Should I rent this Denver condo out or consider it a flip?

Question

In 2019, I purchased a one-bed condo in a very desirable area for 237k. It's worth $330-$350k now. I'm also building a $598k home in the Denver Metro Area that is currently estimated to be valued around $650k at close.

My condo would only cashflow about $300/month and it's got about $125k in equity in it. The problem is that $300/month seems like nothing to me as a trade off for that $125k in equity. I can make more per month on a stock dividend portfolio with much less capital. I have read the book on real estate investing - and given the rising rates, high home prices, and bid wars, I can't find any other deals to leverage that $125k into in my "farm" area that would make sense unless rents went up 30% overnight. Rental rates just haven't caught up to the equivalent mortgage cost.

Some things my fiancé and I have thrown around are selling the condo and rolling the equity into the new build and considering that as our first future rental instead (live in it a few years then rent it and buy another home). We could cash flow much more on a home than a one bed condo. We could also just keep the condo and slowly increase the rent and pay down the loan.

I just don't really know what the right BRRRR method is now that I can't roll that condo equity into any deal that makes sense.

What would the seasoned investor do here?

Steve K. · Answer

You're not just getting $300/mo cashflow from the condo. You're also getting appreciation, principle pay-down, and tax benefits (most likely, depending on your tax situation of course). Consider all that towards your ROE as well. I believe that stocks are ~30% inflated right now based on P/E ratios, so I wouldn't sell and put that equity into stocks personally. Plus $125k in a high dividend yield stock is only going to spin off about $300/month in dividends at best anyway, so it would be a wash (at best) from a cashflow perspective. With transaction costs factored in, probably a set-back. I also think rents will begin to catch up to property price increases/mortgage amounts here soon, and any cash-flowing property is hard to come by these days. So I'd hold the condo if it rents well (low turnover, low maintenance, attracts good tenants) especially if it is in a good location for appreciation. Keep capital gains taxes in mind as well (primary residence exempt up to a certain amount if you've lived in it for 2 of the last 5 years).

Ben Rhodin · Answer

Hey @Devin Keener! You asking a very common question, and I have helped numerous others find their answers to it. I have found that it helps to have an outside perspective on the problem. The simple answer is where does your money go the furthest, and you already touched on that. It is easy enough to calculate your return on equity, and return on investment and then see if you can increase those returns elsewhere.

I am always a proprietor of holding as many of your properties as you can, but sometimes it makes sense to turn it over into something else. I don't know where your condo is located here in Denver, but you may want to look into other strategies for increasing that rental income. While STR is probably out, you may utilize a medium-term strategy. These rentals have been doing very well here in Denver and I am pushing it with a lot of clients.

I wouldn't rule out taking that capital and turning it into another property, I still have clients buying cash-flowing properties here in the Denver Metro. Long-term rentals however are almost out the door, unless you can find a steller off-market value add deal. The other option, if you are wanting access to that equity without selling, and it's your primary then you might look into HELOC.

I am more than happy to take a look at it and help you problem-solve. But those are just some quick thoughts for you!

Taylor L. · Answer

Sounds like you're not happy with your return on equity. You say you have $125k in equity, but if you were to sell how much would you have remaining net of taxes? If you sell and roll it into your new build, then how would you think about your return on equity in that case?

What are your personal real estate investing goals? Not just with this property, but in general?

Devin Keener · Answer

I’d have about $100-$120k depending on how high the over bid is after selling costs. This would be the primary Im selling. I would split the proceeds, half into the new build to lower the payment and half into solid dividend etfs. My main goal is to retire in about 7-10 years (late 30s). I don’t save anything for retirement or emergency funds - just everything straight into dividend index funds for the past 7 years, so I’m really committed to retiring early. I don’t want to stretch myself super thin for a tiny return however on the condo. I don’t know if it makes sense to keep it. Eventually maybe after 10 year it might start giving me a better return but that’s a lot of equity to hold up imo

Should I rent this Denver condo out or consider it a flip?

Should I rent this Denver condo out or consider it a flip?

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