Should I rent or sell my condo?

Question

My condo is in Minneapolis. The value is approximately 190,000. I owe 64,000 on it and purchased it at 145,000 4 years ago. My monthly payment is $1,200 (including HOA-275 and taxes) and I could likely rent it for $1,600. I'm not sure if I should rent or sell, given I'd have to pay capital gains on 190,000-145,000. It is in an area that I expect continued appreciation at a higher than expected rate. What would you do? Thanks so much!

John Underwood · Answer

I would keep as a rental and try to acquire a portfolio of rentals that will cash flow and your tenants will pay off for you.

If you do sell, utilize a 1031 exchange to postpone indefinitely paying any capital gains tax.

That savings account is the worst place to park your money.

Darius Ogloza · Answer

Ashley: you are in a very good position.  If you are correct that the condo will continue to appreciate, I would not let the 2 year sell window tempt me into turning my investment into cash unless you have a very specific reason to do so.  This is precisely how real wealth is made - tax deferred appreciation.  It seems to me you have ample margin on the rent to cost ratio.  You may have to kick in a little cash for cap ex every now and then but 5-10 years from now you will be laughing all the way to the bank.

I would not try to buy a multi-unit property until you got used to being a landlord (I assume this would be your first experience).  That experience could be too overwhelming at this point in your investment career.  Find a good renter (don't worry if that takes a month or two), take an appropriate deposit and slowly get rich.

Minneapolis is a great city and if your property is well-located as you say you will be on your way to building your fortune.

Good luck.

Mark S. · Answer

@Darius Ogloza I agree with Darius - I would definitely NOT try to jump into multi family investing as others suggested. It sounds like the idea of being a landlord is new to you and taking on a multi family unit with no experience and without a plan in place for developing a real estate portfolio could turn into a nightmare. The nice thing about a condo or townhouse as a first investment is that the HOA takes care of most of your maintenance issues. I look at that fee as the capex account. You may have a few interior things with appliances and HVAC. Just get a Service Plus contract in place from Centerpoint and that $50 or so a month should take care of any or those expenses. Get a good tenant, set them up to pay you thru Zelle,  Cozy or something similar and things will be pretty easy. And the way things are appreciating in the Twin Cities you should do very well.

Good luck! Merry Christmas!

Taylor L. · Answer

Agreed with @Edward Burke, multifamily would be a good option. Don't forget the 1031 exchange option, if you do choose to keep investing in real estate.

If you're moving away from Minneapolis, I would sell and get into an asset which can support a manager or a syndication. I wouldn't want to remotely manage a single family.

Randy Bloch · Answer

I miss understood your point on the capital gains, seems you understand the personal residence capital gains exception. Everyone is saying it is a good idea to keep it as a rental.  Do you have a desire to get into real estate investing? Answer this question first. 2nd run the numbers, what will be your cash on cash returns and total return with an appreciation assumption.  You have a lot of equity tied up in this property so returns will likely be fairly low.  Then decide if u want to invest in real estate for this return or something more passive like the stock market.  You could also refi and then IRR will be better.

I’m not trying to talk u out of it...just trying to educate you on how make the decision.  I invest in class A condos myself in Minneapolis and have done well with appreciation, cash flow is thin, because I am more leveraged, but overall IRR has been good. happy to answer any questions u might have.  I am a big believer in that there is a decade long trend of people moving to more urban living in Minneapolis which bodes well for urban condos.  The numbers don’t work too well for new investments though.

Ashley Rogers · Answer

@Randy Bloch I do live in the unit. My concern is that after two years not living here, I'd have to pay capital gains. 15% of 45,000 is a lot and would negate renting it out for awhile.

Jordan Moorhead · Answer

@Ashley Rogers I'd look at refinancing it a lower mortgage amount and holding it as a rental long term. Condos are typically easy to manage.

Tim Swierczek · Answer

@Ashley Rogers have you been living in the property since you purchased it or had it been a rental?

Randy Bloch · Answer

This is your personal residence?  There won’t be any capital gains as long as you have lived there for 2 of the last 5 years.  Do you want to be REI, decide this first.

Should I rent or sell my condo?

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