Hold or Sell in a hot market with high appreciation??

Question

Hola BP Community-

I've been toying with the idea of selling my condo in Boston for a while now but I can't seem to come to a solution.  I bought the condo in 2013 for $525k and it's now worth about $625k.  Its in one of the hottest neighborhoods and the construction is all over the place!  Boston is still booming but of course we're heading for a slow down very soon (I think).  The property will certainly appreciate faster than almost all other areas I'd invest in over the long term.

I have a 15 year mortgage on the property and I'm currently in year 4-5, so a good amount of the interest has been paid off and most of the payments are now going toward principle creating giood equity.

-My mortgage payment is $2900/month with a condo fee of $515/month

-The unit is currently rented for $3200/month

-Current mortgage rate is 2.625% :-)

-Outstanding balance on the loan is $295k

-Should I re-finance into a longer term loan?  It would help the cash flow, but significantly decrease the amount that goes to principle!

-Should I pay off the loan over the next few years?

-Should I sell the property and throw the money into a cash flowing deal?  Only issue is I won't see this type of appreciation over the long term anywhere else.

-Should I keep it as is, and pay it off over the next 10 years with about $200-$300 coming out of my pocket each month?

-Any other options?

I really appreciate any feedback on this case!  I've been thinking about this one for quite a while and just can't seem to come to a solution!

Thanks so much!!

-Nick

Jack Bobeck · Answer

@Nick Romano With money so cheap right now, I'd use other people's money. You always need more cash for life and stuff and reserves. Hold onto your cash.

Aaron K. · Answer

It depends on what your goals are, if you want cash flow you should either refinance or sell, if you want to continue paying down mortgage debt and building equity and bank on appreciation you should probably hold on.  Another good option if you haven't done so in a while would be to run the rental comps for the property, if the rent is below market you may be able to raise it and alleviate some of your cash flow issues while also maintaining the higher pay down rate for your mortgage.

Charlie MacPherson · Answer

@Nick Romano Hey Nick, shoot me the address and let me double check your comps.  $100K in 4 years might be right, but it might be low too.  I can't remember which part of Boston you invested in, but East Boston and South Boston have really picked up a lot of steam. I think they have out-appreciated the rest of the (already expensive) city.

The real wildcard is whether Amazon picks Boston for the next HQ.  I definitely wouldn't sell until that decision is made.  If they do pick Boston, it's Katy bar the door!

If not, Boston is still a very hot market and you should be able to sell with a nice profit.

Jordan Decuir · Answer

Potentially. But Given today’s low-rate environment, I would refi over a longer term (amortized over thirty years) pull out a substantial amount of cash, the longer amortization period would keep your payments low and you would still get a good rate (probably nowhere near the rate you are at now on the 15-year amortization though) and go reinvest in some other property(ies). The IRR on your invested cash should significantly surpass the rate that you will be paying on the new loan. I don’t know your situation of course, but that’s what i would do. You are in an enviable position, great job!

Nick Romano · Answer

@Aaron Klatt The issue is that my rent is actually a bit above market rent.  We're renting it fully furnished so we're getting a bit more...but this would definitely be the max

Nick Romano · Answer

@Jack Bobeck my investment goals are $10,000/month in passive income.  Currently I own (mortgaged) another 4-plex, and a (mortgaged) single family home.  With the proceeds from the sale of the condo ........I'm currently looking at a property with purchase price $365k and rents @ $3800/month (total).   With the proceeds from the sale of the condo I could almost buy this multi in cash.

Nick Romano · Answer

@Marian Smith with the profits I'd buy a cash flowing multifamily.  It wouldn't be in the city, but it would be cash flowing much more than the condo!

I'm looking at a property now with purchase price $365k and rents @ $3800/month (total).   With the proceeds from the sale of the condo I could almost buy this multi in cash.

Hold or Sell in a hot market with high appreciation??

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