Should I sell my +ve Cash flow investment property

[Madhur Mehta]

Hello everyone, I have been grappling with the below question for the last few weeks.

We have a condo in downtown Chicago that we bought for $150k 10 years ago which generates ~$900 per month on Cash flow. The CoC is great and we don't have a mortgage on the condo, however the current market value of the condo is about ~200k, so very less appreciation in last 10 yrs.

Should I sell the condo and invest ~200k (minus fees) to buy an investment property with 30-40% down in an area (Durham, Raleigh) where I could expect greater appreciation down the road. With the current interest rates, I would be -ve cash flow 200 to 300 per month.

I am currently based out of Raleigh, NC.

Appreciate the help.

[Gabe Randall]

I would recommend you continue doing what you know works. Getting into a property that has negative cash flow can seriously hurt, even if you've thought out a magnificent plan for it. You know the market of your condo because you've had it for 10 years. Maybe it hasn't appreciated much, but if you saved that 900 in cash flow for 3 years, you'd have $32,400. That's another down payment right there. Buy a similar property in a similar area (because you know the market) then you have two properties that will cashflow for sure.

Compare that to a deal with negative cash flow with no guarantee that you will make money from appreciation. To me, that sounds risky. I'm sure you've been thinking about it from multiple angles, but as an outsider, it doesn't seem like a wise decision. Hope that helps!

~Gabe Randall

[Theresa Harris]

You can never count on appreciation.  The reason your condo is cash flowing is because you don't have a  mortgage on it.  If it hasn't appreciated much in the last 10 years (and most of the homes in the area have), it might be a good time to sell and reinvest that money elsewhere.  I'm doing that exact same thing right now with a condo I own.

[Sean Ross]

@Madhur Mehta,

If you're going to sell (and 1031 exchange) into a new property, it makes sense in this market to be very confident in whatever you find as a new property.  Financing costs are much more expensive than they were a few years ago, and you just never know when a property is going to be a maintenance headache or you happen to switch to a market where rents happen to fall over the next 12-18 months.  A little bad luck and all of the sudden you're not cash flowing at all. 

(Doing your homework ahead of time will have another benefit in that it will make your possible sale/1031 exchange much more smooth if you don't have to fight the 45-day deadline to find new property)

[Avery Heilbron]

@Madhur Mehta I think it depends your goals and time you have to purchasing a new asset. If doing a 1031 that would be smart to save on depreciation recapture. You'd most likely have funds to do something interesting in the area and maybe build on a lot you divide with the right financing. Or with a hefty down payment find some cash flow that will likely (not guaranteed) appreciate more than your chicago condo. Happy to chat about the Raleigh-Durham market. I am an agent and investor here

[Jonathan Klemm]

Hey @Madhur Mehta - Typically, I like to rely on the motto "The numbers don't lie" - however there is still the time and effort of making the change.  Is the condo literally in downtown Chicago?  Curious, why the appreciation wasn't higher?

Is there a way you could access the equity in the condo (HELOC) and invest in Raleigh?

[Alex Olson]

@Madhur Mehta I recommend if you like the property and are OK with the returns then to keep the property. If you want to get out of your property and get something bigger to expand your well then definately 1031 exchange. It is easier than some people on here say if you have the right team in place. Chicago is a good market right now for buying cheaper than you could in the past. I am partial to KC for a 1031 exchange but that may just be me. 

[Dave Foster]

@Madhur Mehta, You have a good feel for the research triangle markets to know what your appreciation would be like. Condo's in general scare me (I'm from Florida - don't hate on me). And having HOA fees and insurances and maintenance in the hands of a board makes me go fetal. For that reason alone I'd sell :)

But that being said, if you truly think that appreciation is better then selling and 1031ing to NC is exactly the move to make.  Your ConC return is awesome.  But by leveraging your property into a good appreciating $500K property would net you as much in appreciation as you're getting in cash flow with just 2% appreciation.

[Chris Martin]

Quote from @Madhur Mehta:

Hello everyone, I have been grappling with the below question for the last few weeks.

We have a condo in downtown Chicago that we bought for $150k 10 years ago which generates ~$900 per month on Cash flow. The CoC is great and we don't have a mortgage on the condo, however the current market value of the condo is about ~200k, so very less appreciation in last 10 yrs.

Should I sell the condo and invest ~200k (minus fees) to buy an investment property with 30-40% down in an area (Durham, Raleigh) where I could expect greater appreciation down the road. With the current interest rates, I would be -ve cash flow 200 to 300 per month.

I am currently based out of Raleigh, NC.

Appreciate the help.

To me, I'd say stick with the Chicago condo. Unless there is something you aren't disclosing. Why? My two cents:

#1 - you give up $900/month POSITIVE cash flow for NEGATIVE $200-$300/month GREAT IDEA (Sarcasm)
#2 - see chart below. I contend you are buying at the top of the market. GREAT IDEA (Sarcasm)
#3 - there are tax consequences in ANY sale (even with 1031 exchange BECAUSE you HAVE TO BUY the replacement (otherwise what's the point of the exchange))
#4 - "buy an investment property with 30-40% down" ... "I would be -ve cash flow 200 to 300 per month" WTF! GREAT IDEA (Sarcasm)

As Gabe pointed out, with some saving discipline that positive cash flow can provide down payment when we get a softer market. In the short term, put that money into 5.5% treasury yield via TD and be patient. The WCMSA/RCMSA market is overvalued at present, but things can change in a hurry. We've seen it before, like 2008-1011.

[Gabe Randall]

Quote from @Chris Martin:

Quote from @Madhur Mehta:

Hello everyone, I have been grappling with the below question for the last few weeks.

We have a condo in downtown Chicago that we bought for $150k 10 years ago which generates ~$900 per month on Cash flow. The CoC is great and we don't have a mortgage on the condo, however the current market value of the condo is about ~200k, so very less appreciation in last 10 yrs.

Should I sell the condo and invest ~200k (minus fees) to buy an investment property with 30-40% down in an area (Durham, Raleigh) where I could expect greater appreciation down the road. With the current interest rates, I would be -ve cash flow 200 to 300 per month.

I am currently based out of Raleigh, NC.

Appreciate the help.

To me, I'd say stick with the Chicago condo. Unless there is something you aren't disclosing. Why? My two cents:

#1 - you give up $900/month POSITIVE cash flow for NEGATIVE $200-$300/month GREAT IDEA (Sarcasm)
#2 - see chart below. I contend you are buying at the top of the market. GREAT IDEA (Sarcasm)
#3 - there are tax consequences in ANY sale (even with 1031 exchange BECAUSE you HAVE TO BUY the replacement (otherwise what's the point of the exchange))
#4 - "buy an investment property with 30-40% down" ... "I would be -ve cash flow 200 to 300 per month" WTF! GREAT IDEA (Sarcasm)

As Gabe pointed out, with some saving discipline that positive cash flow can provide down payment when we get a softer market. In the short term, put that money into 5.5% treasury yield via TD and be patient. The WCMSA/RCMSA market is overvalued at present, but things can change in a hurry. We've seen it before, like 2008-1011.

I think I detected some sarcasm in there...

[Madhur Mehta]

Quote from @Chris Martin:

Quote from @Madhur Mehta:

Hello everyone, I have been grappling with the below question for the last few weeks.

We have a condo in downtown Chicago that we bought for $150k 10 years ago which generates ~$900 per month on Cash flow. The CoC is great and we don't have a mortgage on the condo, however the current market value of the condo is about ~200k, so very less appreciation in last 10 yrs.

Should I sell the condo and invest ~200k (minus fees) to buy an investment property with 30-40% down in an area (Durham, Raleigh) where I could expect greater appreciation down the road. With the current interest rates, I would be -ve cash flow 200 to 300 per month.

I am currently based out of Raleigh, NC.

Appreciate the help.

To me, I'd say stick with the Chicago condo. Unless there is something you aren't disclosing. Why? My two cents:

#1 - you give up $900/month POSITIVE cash flow for NEGATIVE $200-$300/month GREAT IDEA (Sarcasm)
#2 - see chart below. I contend you are buying at the top of the market. GREAT IDEA (Sarcasm)
#3 - there are tax consequences in ANY sale (even with 1031 exchange BECAUSE you HAVE TO BUY the replacement (otherwise what's the point of the exchange))
#4 - "buy an investment property with 30-40% down" ... "I would be -ve cash flow 200 to 300 per month" WTF! GREAT IDEA (Sarcasm)

As Gabe pointed out, with some saving discipline that positive cash flow can provide down payment when we get a softer market. In the short term, put that money into 5.5% treasury yield via TD and be patient. The WCMSA/RCMSA market is overvalued at present, but things can change in a hurry. We've seen it before, like 2008-1011.

Chris-  Thanks for all the feedback (Sarcasm) ;)

The only other thing to mention would be that there is a special assessment anticipated in the next few years which is estimated to be around $10-15k. 

In general, after reading all the comments we are leaning towards keeping the property and to use the cash flow towards another down payment in a few years. I have the cash reserve saved in HYSA at 5%; We will reevaluate the situation again in an year from now.

Thanks everyone on sharing your thoughts.

[Alyson Gordon]

If you can get out of the condo and buy SFH in almost any market I think it would be worthwhile. Regardless of location and appreciation % you get you'll get more in a SFH vs a condo.

Being based in the Raleigh area and having lived in Chicago I am biased toward Raleigh area for investing. Happy to chat more if you'd like!

[John Warren]

@Madhur Mehta I always look at my return on equity versus running a COC base on my initial investment. Over a longer hold period, your return on equity will eventually drop. At a certain point, it will make sense to sell and reinvest so you can keep your equity growing. On this deal, I see that you are making $10,800 on a $200,000 investment. This is a 5.4% return, which is equivalent with what a CD would do if you think on a monthly basis. Obviously, your condo could appreciate more.

I would look to redeploy that money into another investment or two! 

[Basit Siddiqi]

Why don't you think the appreciation was good?

it appears to be above 3% which is likely in line with the national average.

Seems like this investment is giving you nice cashflow and appreciation. I would keep it.

[Crystal Smith]

Quote from @Madhur Mehta:

Hello everyone, I have been grappling with the below question for the last few weeks.

We have a condo in downtown Chicago that we bought for $150k 10 years ago which generates ~$900 per month on Cash flow. The CoC is great and we don't have a mortgage on the condo, however the current market value of the condo is about ~200k, so very less appreciation in last 10 yrs.

Should I sell the condo and invest ~200k (minus fees) to buy an investment property with 30-40% down in an area (Durham, Raleigh) where I could expect greater appreciation down the road. With the current interest rates, I would be -ve cash flow 200 to 300 per month.

I am currently based out of Raleigh, NC.

Appreciate the help.

 The wonderful thing about owning an investment property are the options/strategies to consider in a situation like yours. I'd look in to the following options:

1. See if you can tap into the equity in your current condo to purchase another cash-flowing asset. The objective- Keep your current positive cash-flowing asset in Chicago- Your cash flow may go down if you use a HELOC or refinance the asset, but make sure it's still a positive cash flow. Then use that cash for a down payment on another asset. The nice thing about this strategy is you maintain the cash. flowing asset in Chicago along with the appreciation, even if it is low

2. I'm sure there's a mention of a 1031 exchange on the thread. It's a great way to push the capital gains tax down the road if you decide to sell and purchase another investment.  In my opinion, you should identify the new asset you want to acquire first or make sure there's an adequate supply before selling your current asset.

3. If you decide to sell another strategy for you to consider as an alternative to a 1031 is a structured installment sale.  I've known about this for a while but just met with @Aaron Hickey.  He's in a better position to explain how this strategy can benefit you from a tax perspective,

[Aaron Hickey]

Quote from @Crystal Smith:

Quote from @Madhur Mehta:

Hello everyone, I have been grappling with the below question for the last few weeks.

We have a condo in downtown Chicago that we bought for $150k 10 years ago which generates ~$900 per month on Cash flow. The CoC is great and we don't have a mortgage on the condo, however the current market value of the condo is about ~200k, so very less appreciation in last 10 yrs.

Should I sell the condo and invest ~200k (minus fees) to buy an investment property with 30-40% down in an area (Durham, Raleigh) where I could expect greater appreciation down the road. With the current interest rates, I would be -ve cash flow 200 to 300 per month.

I am currently based out of Raleigh, NC.

Appreciate the help.

 The wonderful thing about owning an investment property are the options/strategies to consider in a situation like yours. I'd look in to the following options:

1. See if you can tap into the equity in your current condo to purchase another cash-flowing asset. The objective- Keep your current positive cash-flowing asset in Chicago- Your cash flow may go down if you use a HELOC or refinance the asset, but make sure it's still a positive cash flow. Then use that cash for a down payment on another asset. The nice thing about this strategy is you maintain the cash. flowing asset in Chicago along with the appreciation, even if it is low

2. I'm sure there's a mention of a 1031 exchange on the thread. It's a great way to push the capital gains tax down the road if you decide to sell and purchase another investment.  In my opinion, you should identify the new asset you want to acquire first or make sure there's an adequate supply before selling your current asset.

3. If you decide to sell another strategy for you to consider as an alternative to a 1031 is a structured installment sale.  I've known about this for a while but just met with @Aaron Hickey.  He's in a better position to explain how this strategy can benefit you from a tax perspective,

Thank you Crystal for the tag! A structured installment sale is a highly beneficial tool when looking to exit an property (investment or otherwise) because it'll lower your taxable income and is customizable. However, while utilizing one has no costs involved, it performs the best from a tax standpoint with properties that have a gain of $300k or more. I think Crystal has a great idea with #1! If there's any questions, let me know and happy to assist!