I bought a condo in 2006 at the peak of property prices, the prices have just started to come back up this year to the price I paid in 2006. Last year was the first year I rented it out since I had to move out of the condo for a job relocation. Currently I am renting it out for $1850 a month which nets me a profit of $2000 a year after paying off the mortgage, realtor fee, and all other expenses. The current tenant is moving out and I'm trying to decide if I should continue renting it out or selling it. Is this too small of a profit to keep it as a rental property or should I try and sell it now and recoup what I paid. I am worried about unexpected expenses or vacancies, I am also worried if the market goes down again that I would be stuck with this rental property. The unit seems to be easy to rent out from what I can tell but I'm not sure what to do.
I would sell now if you think you can come close to breaking even. If you really want a rental property, reinvest in the area you are living in now. You can take your time and find a good deal that will create positive cash flow while accounting for vacancies, maintenance, CapEx, etc..
I think Steve Rogers is right. It's not that I don't think a net of $167 a month is worth it as a starter, it's just that if it's far from your residence and difficult to manage, you'll likely be in the whole quickly. You don't mention whether the $2,000/yr net includes property management. If it doesn't, then you'll likely need it before long and then your profit will evaporate. Plus, $1850/month probably doesn't leave you room to increase the rent. I think I'd try hard to break even or get a little positive cash, and then find something closer to your new location where you can improve your net.
I have a potential renter lined up for when the current one leaves at the end of this month so I wouldn't have a vacancy for the upcoming year. Do I take the guaranteed income and wait to sell it next year? I'm afraid of putting it on the market for sale now and have it sit vacant since its going to be winter when the market is typically slower for sales. I'd also be getting some equity/principal of around $2500 a year from the mortgage payment on top of the $2000 profit.
Sell now, holding out for better times is unpredictable. You will also find it much easier to sell vacant. There are more home buyers than investors looking to purchase condos.
@Mooko King If you want to sell, but are still considering renting, you can always sell via a lease option! Get a few thousand dollars for the option fee up front, full market rent for 2 years or so, and then full market value when you sell without paying realtor commissions etc.
Plenty of articles on here to walk you through it, but as always, go find a local real estate attorney to answer specific questions and have the lease / option drawn up!
@Mooko King It sounds like you are an accidental landlord today. I think the first question to ask yourself is, do you want to be a landlord/real estate investor. If the answer is No, then I would sell. If the answer is Yes, then see below:
Personally, I am in a very similar situation as you are. I bought a condo in NJ in 2004 for $345k to live in and then in 2006 moved out. I decided to keep the condo and rent it out (instead of selling for $400-450k) because I didn't want to spend $35-40k in commissions/closing costs/transfer fees. The money would have been gone forever. Although I have spent about $25k over the past 12 years supplementing negative cash flow, today the unit appraises for $580k. Had I sold in 2006, I would have flushed $35-40k down the toilet (even though to be fair, I would have been able to cash out the remaining equity). Instead today, I just cashed out $200k in equity, tax free, to go invest in other properties. It may not be a by the book approach but it has worked for me.
The condo never would have made sense to purchase purely as an investment but once I owned it for personal reasons, it also did not make sense, to me, to sell it.
So with all of that being said, I'll be the contrarian.
Keep your condo!
If you can sleep at night having a rental property that is not in your backyard, let the tenants pay it off for you over time. You may need to come out of pocket from time to time when things get tight so it isn't gonna provide you with the cash flow to retire anytime soon but it will likely over time provide you with equity that you can cash out, tax free, to buy additional properties or live off of in the future.
Even if you do not want to keep the condo long-term, put a tenant in there for the next year and then spend that year researching deals closer to your new home and in a year, you could be in a position to do a 1031 exchange into a new property closer to home that has the investment parameters that you want.
If you have a tenant lined up, I don't think you have much to worry about. Things could be MUCH worse.... obviously, sitting vacant....
Personally I would sign new tenant to a 9 month lease and make it clear you have no plans to renew.
Of course well before he vacates, starts prepping up for sale of the property, tell your agent to start marketing, get contractors ready and list it for a few thousand under-value so it sells quick or maybe even get into a multiple offer situation.
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