Condo Rental - $0 Cash Flow - Appreciation Play

[Peter Austin]

Hello All,

First time poster, just getting into RE investing. Wanted to pose a scenario to get your thoughts if you don’t mind. Thanks for reading.

SHORT STORY: Bought a 2 bed/2 bath condo 5 years ago. Looking to rent out next year, however: $0 Cash flow; 0% CoCROI; ROI: 13.6% (10 years @ 2% growth/yr). An appreciation/pay down play. Is this worth it?

Details:

SCENARIO: Bought a 2-bedroom/2 bath 5 years ago in Hoboken, NJ (across the river from Manhattan). At the time did a 10-year ARM @ 3.125% thinking we'd sell and move on 5-7 years down the line. However, after reading about rental properties and the low interest rates I decided to refi to a 30-year @ 2.875% last month.

CASH FLOW/CoCROI: I ran the numbers and including all fixed costs (mortgage, taxes, HOA, etc) and variable costs (repairs, capex and vacancy) I am break even (math below). If I include property management, I'm in the red but I plan on managing the place myself leveraging a handyman. Needless to say the CoCROI (cash on cash) is basically 0%.

Monthly Cash Flow

$3,500: Rent

($2,045): Mortgage

($626): Taxes

($325): HOA

($37): Insurance

($150): Capex

($150): Repairs

($175): Vacancy @ 5%

($8) Cash Flow (w/o property mgmt)

($350): Property Mgmt

($358) Cash Flow (w/ property mgmt)

ROI (rough math): The place is worth $725k today. If I assume a conservative 2% growth rate for the next 10 years (arbitrary # of years):

$901k: Sale Price 2031

($70k): Sale Expenses 2031

($367k): Loan Payoff 2031

($197k): Invested Capital (initial 20% down payment + accumulated equity up to 2021 less fees if I were to have sold it)

+267k profit

ROI = (267/197k)/10 years

ROI = +13.6% (if I assume a 3% growth it's closer to 28% to 29%)

Is it worth getting into if you’re breakeven on cash flow? Again, thanks for your thoughts.

Peter