To Rent or To Sell? A Condo Owner’s Dilemma

Chicago, Illinois
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To Rent or To Sell? A Condo Owner’s Dilemma

Rahul Raghav
Rental Property Investor · Chicago, IL · Member since 2023 · 1 post · 2 votes

Hello, everyone. I am a new condo owner in South Loop, Chicago. I bought a 2-bedroom condo in this area this year (2023), after renting for 11 years. I thought it was a good investment (for renting it out after living for first year), but now I am having second thoughts.

My condo has a high monthly HOA fee of $700, which covers amenities like a gym, and a doorman. The maximum rent I can get for my 2-bedroom condo is around $3,000, which is barely enough to cover my mortgage, taxes, insurance, and HOA fee. That means I will have a negative cash flow if I rent it out.

On the other hand, if I sell it now, I will likely lose money on the deal. I bought my condo for $400,000 last year, and I still owe $360,000 on my mortgage. I will also have to pay capital gains tax on any profit I make from the sale, since I have not lived in the condo for at least two years.

So, what should I do? Should I rent it out at a loss or sell it at a loss or no profit next year (long term capital gain tax)? I would love to hear your opinions and advice on this matter.

Thank you 

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John Warren
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
3y

@Rahul Raghav I am not a huge fan of holding an investment that statistically will lose money. You just purchased it last year, which means you are unlikely to see a capital gain. If you sell now, you won't really worry about tax implications at all. Selling now simply rips the band aid off quickly so you can focus on other opportunities. 

I have helped quite a few of my friends sell their condos over the years where they rented them out for a decade. Years of wear and tear can turn the beautiful unit you loved into a tired rental. Often times the values on condos don't go up enough over time to justify the hold if the cash flow isn't there, and there are too many variables like you mentioned with the big HOA fees, etc. I would look to sell now.

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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    3y

    Why are you wanting to move/sell after having just bought it?  Yes if you sell it so quickly after buying it, you will likely lose money (and therefore not have to pay capital gains) unless the condo has seen massive appreciation.  Did you run the numbers before you bought it to see what it would be like as a rental?  If so, what has changed?

    I don't know IL, but is it tenant friendly or landlord friendly? If the former, then careful because you may have problems getting a tenant out when you want to sell down the road. also check your HOA allows rentals. You could look into medium term rentals which charge a bit more.

    Also for capital gains, if you planned on renting it out after only living in it for a year, you'd have to pay capital gains when you sold it anyhow.

    1Reply
  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    3y

    @Rahul Raghav I am not a huge fan of holding an investment that statistically will lose money. You just purchased it last year, which means you are unlikely to see a capital gain. If you sell now, you won't really worry about tax implications at all. Selling now simply rips the band aid off quickly so you can focus on other opportunities. 

    I have helped quite a few of my friends sell their condos over the years where they rented them out for a decade. Years of wear and tear can turn the beautiful unit you loved into a tired rental. Often times the values on condos don't go up enough over time to justify the hold if the cash flow isn't there, and there are too many variables like you mentioned with the big HOA fees, etc. I would look to sell now.

    4Reply
  • Tyler Peddle
    Member since 2023 · 25 posts · 3 votes
    3y

    Hey Rahul,

    Have you performed a rental analysis on the unit yet? You could possibly make more money on monthly rent just by checking some comps in the neighborhood. 

    I work at Landmark Property Management and would love to help you see if you are getting the right rental value on your unit. Message me if you have any questions.

    0Reply
  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    3y

    Sounds like you bought a Class A property.

    These RARELY cashflow for the first 3-5 years. Just like most property purchases in California, you speculate that you'll make your ROI based upon appreciation, not cashflow.

    If you want immediate cashflow, you should have either bought a Class B or C property, or made a 100+ offers at prices that generated your cashflow target, to find the one owner motivated enough to accept.

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  • Jonathan KlemmBusiness Member
    Moderator
    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    3y

    Hi there @Rahul Raghav - Whatever you decide...first off know that buying an assest to understand the process is awesome!  Especially after renting for 11 years...

    This question is such a double-edged sword...I think the question worth asking is, what is your long-term goal and strategy with real estate investing?  

    Also, understanding your current source of income and how long it'd take to build up another down payment is important information if that is your main plan to generate capital for the next deal.

    If it were me, I think I'd rent it out long enough to go from short-term to long-term capital gains (1 year more or live there yourself for another year so you can avoid all capital gains while you save for the next one) and then cut my losses and sell so you can move on to the next deal the quickest.

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  • Blake Alan Quarrie
    Investor · Chicago · Member since 2021 · 16 posts · 12 votes
    3y

    Hard to provide an opinion without all the data, but if you can get $3,000 and break even that seems like the optimal option. However, given the seasonality of the Chicago rental market, it may be more difficult to find someone.

    A potential solution could be living in the condo until springtime, which in Chicago typically provides higher rents, and aiming for a $3,000-$3,200 range. You could mitigate the financial burden by finding a roommate to split it with, or try a mid-term rental. Breaking even in this situation may be better than selling since you'll likely end up losing money after closing/holding costs, attorney fees, etc. 

    2Reply
  • James Carlson
    Real Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes
    3y

    @Rahul Raghav

    I imagine you'll lose so much more selling (loss of value, realtor fees, capital gains taxes) than you will if you rent at a small loss each month. I'd keep it, try to live in it for another year (to avoid capital gains taxes when you sell, you need to live in it for 2 of the previous 5 years). Then rent it. Maybe in a year, rents will have gone up a bit, but even if you have to take a small loss, it's still someone else paying down 95% of your mortgage, giving you free equity and then there's any appreciation that accumulates as well. 

    That's my two cents, at least, but I want to keep everything we buy here in Denver and Colorado Springs. I'm thinking long-term. I only need a handful of properties fully paid off to give myself some more financial flexibility. 

    Good luck!

    0Reply
  • Mark AinleyBusiness Member
    Property Manager · Roselle, IL (Chicago Suburb) · Member since 2013 · 2k+ posts · 1k+ votes
    3y

    @Rahul Raghav remember 5 ways to make money on a property:

    1. Principle paydown

    2. Hedge against inflation

    3. Income Tax Liability Reduced

    4. Property Appreciation

    5. Cash Flow

    @John Warren is right that when all said and done tax liability for selling should be low.  

    [email protected]630-781-6744Podcast Guest on Show #72
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  • Mark AinleyBusiness Member
    Property Manager · Roselle, IL (Chicago Suburb) · Member since 2013 · 2k+ posts · 1k+ votes
    3y

    @Rahul Raghav I am going to send out our rent vs sell calculator we have on our property podcast website.  

    [email protected]630-781-6744Podcast Guest on Show #72
    GC Realty & Development LLC4.61094 Reviews
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