Advice - Keep or Sell Condo Rental in LA?

Question

Hello BP community, I am in need of advice on whether to keep or sell a condo (2 bed, 2 bath) in LA (Frogtown/Elysian Valley) that I purchased in 2017.  Complex was built in 2017 so no rent control.

Purchased $480,000, down payment ($127,000) at 4.5% fixed 30 years.

P&I: $1,789, Property tax: $500, Insurance: $30, HOA: $331 = $2,650 per month. I realize vacancy, repairs, cap ex also need to be figured into expenses.

Currently charging $2,600 for rent but could go up to $2,750.

So when considering all expenses, potential rent, tax benefits this is break-even at best.

The reason that I am considering selling is because my down payment cash ($127,000) is tied up and I may want to purchase something within the next couple years. If there is a downturn in the market, I would want to have cash ready to invest. Also, if there is a downturn, my condo might be impacted by it. Current market value is $550,000. I understand I will be paying about 6% in closing costs, etc as well as capital gains.

Advice from you all would be very appreciated!

Jack Medford · Answer

This really depends on what you want for yourself. Would you prefer the cash to purchase something else, or just have on hand? Or would you prefer to hold this property long term, gaining no money in cash flow, but waiting for the appreciation?

If you are fine with playing the long game and waiting for payoff to be 5-10 years down the road, then you can sit back and hold out for appreciation gain. If this is not enough of a payoff for you, selling might be best.

Assuming 6% in closing costs, you will end up with a gain of around $40,000. ($550k * 94% = $517k) (Original loan balance of $353k) ($517k - 353k = $164k) ($164k - $127k = $37k) (Don't know how much principal you've paid down since buying, hence the assumption of about $40k).

Hopefully this quick math makes sense. Assuming you bought in the beginning of 2017 that would be a $40k gain over 2 years. (also assuming net income was 0 for those two years due to high expenses) That would be a cash on cash return of 31.5% or 15.75% annually (40/127). If these returns are fine, might as well sell and move onto something else. If you'd like to try for better returns then you can hold and wait for a future date. **Keep in mind the cash on cash returns in this post are based on income and expenses cancelling each other out.**