Sell or hold condo in Atlanta

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Sell or hold condo in Atlanta

Account Closed
Investor · NY · Member since 2014 · 74 posts · 49 votes

This was my first and only REI deal back in 2013. It's a condo in Cabbagetown that I purchased to use as a rental. At the time I thought the numbers were good but I clearly didn't have a clue :D On top of not knowing to set aside a % towards vacancy and capex, the property taxes also jumped from around $1k to $3k because I didn't know that landlords paid different rates than occupants.

It still worked out in my favor due to a combination of great tenants, low capex, low vacancy, rising market rents and appreciation but my money isn't working as hard as it could and I think it's time to get a few better cash flow SFH. Just wanted to get some opinions.

Purchase price: $165,000

Cash outlay: $37,725

Current rent: $1,650

Gross income (5% vacancy): $18,810

NOI: $11,124

Cash flow after debt service: $2,006

Cash ROI: 5.32% :(

This looks even worse because I self manage so it would be pretty much break even if I ever needed to outsource management.

Recent comps are around $240,000. 45% appreciation in 3.5 years thank you very much Beltline development! After fees and closing costs I should pull out about $96k in cash if the market holds. The plan is to use that to do 2 BRRRRs in 2017. Am I missing anything or is it pretty clear that I should sell?

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Nick Fitzpatrick
Real Estate Broker · Marietta, GA · Member since 2014 · 135 posts · 105 votes
9y

@Account Closed

Congrats on a solid potential return! That's impressive, especially from afar. 

I think there are a couple things for you to consider that aren't mentioned above. The first is what type of appreciation can you expect over the next year or two if you sign a new tenant. Cabbagetown is HOT (and it's an awesome neighborhood, I hope you've had a chance to visit it!). Let's say it appreciates as expected (~5%/yr) with the rest of the Atlanta market and is worth $260k in 2018. Can you take your profit and make more than that over the next two years using whichever strategy you decide on?

You didn't mention capital gains taxes on the property. Since you didn't occupy the property for two of the last five years, the government will request a portion of your profits. 

Based on your numbers, your PITI is about $970/month. How much is the HOA if you've had minimal capex and only cash flow $2,006/yr?

I'd sell. For one, I don't think condos make good investments given you don't have total control over the property and costs such as a special assessment. Mostly, I think you can take the nice profit and earmark it to other properties that give you a better return. 

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  • Nick Fitzpatrick
    Real Estate Broker · Marietta, GA · Member since 2014 · 135 posts · 105 votes
    9y

    @Account Closed

    Congrats on a solid potential return! That's impressive, especially from afar. 

    I think there are a couple things for you to consider that aren't mentioned above. The first is what type of appreciation can you expect over the next year or two if you sign a new tenant. Cabbagetown is HOT (and it's an awesome neighborhood, I hope you've had a chance to visit it!). Let's say it appreciates as expected (~5%/yr) with the rest of the Atlanta market and is worth $260k in 2018. Can you take your profit and make more than that over the next two years using whichever strategy you decide on?

    You didn't mention capital gains taxes on the property. Since you didn't occupy the property for two of the last five years, the government will request a portion of your profits. 

    Based on your numbers, your PITI is about $970/month. How much is the HOA if you've had minimal capex and only cash flow $2,006/yr?

    I'd sell. For one, I don't think condos make good investments given you don't have total control over the property and costs such as a special assessment. Mostly, I think you can take the nice profit and earmark it to other properties that give you a better return. 

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  • Account Closed
    OP
    Investor · NY · Member since 2014 · 74 posts · 49 votes
    9y

    Thanks @Nick Fitzpatrick. PITI is ~$1050 and HOA is $230. My capital gain tax will be in the $14-16k range I think.

    Cabbagetown being hot right now is exactly my concern with wanting to sell. That plus rising interest rates. I can't predict the future but I'm concerned with how fast the prices have appreciated in the last few years. I'm thinking it's better to not push my luck and use these profits to invest in better cash flowing areas as cash flow is my goal. I don't want to be a speculator.

    And I have visited Cabbagetown. Love the whole Cabbagetown/Old 4th Ward area, that's why I bought there in 2013. It reminded me a lot of the early signs of progress in neighborhoods in Brooklyn.

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  • Marvin McTaw
    Rental Property Investor · Atlanta, GA · Member since 2014 · 807 posts · 274 votes
    9y

    @Account Closed it sounds like you have some floating rate debt on the property. Can you refinance and lock in some lower fixed interest rates? That would give you the capital you're looking for, help you avoid some of the property taxes and at least give you some flexibility to do some of the BRRRR investing you're looking to get into. You would also still retain flexibility if you want to sell it as well.

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  • Account Closed
    OP
    Investor · NY · Member since 2014 · 74 posts · 49 votes
    9y

    @Marvin McTaw I have a 30 year fixed rate mortgage at 5.625%. I looked into it but I couldn't get much lower due to it being a condo and an investment property.

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  • Marvin McTaw
    Rental Property Investor · Atlanta, GA · Member since 2014 · 807 posts · 274 votes
    9y
    Originally posted by @Account Closed:

    @Marvin McTaw I have a 30 year fixed rate mortgage at 5.625%. I looked into it but I couldn't get much lower due to it being a condo and an investment property.

    Hmm...there should be institutions out there that will give you a loan for it but I don't know much better of a rate you will get. I would call around to a few more lenders to see what's available. 

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