Sell or keep renting?

Question

I own a condo in Myrtle Beach, SC that is valued at about $150,000 to $165,000 according to my realtor. I currently rent it for $900 to a tenant who has been there for 4 years. I owe $50,000 on the condo. Originally bought it for $70,000 in 2012. Mortgage is $300 a month. HOA is $320 a month. I put flooring in during 2021. New HVAC in 2 years ago. The plan was to eventually rehab the kitchen and baths. They are original.

Should I raise the rent to $1,000 a month and keep the tenant in there? Hopefully keep renting it for many years to come.

Should I sell it? If so what to do with the money?

I am a newbie. I bought the condo then moved to a different city so I rented it out.

Michael Weigum · Answer

@Mark Fitzpatrick

Hey Mark, I live in Surfside Beach a couple blocks from Golf Colony. I actually drive through the neighborhood every day.

When I first moved here I was going to buy a unit in there for a flip. I got an ocean front condo instead. I think you could do a STR and do very well. It’s only 1.5 miles to the beach. I also think you could raise the rent.

One strategy I’m looking at is buying 2 bedroom condos and renting them for 6 month terms. The biggest problem we have right now in Myrtle Beach/Surfside Beach is lack of inventory. People are buying new construction homes, but have to wait 6-9 months for completion. They are looking for places that do 6-9 month leases and they are willing to pay too dollar. Before we got our house in Surfside, we had to compete with 20 other people trying to get a rental. It was crazy. Thankfully we got a house in an off market deal.

STR and or a 6 month lease at solid bets right now in our neighborhood.

Feel free to reach out, I’m happy to help!

John Leake · Answer

I think your second questions "If so what to do with the money?" is your path to the answer for all of it. If it was me I would be considering what would I be able to do with the money to generate a better return. I would be more interested in your shoes to consider refinancing. If you were to refinance the property you should be able to pull up to 80% out. 150,000*80%=120,000 less what your current debt is 50,000 leaves you with your original cash investment 70,000. At that point its an infinite cash on cash return. You could then take that money and look into a new deal! Hope that helps.

Account Closed · Answer

If you are paying $300 for the mortgage + $320 for the HOA + property tax + insurance + repairs and maintenance you have to be losing money. I would dump it, immediately, with the exception that you expect some serious appreciation, I am not an expert when it comes to condos, but I don't see where condos appreciate in value much compared to single-family homes and multi-unit properties with 4+ units.

Every business decision depends on comparing the math. If you sell through a real estate you will have to pay the sales commission and if you get lucky you will walk away with $90,000 to $100,000. With a little searching it is fairly simple to find 4-plexes you can purchase with $100k down and you could end up with a positive cashflow of $1200 per month.

I would not re-finance to get a few dollars from the property because selling and having a larger amount to invest will get you the opportunity to get a positive cashflow of $1200 per month, plus when you increase the rents for your 4-plex tenants you automatically increase the value of the property and you cannot increase the value of a condo when increasing the rent.

DUMP IT LIKE A HOT POTATO AND DON'T LOOK BACK

Chris Rosenberg · Answer

@Mark Fitzpatrick I’m guessing your condo is not in an area that would make it a successful short term rental, otherwise that would be my plan. I would probably rehab the kitchen, raise the rent, do a cash out refi before interest rates rise, and put that money to work. Your mortgage payment will be higher after the cash out refi so make sure it still cash flows. Or just rehab and sell, and put that $100k into a multifamily property that has better cash flow.

Myrtle Mike Thompson · Answer

@Mark Fitzpatrick based on what your Realtor stated as the value, I'm assuming this is a 2-bedroom unit.  The median rent for a 2-bedroom in that area is $1150.  Golf Colony is one of the few HOA neighborhoods around Myrtle Beach that actually permits short-term rentals.  Personally I would do a cash out refi or HELOC while your tenant is in place, remodel the kitchen and baths as soon as their lease expires, and then give it a go as an STR.  It's close enough to the beach to work.  If you're not seeing the numbers you want, you can always go back to LTR.  At bare minimum I would raise rents!

Myrtle Mike Thompson · Answer

@Mark Fitzpatrick what neighborhood/building is your unit in?

Steve Stuart · Answer

Hi Mark,

I currently have 80+ units in Myrtle Beach and can guarantee you that $1,000/month is too little for almost any property currently in this area.

Jacob H. · Answer

As others have already mentioned, if you plan to sell, make sure you have a deliberate plan and reason for it. If you are happy with the continued appreciation and rental income, why not hold it? After calculating the COC return and total ROI, you'd be able to get a better idea of if you should place your money elsewhere to get a larger return. Even if you choose this strategy based on the ROE, you should consider doing a cash out refi (again, as others have already mentioned). This way, you could hold the property and invest in another at the same time.

Of course, it depends on your risk tolerance as well. If you are losing sleep at night thinking about being leveraged with a cash out refinance, it may be better off to choose another strategy.

Chris Levarek · Answer

@Mark Fitzpatrick The question is always, how best can my equity or capital work for me? If I have $50k in equity or invested, how best can it work for me? If I have $150k in a property in equity, generating 5% return, could that $150k equity generate a 10% return elsewhere? These are questions a business asks, and as an investor, questions you should ask for a real estate property is a business.

Return on equity = Net Operating Income / Equity(To Include Money Invested)

If you can get a better return on equity somewhere else, sell. If you can't hold.

Alexander Knowles · Answer

@Mark Fitzpatrick - sounds like you are doing well with renting it so why change it? If you have an idea on where to park the extra capital from selling then it may be something to consider. With that amount - you could roll it into a larger piece of property such as a single-family STR that may get a higher yield than what you are currently receiving. If you don't, then keep it and possibly raise the rent if it hasn't been raised in a couple of years. Refinancing is also a great option, but you would need to consider the different financing terms/rates with condos to make an effective decision. There is no problem in holding onto it as well!

Sell or keep renting?

Most Popular Reply