Sell or rent?

Question

My wife and I (with our new 2 month old child) just purchased a home and are torn on what to do with our 2 bed 1 bath condo.

Our new mortgage starts around $2200/mo due to a 2-1 buydown on the interest rate we were able to do, so it increases slightly each year. We put down 20% on the downpayment which depleted a large chunk of our savings.

There is still 60k left to pay off on the condo at a 4.3% interest rate. We would be profiting around $500/mo if we were to keep it as a LTR but could make around 120k if we were to sell now. If we paid the condo off it would cash flow around $1500/mo but that would take a few years of grinding

Our goal right now is to replenish our savings via one of two options;

1. Keep the condo and slowly replenish our savings as we work towards paying the condo mortgage off to unlock the most cash flow. Hope no big expenses come from the condo or home during this.

2. Sell the condo and quickly replenish savings by putting ~50k as savings. Use the rest to do a mixture of investing in ETFs,  purchase 1 or 2 rental properties or put some back into upgrading our new house.

Both of our cars are paid off and we don't have many expenses as we are both pretty frugal. We would currently be saving around $1200/mo just from our salaries not including money from the condo. On top of that, we will still have around 10k in savings after purchasing this home.

Would it be worth it to keep the condo as a rental or should we just sell and diversify our money a bit more? Any advice is appreciated!

Jaron Walling · Answer

@Raul Fernandez I like your post and I love the questions. We asked our self's the same questions before we sold our previous primary. We had an even lower interest rate so it's wasn't an easy choice. Given the age, condition, and potential maintenance and repair issues it wasn't worth $150 per month cash-flow. We did a ton of lifting. The cash-flow wasn't worth more and more lifting.

"Hope no big expenses come from the condo or home during this." - This statement is a red flag. I'd strongly consider evaluating the HVAC, roof, water heater, and general age of systems you're responsible for. If those items start going out, leaking, causing damage, or give you surprise repairs it adds up. It may not be worth holding as a LTR. If you don't already have reserves that's added risk too. You have to decide if the headaches are worth $500 per month cash-flow. That's solid in today's market but idk your COC or other metrics to justify it.

Dominic Rosato · Answer

All good stuff above, but here’s my suggestion- Try calculating your ROE (return on equity) for each scenario. Cash flow is nice, but doesn’t paint the whole picture.

For example, if your ROE on the condo is - ($500 x 12) / $120,000 = 5% - then your returns are HALF of that of the stock market. These days, you’ll even find better returns in bonds. Plus, both of those options don’t come with vacancy & capex risks that the condo would.

I’m not saying you should move the 120k into bonds, but maybe there’s a better place for your money.

Ruchit Patel · Answer

Only you know your whole situation, so only you can decide. Other people here, can simply put their thoughts and you can read it to make sure you didn't miss anything.

I say, with a wife and kids, peace of mind would be a higher priority than pure money. So don't forget to add that into equation too.

Speaking of taking care of condo, and deciding between renting to selling, why not do both and exploit the benefits of both worlds!! I would ro rent-to-own. I have done that couple times with my properties. I will happily guide you for that if you need.

Ray Hage · Answer

I generally lean on keeping good cashflowing properties but as @Jaron Walling said, it really depends on the age of the major appliances and any other potential issues. If everything is in pretty solid condition and the area/condo itself continue to appreciate, I would lean towards keeping it and continue putting money away for savings and reserves. You don't want to have a $5-10k bill pop up and have no money on hand. If the condo is a minimal headache, it's probably worth keeping it. Just realize that you will need to be frugal for a while so that you have a nicely built up emergency fund and/or have someone you can easily borrow from.

Mary Ogden · Answer

Hi Raul

Congratulations on your new baby! I also have a 10-month-old baby and was in a similar situation to yours.

After reading your post, I think it's important to consider your family's goals when deciding whether to sell your condo or keep it as a rental property.

If you need to replenish your savings quickly and it is a priority, then selling the condo is the best option.

However, if you're not strapped for cash, and you're comfortable with the potential expenses of being a landlord, then in my opinion, keeping the condo could be a good option. This is especially true if you think the condo has the potential to generate significant cash flow in the future.

Ultimately, I don't think there is a right or wrong answer. Just whatever you feel most comfortable with. I am in the process of putting my condo up on the market. Having a newborn/baby/toddler is stressful enough. I feel a lot better knowing that I'm able to pay off my debt, have a nice chunk of savings, and able to put a little more into some other investments if I want. With this being said though, I am nowhere near paying off that condo to where it would make sense to keep it.

Best of luck!

Jonathan R McLaughlin · Answer

I don’t know man, I love long term holds and equity pay down but even 500/mo—which is great—isn’t going to equal the TAX EXEMPT sale of your condo for 20 years, never mind assessments, tax increases etc.

Feels like getting a chunk of cash in an environment where a savings account gets you 5% (coincidentally about the same 6K a year) gives you a lot more investment options, increases your safety net, and makes your life less stressful at a time where that’s valuable.

Alex Olson · Answer

@Dominic Rosato Exactly! ROE is the best calculator for how to know where to go next!

Melissa Nash · Answer

#1 all day long. rule number 1 of real estate- never sell your real estate! I would rent it out for 2. years.... then if you wanted to sell, do a 1031 exchange and then buy more real estate.

If you have lets say $150 profit you could buy 3-4 properties in affordable areas like birmingham, etc. And your cashflow on 4 properties would be higher than the $500 on 1 property.

Or buy 1 short term rental in a nice area and cashflow 2-3X.

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