Sell or keep renting?

14 Replies

I'm caught between 2 options of what to do with it and I'm interested to hear what others would do. I purchased a very mediocre condo in southern Minnesota 11 months ago with the intent to rent it out. I purchased with cash for $73k and net around $800/month after HOA, taxes, insurance, capital reserve, etc, so pretty solid cash flow. The renters moved out a bit early, so I have it for rent again at the same rate. Someone has offered to buy it for $98,000. Would you take the quick gain or keep for this level of cash flow?

@Tyler Putrah - answer is going to depend.  Define your business plan (or goal) and then figure out which models best aligns with that plan.  I know that's not concrete (but it's important) so below are some additional tangible points to consider.

Based on your numbers, your 73k investment earned you 13% CoC (9600/73k). If 98k is the true value, your current return on equity is just under 10% (9600/98k). Do you have an investment lined-up that will provide a better return?

For simplicity I'm using the full 98k, but you should technically use a true sold price (meaning you back out closing fees and realtor commissions). 

Do you see long-term growth in this area? Are you looking to scale? That 90+k can be your down payment on a 350k building with the power of leverage.

Third option would be to look at what a cash-out refi does to your numbers.  Cashflow on this property will go down, but you'll tap some equity for another purchase if you do indeed want to scale. 

@Matt Higgins he bought it for cash meaning he's getting a 13% CoC? Still good but not 63%. With a loan that would most likely go up due to him having less in it but not that much.

@Jordan Moorhead I’m just saying if he netted 800$ a month that’s 9600 a year and if he was in at 20% of purchase (Instead of 100%) his cash outlay would be 14600

Income of 9600 a year with 14600 outlay 

@Matt Higgins yes it's correct that CoC would go up, but that 9600/yr income would go down as there would be a mortgage to pay. In your example he would now have a 58.4k loan (73k- 20% down payment of 14.6) and we need to add that payment into the equation. So rounding numbers, cashflow goes from roughly 800 to 500/m and 9600 becomes more like 6k.

Still great CoC - 6k yr (500*12) vs 14.6k outlay - and your overall strategy is correct that it's a higher yield, just calling out it's not the 9600 vs 14.6k.

@Tom Shallcross

Correct I guess yearly payments would be about 3600. 40% annual return? Sounds like a pretty low risk deal. Definitely wouldn’t sell to pay taxes on a 25k gain. It’s sure not easy to find another deal like that.

Thank you very much for the thoughts, all. That all makes sense. I was thinking about the cash out refi option, which I think I'll end up doing. The goal is to build cash flow and expand the portfolio over time to eventually replace my day job income, so need to continue that pursuit and not sell out, but the higher than expected offer on the property made me stop to think, even if it's not a ton of money... You're thoughts helped confirm my direction on this one to hold on and cash out refi. Thanks again!

I have a condo I bought for 17k in 2010.  Now it’s worth 70k and I’ve collected over 100k in rent over the last 10 years.  Glad I didn’t sell in year two to make 20k 

not bragging, just saying......good luck Tyler! 

@Tyler Putrah Another option would be to sell the property with seller financing and hold the note for passive long term income and let someone else manage the property. This type of scenario is usually a win/win for both the buyer and seller if the price and terms are right.

Best of luck in all your endeavors.  

This is a money tree that produces cash flow every month. If someone is offering more than you paid they see the value in owning the money tree. If you sell it you chop down the money tree and pay capital gains.

My goal is to have an orchard of money trees.

@Tyler Putrah

I don’t sell an investment unless I can reinvest the money in a better investment, I.e. lower risk and or higher return. One exception would be if I need or want to spend the proceeds on something else like education, vacation, personal residence.