Hold property or let it go?

15 Replies

I have a studio loft in downtown Atlanta that I could likely sell for $135,000. I currently owe about $107,000 on it and have it rented out to an amazing tenant who has never called me with the first concern over her two year lease, which expires at the end of February, next year. She's paying $950 which is below market value, but I gave her a break for signing a two year lease. I'm cash flowing it by about $50/month.

My question is this: would it be more advantageous to list if for sale March 1st or should I attempt to continue renting it out (likely at an increased rate)? I currently have an ARM on the property and I'm sure rates will be rising in the not-so-distant future, so I assume it would be prudent to refinance. I have 20 years left on the mortgage and it's currently sitting at 3% even. I'd hate to refi into a higher rate, but I assume it would be wise from a CYA perspective if I were to hold onto the property.

If I need to include more information in order to receive a response, I'm happy to do so.

Thank you so much for your time and I look forward to your replies.

Sounds like a handy positive cash flow situation. Smyrna is a great location and you should be able to pick up a good tenant for another couple of years. I'd keep it.

Good luck!

I also agree that you should keep the property. Bring it up to--or just below--market rent. Who knows, maybe your current tenant is willing to pay the market rent. Perhaps you could bring this up to her now while there's plenty of time to digest the idea of more rent. Even if she does move out, it sounds like you shouldn't have much trouble finding another wonderful tenant.

Thank you both very much for the quick and informative replies. Greatly appreciate it!

If I may ask another question regarding holding onto the property, would you recommend moving forward with a refinance? My current mortgage rate resets annually. Unfortunately, I don't recall what the cap is on the reset, but I'm conservative in nature and would gladly give up a little short term cash flow for long term security and piece of mind.

@Jimmy Day  I would not refinance.  You need to pick a strategy - hold for 5 years or sell in the next 5 years.  

Rates aren't moving around a lot. You ARM will float and lock at then current rates kind of like refinancing without paying 3% ($3k) to do it. You need to determine when the ARM converts to a fixed rate and what is the max amount it can go up in a year.

good scenario... what will the new payment be if you refi? what wold the new rent be? would you cashflow then?

at $50 a month, it's not worth it because if JUST the dishwasher goes, that's 6 months worth of profit.

you should try to bring expenses down and raise rent (by whatever means) to get a higher cashflow.

unless it appreciates, of course. then i'd keep it even if i lose $50 per month.

hope i helped!

Does the cash flow account for maintenance, reserve fund, & vacancy? 
If it does, then I would think the $50/mo isn't that bad. Especially if your able to raise the rent on the next tenant. 

Again, I thank each of you for your replies - they've been a tremendous help. Based on your feedback, it's looking like the best course of action is to sit tight and bump rent up upon lease renewal to increase cash flow.

Originally posted by @Jimmy Day:

I have a studio loft in downtown Atlanta that I could likely sell for $135,000. I currently owe about $107,000 on it and have it rented out to an amazing tenant who has never called me with the first concern over her two year lease, which expires at the end of February, next year. She's paying $950 which is below market value, but I gave her a break for signing a two year lease. I'm cash flowing it by about $50/month.

My question is this: would it be more advantageous to list if for sale March 1st or should I attempt to continue renting it out (likely at an increased rate)? I currently have an ARM on the property and I'm sure rates will be rising in the not-so-distant future, so I assume it would be prudent to refinance. I have 20 years left on the mortgage and it's currently sitting at 3% even. I'd hate to refi into a higher rate, but I assume it would be wise from a CYA perspective if I were to hold onto the property.

If I need to include more information in order to receive a response, I'm happy to do so.

Thank you so much for your time and I look forward to your replies.

Hi Jimmy,

You have a golden tenant and this is one of the main reasons why I would hold this property.

I have been involved in numerous RE transactions over the years and know that you don't buy tenants but rather properties.

In your case tho, if she has been there for so long with you owning the property over that time and now she wants a new 2 year lease, I would definitely let the above rule slide lollol

The $50 per month is not a big cashflow but the property being located downtown has potential for growth IMO. Its not costing you any $$$ to hold and has great upside.

I would hold this one and focus on other ways to generate $$$ and continue building.

Just my 0.2 :)

Thanks for reading and have a great day.

Just to throw in a different perspective, I'd sell, assuming the condo is located in true "downtown." Lots of brand new Class A properties scheduled to come online in hotter locations like Midtown and Buckhead over the next couple years, which will likely hurt your value. Condo values got massacred during the last cycle and you're unlikely to see any real appreciation downtown, in my view. I'd trade for a SFR in Smyrna, for example.

@Jimmy Day another vote for sell. I was thinking hold until I saw the ARM. When interest rates go up it'll be too late to sell because it will take away value from the property. People buy the payment and since wages aren't increasing then an increase in interest rates will erode purchasing power.

I know nothing about what Account Closed says but if it's true that would be another reason to vote for selling in my book.

I am a buy and hold investor who is not all about the cash flow just so you where I am coming from.

I appreciate the different perspectives guys, thanks. I wasn't expecting a response from someone with local market knowledge, but Account Closed , since you're probably familiar with it, the condo is located within a block from the Beltline in the Old Fourth Ward on Edgewood Ave - one of the "hotter" areas in the city due to the influx of new development and gentrification projects.

That being said, would you still hold the same opinion?

@Jimmy Day It would, in that the area is definitely in much higher demand (which will likely stay the case) than what I usually consider "downtown," so I wouldn't lean toward selling just because of location. But I might still try to trade into something with higher cash flow.  

Based on current interest climate and the amount you owe I think refinancing won't help a ton...UNLESS you can find a mortgage with low closing costs.


Depending on your amortization period you could end up resetting that and earning much less principal pay down per month by refinancing into a 30 year.

Assuming a 30 year fixed is roughly 1.5-2.5 higher then what you're paying now it'd probably(LOOSE ESTIMATE) take 7-10 years for interest rates to rise high enough make the difference in closing cost + lost principal pay down...again the changing of interest rates will impact this greatly.

@Jimmy Day   I'll trade my Smyrna condo for your O4W condo ANY DAY.  

Seriously, I think I'd hang on until the you see condo supply kicking in again.  Additionally, you don't have that much equity in it to make the sale worthwhile.  Hang on a few more years and enjoy the very low vacancy, maintenance, and rapidly appreciating rent that comes with a condo in O4W.

If you have a good tenant, then keep rent the same and don't think about the property except at renewal time.  

I would not sell the property and would bump up the rate to market rate. I am that landlord who buys great properties and will  increase rent on a tenant. You have a terrific basket that will build up over the years. 

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