Should I sell my Condo?

Question

Hello Biggerpockets,

I need a bit of advice. I own a condo (in Dublin, CA) that I am currently renting out. The rental I get is $2800. The costs are $2750 broken down as follows

• Principal and Interest = $1850 [30 year fixed at 3.5%]
• Taxes = $600
• HOA = $300

Renting the condo shouldn't be a problem as it is in a good school district and desirable area. Mortgage left on the condo is $375K (25 years left on the mortgage), similar condos in the community are selling for $750K. If I sell I will net around $300K after all fees (it was a primary home until recently so we will not need to pay taxes per the 2-out-5 rule].

Would you advice I keep renting the condo as it breaks even with rent, or sell?

Thanks for your time and advice

-Sam

Todd Rasmussen · Answer

@Sam Reddy

Vote for sell. Putting that money in your pocket without capital gains is the major consideration for me.

Sam Reddy · Answer

thanks for your advice @Todd Rasmussen @Rick Albert @Sheldon Zimmerman @Sonny Vu

Sam Reddy · Answer

thanks @Caleb Brown and @Dustin Allen for your reply. With the $300K I was just going to invest in a diversified stock portfolio or buy a single family home in either Brentwood or Tracy. I am making an assumption that a SFH in these areas might appreciate more than my condo, but I might be wrong.

Sharon Wu · Answer

Since you don't have to pay taxes with the 2-out-5 rule, it's a good timing to sell and reinvest.

Justin Phillips · Answer

@Sam Reddy With those numbers, I'd probably lean towards sell. However, it really depends on your goals. As another option, my wife and I ReFi'd our property into a 1st position Line of Credit that's tied to a Zero balance sweep checking account. That sweep account sweeps all of our normal checking and idle funds directly towards the balance. This saves us a ton in interest cost as it snowballs. The only "payment" we're held to is a low interest-only cost, so it also maximizes flexibility, were something to ever go wrong.

In your case, your max credit line would be set to $525,000. (70% LTV for rentals, 80% for primary). So you'd have access to $150k in equity on day one. Along with that, your interest only cost in month 1 would be $1,484. With positive cashflow, that should be the highest that you ever pay. So the loan itself actually frees up more cashflow, and thus helps that snowball effect.

If you wanted to hold the property for the long-haul, there's not a better loan for flexibility and cashflow. At the end of the day, you're in a good spot! Equity brings options. Best of luck!

Rick Trivedi · Answer

@Sam Reddy - I am local in Dublin, CA as well and we get these types of situations all the time. There are a couple of main ways to think about this but there are other several smaller factors

1. Once the construction near BART station completes which is one of the last construction residential projects in Dublin and if the mortgage rates remain low - we will see appreciation in the market due to natural supply/demand economics. If you are willing to wait and bet on that, you may get a 7-10% bump in a year or so.

2. On the other hand if you are wanting to be 100% or close to it debt free and get the purchase price covered from the profit/equity from the existing place than it might be worth selling and buying another place - may be even out of state - North Carolina or Floria or may be even some other states. There might be more cashflow you can get there and you diversify to hedge against CA exodus. You can even split that into multiple properties if the cashflow numbers make sense.

On the smaller factors side - $300 HOA IMO is down the drain which is one of the reasons I like to avoid Condos. Your purchasing power increase few hundred thousands for that payment towards the mortgage instead.

If you do decide to invest back in CA - there are places in central valley, further east in east bay (Patterson, Stockton, parts of Tracy) etc. that you can consider.

Brian Garlington · Answer

Keep it...do a refi or heloc....pull cash out....and buy in cashflowing markets.

Marian Smith · Answer

@Sam Reddy  You could also sell in a couple of years, but then you risk wear and tear, although some people take good care of rentals.  Supposedly you downsize in a hot market and move up in a down market, so would you kick yourself for not having sold if the market went down or would you sell for less and buy something better at a similarly discounted price?  Know thyself!

Sheldon Zimmerman · Answer

Yeah, I vote for Sell. The reason is twofold. 1. You get out of paying the taxes on the unit if you sell since it still falls in the 2 out 5 years. 2. The equity is great, so turn that into a larger unit or multiple units where you can cash flow a couple thousand with the equity you could use to buy more.

Rick Albert · Answer

I've been in the same dilemma with my condo rental.  The big question is what would you do with the money?  If your plan is to let it sit in the bank, then keeping the rental will most likely give you a better return.  If the thought is to reinvest it into a better rental, then sell.  If you can answer the first question, it automatically answers the second.

Should I sell my Condo?

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