Buy it or Sell it: A Condo I can pay off or sell

33 Replies

Hi team,

I'm early in my journey and need some objective advice from some other folks. I currently have a mortgage on a condo in Tampa, FL. I'm trying to decide if I should go ahead and pay it off, making it into a soft asset with active renters in place, or just sell it and use the money elsewhere for a different investment. I could use some outside eyes on this. Here are the general qualities of the property:

  • Property is in Tampa, FL, specifically Ybor City, the latin quarter. 
  • Walking distance from great restaurants and nightlife.
  • Condo property is nice, has a swimming pool, big gym, covered parking spot.
  • Condo is from 2005 but has had no major updates since then, so it's "ok quality" but has no great upgrades in place, is builder quality
  • I owe about 100k on the mortgage
  • HOA fees are about 300 per month.
  • Property Management Fee of about 150 per month. 
  • Renter pays about 900 per month.
  • Had some major fixes last year that ate all my profit (tune of 6k of fixes, hopefully one time)
  • If I sell it, I can probably get 125k-130k max since it has no upgrades. After fees, maybe I'd make 20k on that. 

My options:

I have enough cash to just pay off the mortgage and make this a positive investment. OR, I can sell it. If I sell it, I'd probably use the profit towards another property. And I do have 100k in the bank "extra" that I can use for this without risking anything. 

So should I pay 100k into this, own it fully, and make cash flow of 450 a month (let's say 300 if I save 150 for random expenses etc), or sell it and use that 100k + the 20k or so from profit to find another property.

ALL OPINIONS WELCOME. 

    What are all of your current expenses (include condo fees, insurance, taxes and mortgage) and how much would it rent for?

    The best option if the numbers work is to keep it and rent it, but do NOT put $100K towards that mortgage.  Use some of the $100K to buy another rental.  

    One problem with condos as rentals is the condo fees make it harder to cash flow.  Yes taxes can be lower, but the condo fees eat up a lot of your profit.  Plus rules change and they may ban or restrict rentals and some condos are poorly run.

     No don't pay it off.  Why?  What do you think you're gaining?  The answer is nothing...but you're losing $100k that you will get back in such small amounts (added cash flow) that is will probably take you at least 10 years to break even.

    ...or, you can go with option 2 and sell it, add the profit to your $100k, and buy multiple properties using the cash as minimum DP's. I bet your total CF from the new buys will dramatically blow away the cash flow you would have if you kept this property with 100% equity.

    Oh, and as far as the equity is concerned, you will have the exact same total equity either way. The multiple property way you will have it spread over multiple properties...and if you put it all down as 20% DP's, you will have 5 times the total property value as you would holding and paying off that first property. Let's think about what that means. 5 times the value also means 5 times the appreciation.

    Originally posted by @Damon D. :

    Additional info: I pay 950 a month for mortgage.

     Wait a minute.  That's all the info needed...that and the fact you're only getting $900/month in rent means you are negative (big time) CF.  Now there's no option #1 even on the table.  Bury this badboy ASAP and move on, before that $100k you have now is gone paying for this property.

    @Joe Villeneuve

    My thoughts exactly. Sell it.

    Looks like there is lots of negative cash flow here, especially with the $300/month HOA fees.

    And with HOAs they can ask for extra money at any time to pay for repairs for roof, pool, parking lot, etc.

    Thank you all for the great comments. That confirms my prejudice. I'm going to get out from under this thing. Now the question is where can I find properties at the right value? :)

    How is your mortgage payment $950 for a place worth 130k? That with $300 HOA fees and only renting for $900 makes this a loser.
    And why is your property management fee roughly 16%???

    I haven’t been to Tampa in a while so maybe it’s different but when I was previously there with the military they only told us one area to avoid....ybor city....

    Also with the building being 15 years old you’re most likely coming up on some big ticket fixes


    I think you are better off selling this neg cash flow asset, taking the $20k profit and rolling into a non condo + cash flowing asset. I have owned several condos as an owner occupied but never kept them as rental due to the condo fees eating up so much of the CF.  Good luck!

    Originally posted by @Damon D. :

    These days Ybor is considered pretty desirable, for singles and couples anyway. I bought the property in 2005 so the interest rate was a little over 5%. You can look up the building, it's The Quarter at Ybor. https://g.co/kgs/q7ica3

     This is a great example of why high property value, in a highly desirable area, with high appreciation, doesn't mean it's a good investment.  An investment is based on the spreads between cost (your cost...NOT the total cost of the deal) and your return...in CASH.

    Originally posted by @John Erlanger :

    You will have about $10,000 transaction costs.  Where will you invest that will cover that expense?

     It doesn't matter.  He has been, and will be losing more than that.  Get out of this deal, and recover the negatives (including the transaction cost) on the next deal.

    Originally posted by @Joe Villeneuve :
    Originally posted by @John Erlanger:

    You will have about $10,000 transaction costs.  Where will you invest that will cover that expense?

     It doesn't matter.  He has been, and will be losing more than that.  Get out of this deal, and recover the negatives (including the transaction cost) on the next deal.

    $10,000 does matter! Unless the property is not appreciating over inflation then he has mostly upside. It is not like he is freeing up massive equity.

     

    Originally posted by @John Erlanger :
    Originally posted by @Joe Villeneuve:
    Originally posted by @John Erlanger:

    You will have about $10,000 transaction costs.  Where will you invest that will cover that expense?

     It doesn't matter.  He has been, and will be losing more than that.  Get out of this deal, and recover the negatives (including the transaction cost) on the next deal.

    $10,000 does matter!  Unless the property is not appreciating over inflation then he has mostly upside.  It is not like he is freeing up massive equity.  

     

    So you're saying it's better for him to keep losing money through cash low, which is liquid and capable of being invested to gain money, because he'll walk away with $10k instead of $20k at closing? He's not losing $10k at closing, he's gaining $10k that can be invested to recover lost funds up to this point (including closing costs). If he stays with this property, he'll just keep losing money from the cash flow that will not be enough to offset the $10k closing costs. The closing costs are a one time event. The CF continues forever based on how far he is from positive cash flow.

    As far as appreciation on this property is concerned, so what.  You're telling ne he can't find a different property that will give him the same or better appreciation, that isn't stealing that appreciation every month due to negative CF?

    In Poker, you don't keep throwing money in the pot because you have money in the pot that you don't want to lose. Losing the hand doesn't lose the money. The money is still on the table, and as long as you are still in the game, you can win it back. The more good money you throw at bad money means it will take you longer to get the loses back, and you'll have less resources to get it back with. REI is the same thing...and this deal is a perfect example of it.

     

    @Damon D. If you keep the property, don’t put all your money in it. You already lost all your profit in fixes. We had a special assessment of $7,000 the year I sold my condo. I had another friend had to pay an $18,000 special assessment in another condo.

    The repairs done for the $7000 special assessment where so bad. They caught one of the subs doing drugs and not even working for the entire day in a camera. Another sub was caught stealing beer. The property management had almost 1 year from the time we knew of the problem and to when he provided three bids for the work. If I had not paid the special assessment the HOA would have put a lien on my condo and possibly even forced me into selling. And I was on the board. Lol.

    Condos are risky in that you have absolutely no control over what gets done and at what cost. I don’t mind living in a condo, but after my experience I would want way more cash on hand to deal with special assessments then to risk not having it when I am told to cough up the cash.

    @Damon D. Have you considered your refi options? Is there anyway to lower your monthly expenses to make this property cash flow without paying off the mortgage?

    If it’s possible to lower your payment I’d consider going that route and keeping the property. Maybe also look into lowering your other expenses, like management fees.

    If it’s not possible to cash flow without paying off the mortgage, then selling maybe your best option.

    @Joe Villeneuve This is a terrible example. There is no appreciation. He owes 100K and the value is 130k. He must have put 29% down and paid down the loan some. So the ckndo has lost value. You are so prejudiced towards one kind of investing with high leverage and cash flow. There are other even more profitable ways to do it also.

    Originally posted by @Anish Tolia :

    @Joe Villeneuve This is a terrible example. There is no appreciation. He owes 100K and the value is 130k. He must have put 29% down and paid down the loan some. So the ckndo has lost value. You are so prejudiced towards one kind of investing with high leverage and cash flow. There are other even more profitable ways to do it also.

     What are you talking about?  Did you even read what I wrote?  Everything you just wrote here, are reasons to sell the condo...which is what I've been saying all along:

    1 - No appreciation
    2 - No equity (other than what he bought)
    3 - Negative Cash Flow

    ...and I'm not prejudice against anything other than CF.  If you actually read what I write you'd understand that.  I'm not in favor of investing in properties that have negative CF...that's not the same thing.  I love appreciation.  I love free equity (that is paid for by the tenant or gained by appreciation).  I just don't like negative CF because it defeats the purpose of investing...and I don't like high Down Payments because that's money you have to recover before you make a profit...especially when the higher DP is used to negate negative CF.  That's just bad math, and poor logic.  In that case, you just paying al your negative CF upfront.  You haven't gained anything, and in fact are losing more than if you would have just kept the negative CF.

    Yes I favor cash.  Cash is liquid and gives you the power of control.  Equity is great, but it's basically cash that is dormant.  You can't use it to gain profit, and any added equity is either, paid for by the owner = bad, or by the tenant = good = free, or appreciation, comes at a 1 to 1 cost to value.  The down payment comes at a 1 to 100/DP% value.  So a 20% DP has a 1 to 5 value, and a 25% DP has a 1 to 4 value, a 10% DP has a 1 to 10 value, and a 100% DP has 1 to 1 value...and no upside.

    Originally posted by @Joe Villeneuve :
    Originally posted by @John Erlanger:
    Originally posted by @Joe Villeneuve:
    Originally posted by @John Erlanger:

    You will have about $10,000 transaction costs.  Where will you invest that will cover that expense?

     It doesn't matter.  He has been, and will be losing more than that.  Get out of this deal, and recover the negatives (including the transaction cost) on the next deal.

    $10,000 does matter!  Unless the property is not appreciating over inflation then he has mostly upside.  It is not like he is freeing up massive equity.  

     

    So you're saying it's better for him to keep losing money through cash low, which is liquid and capable of being invested to gain money, because he'll walk away with $10k instead of $20k at closing?  He's not losing $10k at closing, he's gaining $10k that can be invested to recover lost funds up to this point (including closing costs).  If he stays with this property, he'll just keep losing money from the cash flow that will not be enough to offset the $10k closing costs.  The closing costs are a one time event.  The CF continues forever based on how far he is from positive cash flow.

    As far as appreciation on this property is concerned, so what.  You're telling ne he can't find a different property that will give him the same or better appreciation, that isn't stealing that appreciation every month due to negative CF?

    In Poker, you don't keep throwing money in the pot because you have money in the pot that you don't want to lose. Losing the hand doesn't lose the money. The money is still on the table, and as long as you are still in the game, you can win it back. The more good money you throw at bad money means it will take you longer to get the loses back, and you'll have less resources to get it back with. REI is the same thing...and this deal is a perfect example of it.

     

    Yep, it may take years to get that $10,000 back.  There is nothing stopping his from keeping the property and investing in another.  Spending $10,000 to free up $10,000 doesn't seem that smart to me.  

     

    Originally posted by @John Erlanger :
    Originally posted by @Joe Villeneuve:
    Originally posted by @John Erlanger:
    Originally posted by @Joe Villeneuve:
    Originally posted by @John Erlanger:

    You will have about $10,000 transaction costs.  Where will you invest that will cover that expense?

     It doesn't matter.  He has been, and will be losing more than that.  Get out of this deal, and recover the negatives (including the transaction cost) on the next deal.

    $10,000 does matter!  Unless the property is not appreciating over inflation then he has mostly upside.  It is not like he is freeing up massive equity.  

     

    So you're saying it's better for him to keep losing money through cash low, which is liquid and capable of being invested to gain money, because he'll walk away with $10k instead of $20k at closing?  He's not losing $10k at closing, he's gaining $10k that can be invested to recover lost funds up to this point (including closing costs).  If he stays with this property, he'll just keep losing money from the cash flow that will not be enough to offset the $10k closing costs.  The closing costs are a one time event.  The CF continues forever based on how far he is from positive cash flow.

    As far as appreciation on this property is concerned, so what.  You're telling ne he can't find a different property that will give him the same or better appreciation, that isn't stealing that appreciation every month due to negative CF?

    In Poker, you don't keep throwing money in the pot because you have money in the pot that you don't want to lose. Losing the hand doesn't lose the money. The money is still on the table, and as long as you are still in the game, you can win it back. The more good money you throw at bad money means it will take you longer to get the loses back, and you'll have less resources to get it back with. REI is the same thing...and this deal is a perfect example of it.

     

    Yep, it may take years to get that $10,000 back.  There is nothing stopping his from keeping the property and investing in another.  Spending $10,000 to free up $10,000 doesn't seem that smart to me.  

     

     He's not spending $10k to free up $10k.  He's just netting a positive $10k, and stopped the bleeding.  That positive $10k has the potential to grow exponentially, but staying with the current situation he'll just keep bleeding with nothing to move forward with.  Staying with the status quo means he will continue to lose money, more importantly ...cash.  Moving forward, he has opportunity to immediately grow exponentially.  It isn't just the face value loss/gain.  It's also the impact from this day (decision day) forward.

    I agree with everyone's sentiments. It sounds like this property is providing negative cash flow. If you read "Rich Dad Poor Dad", this seems to be more of a liability than an asset. I would recommend selling it and investing in a house hack, perhaps a duplex or 3 unit. If you invest in one of those, positive cash flow is almost guaranteed (make sure you run the numbers)!!! Good luck. 


    You will have about $10,000 transaction costs.  Where will you invest that will cover that expense?

     It doesn't matter.  He has been, and will be losing more than that.  Get out of this deal, and recover the negatives (including the transaction cost) on the next deal.

    $10,000 does matter!  Unless the property is not appreciating over inflation then he has mostly upside.  It is not like he is freeing up massive equity.  

     

    So you're saying it's better for him to keep losing money through cash low, which is liquid and capable of being invested to gain money, because he'll walk away with $10k instead of $20k at closing?  He's not losing $10k at closing, he's gaining $10k that can be invested to recover lost funds up to this point (including closing costs).  If he stays with this property, he'll just keep losing money from the cash flow that will not be enough to offset the $10k closing costs.  The closing costs are a one time event.  The CF continues forever based on how far he is from positive cash flow.

    As far as appreciation on this property is concerned, so what.  You're telling ne he can't find a different property that will give him the same or better appreciation, that isn't stealing that appreciation every month due to negative CF?


     

    Yep, it may take years to get that $10,000 back.  There is nothing stopping his from keeping the property and investing in another.  Spending $10,000 to free up $10,000 doesn't seem that smart to me.  

     

     He's not spending $10k to free up $10k.  He's just netting a positive $10k, and stopped the bleeding.  That positive $10k has the potential to grow exponentially, but staying with the current situation he'll just keep bleeding with nothing to move forward with.  Staying with the status quo means he will continue to lose money, more importantly ...cash.  Moving forward, he has opportunity to immediately grow exponentially.  It isn't just the face value loss/gain.  It's also the impact from this day (decision day) forward.

     Per the OP, "

    • If I sell it, I can probably get 125k-130k max since it has no upgrades. After fees, maybe I'd make 20k on that. " He has the asset and $25,000-$30,000 of equity. If he sells he has no asset and possibly $15,000-$20,000 in cash. His net worth has dropped $10,000. That is what it cost him to sell.