Hey guys new to the forum - you come highly recommended from the Bogleheads!
My wife purchased a brand new condo in 2010 for $160,000. 2 years later, he grandmother passed away and we purchased her house and move in.
The deal for moving is that we got the house for $160k and the current market value was around $250k.
The bad news (well kinda) is that the condo mortgage + fees are $1,150 and we rent for $1,200...resulting in a net $50/month or 4%. I know that's on the low end, but it covers everything and we've never had a vacancy because identical condos in our complex rent for $1,250 - $1,400. I could raise the rent $100 - $200/month, but my fear is that if it sits vacant for 1 month, the extra rent would cover that month, resulting in no real gain.
Also, since the condo was new in 2010, there has been no real maintenance issues since then. I live 10 minutes away and been able to take care of anything that needed to be done between tenants in a day (replace vent fan, caulk, touch up paint, etc). My 3 different tenants have been great and i've had no payment issues or problems. The first person vacated due to job transfer and the second was deployed with the military.
Now that you know my story HA, here's my questions...
Condo purchase price: $160,000
Condo mortgage: $138,000
Current market value: Around $145,000
If we sold the condo for the average of $145,000, after a 7% Realtor fee we would be left with $135,000. At best we would break even.
Am I better off breaking even now or continuing to rent with such a low return? My rationale to keep is that each year we gain $5,000 in equity as the mortgage is being paid by someone else. The other option is that if the current tenant likes the place and would want to purchase, I could sell without a Realtor making my profit after the sale around $10,000 and a tax loss of $15,000 ($160k purchase minus $145k sale price) Just want other opinions to justify one way or the other. Thanks!
It appears that you are an accidental landlord. The property sounds not to be ideal as a rental given the relatively low cash on cash return, but the die is cast and you own it. I would do two things: keep it, and increase the rent. You say that comparable units are going for higher rents, and some are significantly higher. I think it is time to test that observation. If you increase the rent and the tenant leaves you should be able to replace them without too much trouble. You may be settling for too little rent on the grounds that you do not wish to spend any time on management, but rental property requires hands on management I am afraid.
In terms of the economics, selling for at best break even is not very attractive. I would not do this unless forced to. Instead holding on and having mortgage paydown courtesy of your tenant would be better. This may be a waiting game, but it gets back to the initial observation: you seem to be an accidental landlord. Is this a status you want to continue, or do you want out? If you really want to be rid of this then sale to the current tenant may be the way to go. But all other things being equal I would ride this out for a while. From what you say your management time on this property has not been all that great. You can afford to hold it and see how things develop. Hope this helps.