintenance and capital expenditures• Property management (if applicable)• HOA increases and special assessments• Opportunity cost of the $125,000 withdrawn from VTI• Tax implications of converting the property to a rental

The other question I'd ask is whether the $9,960 annual cash flow figure already accounts for maintenance reserves, vacancy reserves, and future capital expenses. If not, your true cash flow may be lower than projected.

From a wealth-building perspective, however, you're looking at more than just cash flow:

$9,960 Cash Flow+ $7,200 Principal Reduction

• Appreciation (if it occurs)

Even with conservative appreciation assumptions, that's a meaningful annual return on an asset that is largely being paid for by someone else.

The biggest factor for me is the financing. A fixed 3% mortgage on a cash-flowing property is difficult to replace. Many investors would be reluctant to sell an asset with those characteristics unless they had a significantly better opportunity for the equity.

From a lending perspective, I often see investors regret selling properties with low-rate financing more than I see them regret holding them. The key now is making sure you've adequately budgeted for repairs, vacancies, and unexpected expenses so the property remains a strong investment over the long term.

If your cash flow projections are realistic and you've maintained sufficient reserves, I can certainly see the logic behind keeping the rental instead of selling it.

Shiloh Lundahl · Answer

The answer to the question whether you made a good choice in keeping this good cash flowing property or not has everything to do with your real estate investing goals. You have a good cash flowing property. That's great, especially if your goal is to maximize cash flow on each property you have. However, if your goal is to build wealth and you have access to good deal flow, then good cash flow on one property can slow you down. I can explain.

Lets look at total gain within the next 10 years.

Example A - you keep the property

Value of the house with an average appreciation of 3% per year = $531,000

Debt on the property = $189,000

Cash flow (we are going to suppose property expenses such as taxes and insurance and HOA increase every year but we are also going to suppose rent increases each year in the same amount so they will offset each other and the cash flow will stay the same during the 10 years. So the cash flow for 10 years would be roughly $100,000. So your total financial gain/increase (equity plus cash flow) over the next 10 years would be a positive $442,000 with this property.

Example B - you sell the property and do 1031 exchanges into more properties over the next 10 years.

Say you sold the property at $375,000 with 10% in closing costs minus the debt, the amount coming to you would be $61,500. Now let's say you redeploy that money into 2 houses but this time you are not buying houses at market value but you are putting to work all the knowledge gained on BiggerPockets and you are buying properties under market value. In this example you are able to buy properties at 70% market value and after you buy them and fix them up you are able to get loans at 75% LTV (loan to value) meaning you need to leave about $30,000 into each deal, but you now have 2 properties that value at $330,000 and your loan on them is roughly $248,000 and you hand to leave into the deal, $30,000 each. You have higher interest rates at 6.5% but your loan balance is lower, by all in all your cash flow goes down by $261 each property. But now you have 2 properties so your overall cash flow goes up, but at the same time these properties may now be as nice as the one worth $375,000 so let's say your cash flow between the 2 scenarios is roughly the same over the next years of $830 a month. Then in 3 years the properties appraise for $361,000 each and you sell them both. If you lose 10% in the sale for realtor fees, concessions, closing costs, etc, then your gain from each home would be roughly $85,000. Plus the $30,000 into cashflow over the 3 years. Then you 1031 the total $170,000 and add the $30,000 into 6 more properties with roughly the same numbers above. In another 3 years you would have roughly $620,000 (85,000 x 6 houses, plus $20,000 left over from the $200,000 that stayed in reserves, plus 90,000 in cash flow). If you are able to do the same thing with the same numbers above but this time you are able to purchase 20 houses under market value and you only need to leave $30,000 in each deal but you are creating an additional $30,000 in equity with each deal, you are now at a total portfolio value of 7.43 million ($371,400 x 20) with a total debt balance of 4.72 million ($236,000 x 20) and cash flowing $8,300 (415 x 20) a month.

So after 10 years using the trade up method the total increase would be $3,106,400. And now you have 20 cash flowing properties. Obviously it would be more work. But would it be worth it for 7 x the gain?

Example C - same as B but instead we'll use the lease option model. You would end up with 33 houses with a portfolio value of 12.3 million and debt of 7.79 million for a total of 4.5 million plus 13,700 a month in cash flow.

Obviously there are several variables that are not being taken into consideration in this example. However, the concept is correct.

So one cash flowing property may be great if your goal is to have one good cash flowing property. However, a good cash flowing property can slow you down from building significant wealth if you decide to just keep the property because it's cash flow well.

And just to let you know, the example above isn't theoretical. This is basically the path I took over the past 10 years. So I can say that it is credible and it works.

Patrick O'Sullivan · Answer

Jeff, I think the reason you're getting different answers is that people are comparing two completely different investment styles.

If you sold, you would have locked in your gains and moved the equity into VTI. That's a perfectly reasonable option. But keeping the condo isn't automatically the wrong choice just because an index fund might outperform it in some scenarios.

You have a property with a 3% mortgage, positive cash flow, tenant-paid principal reduction, and exposure to a strong long-term market. Those are valuable advantages that would be difficult to recreate today. On top of that, you maintained control of an appreciating asset while using other funds to buy your next home.

The only things I'd be careful about are the expenses that don't show up in a simple cash flow calculation. Vacancy, maintenance, HOA increases, special assessments, and eventual turnover costs can all impact returns. I'd also factor in the opportunity cost of the funds you pulled from VTI and the tax implications of keeping the condo longer.

That said, based on the numbers you've shared, this doesn't look like a bad decision at all. It looks like a reasonable choice between two good options, and you chose the one that lets you keep a low-rate asset that's producing income and building equity every month.

Richard F. · Answer

@Jeff Dimambro, what nobody is mentioning is the potential for your Condo Board to wipe out your cash flow for years because they need to make a Special Assessment!

You have owned for 5 years... what is your monthly HOA fee now, and what was it when you first purchased the unit? When was the project built? What type of amenities are included? These are all factors that weigh heavily on the actual financial condition of the HOA. Funds for repairs/replacements/improvements of the common areas come from one place...Your Pocket. If they do not have properly funded Reserves; or have not had a full, site visit, Reserve Study within the past 5 years, there is likely a surprise in your future.

You cannot glance at a monthly or annual Financial Statement, see a big number in the bank account, and assume All is Well. You need to be able to review and study the Reserve Funding Plan along side of the Annual Operating Budget to see how well, or how badly, the Board is managing YOUR money. Few Agents, and even fewer condo/hoa homeowners actually understand the critical details of the Plan.

Jules Aton · Answer

Like others said who cares and heck its too late anyway but since you asked I'm guessing you also factored in losing the homeowner tax credit on the eventual sale if you keep it more than 3 years, the amount of tax you paid on selling VTI and refresh that will be required prior to selling.  Also and I know Boston is generally a great area but selling condos can be rough at times depending on supply and demand and I tend to avoid attempting to predict appreciation out of an abundance of caution.

Did I make the right move in renting my place?

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