To Sell, or Not To Sell - That is the Question

Aimee S. · 2016-01-26T22:42:42-08:00

Hello All, I am seeking advice on whether to sell a rental condo or not. The condo is located outside Charleston, SC in a sought after area with a great school district and has always rented quickly. I purchased this condo back in 2006 and it was my primary residence for almost five years. I paid $200,000 and when the economy tanked this property was well under water. The current value of this property is approximately $165,000 (still much lower than I paid for it) and I owe $158,000 still on the mortgage.The one saving grace is that I had an interest-only ARM mortgage that adjusted beginning in 2013 to a much lower rate and adjusts annually now. My current mortgage payment + HOA payment is $850 per month and the property rents for $1200 - $1300 per month so I currently have a positive cash flow of approx. $450 per month but know this amount will be reduced each year as interest rates rise. So why am I thinking of selling now? The condo HOA is talking about potential special assessments that may be coming up later this year and also next year of approximately $5000 each time or $10,000 total. These are guesses by the HOA at this point as they do not have real numbers or even timeframes as of now and are speculating but these assessments will cover new windows, patio doors, and siding - items that do not really add to property value. I really do not want to come out of pocket anymore on this property as it will take almost 2 years of rent to recoup these proposed assessments. Also, I manage renting this property from over 4 hours away and it is becoming more and more difficult and I do not enjoy being a landlord and dealing with tenants and repair issues. I have also had to deal with neighbor issues from afar with the neighbor above flooding and ruining my ceiling two times in 5 years and a potential lawsuit against this neighbor so needless to say this property has brought me little joy.Is it crazy to sell a positive cash flow property in this situation? My reasoning was if I can sell now and pay off the current mortgage balance without out-of-pocket expenses or being on the hook for these potential future assessments that it may be worth it to walk away from this condo now but wanted to hear other's opinions on this. Or should I just hold on and keep dealing with the condo from afar but knowing that it may take quite a few years (if ever) to recoup the new $10K potential assessments + $35,000 in property value that it is still under water from what I paid for it? Sorry for the lengthy post and I appreciate any and all advice from this community. Aimee

John Semanchuk

Charleston, SC · Member since 2013 · 380 posts · 157 votes

10y

Amiee that is a tough situation and not to heap sorrow upon sorrow but you should be aware that now that the HOA has started talking "special assessment" you will need to disclose that to any potential buyer and they will most likely discount the value of the condo most or all of that amount.

Are you sure it's only worth ~$165k at this point? Most properties are getting pretty close to their 2006 value levels, even condos which have been lagging behind. If you sell it with a Realtor, you'll need to calculate a commission into the numbers as well but you'll probably get a higher price than trying to sell it as a FSBO from Asheville. It is a seller's market though and you might try the FSBO approach first if you feel confident with the process.

I'm afraid all you can do is "crunch the numbers" and figure out what works best for you but do make sure you're working with the right numbers!

If you decide to keep it, you may be able to refinance it under the HARP program which has been opened up to non-owner occupied homes. That would lock in a steady rate. I'm refinancing one of my rentals at 4.75% and the refi will cost me nothing.

Best of luck!

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Account Closed

Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes

10y

I would sell. You dont really have $450 cash flow. How much is HOA? Taxes? Repairs? And how much is the hassle worth? Only reason to hold is potential appreciation. If you dont see that happening, you should get out. Plus you have a time bomb in an adjustable ARM. Not a good combo in my opinion

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Troy GandeeBusiness Member

Real Estate Broker · Charleston, SC · Member since 2013 · 794 posts · 454 votes

10y

Hi Aimee,

That is a difficult situation. If you were planing on being a buy and hold investor, I would say that the $450 is great cash flow as long as the assessments aren't too steep. But, since you live farther away and don't have the infrastructure, it can be quite difficult to manage and maintain it. If you have a fixed-rate mortgage, it may not really be a big deal, but it is a little unsettling that things could change with your current mortgage. If you were thinking about selling, right now is a great time to do it. Things are flying off the market in the Charleston market. I'm a Realtor and I would be happy to help you. If you want to DM me the address of the condo and your email, I can pull some comps to send to you. You can at least see what the current value of the property should be if it were on the market now.

Thanks!

Troy Franklin Gandee

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Bill Jacobsen

Wholesaler · Salem, OR · Member since 2016 · 31 posts · 10 votes

10y

Hi:

I don't envy you with your situation. First of all, you say that the property is worth more than you owe. The property is not under water if that is true. I certainly would not pay $165,000 for property that rents for $1,300 per month that has a special assessment coming up of approximately $10,000.

You should not count on $450 cash flow. It is not covering repairs and things that come along such as special assessments. Also, if you were not managing You would be paying another $120-$180 per month.

I would sell because of the financials and the fact that you are not enjoying being a landlord.

Good Luck

Bill

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Jenny Ph

Wholesaler · Charleston, SC · Member since 2015 · 10 posts · 3 votes

10y

I am looking to buy 1 condo close to downtown. If you could inbox me the address, we can talk about that.

Thanks,

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Anthony Conway

Investor · Charleston, SC · Member since 2014 · 92 posts · 43 votes

10y

Sell it, I personally think the area is in a small bubble right now and will be adjusting itself in the near future. Mix the slight market correction and rising interest rates and the property is soon to be back under water. Did you use the BP calculator to figure cash flow? Did you add in cap-x and special assessment, property management? Because I think as soon as you add any other expense's you will find out it is not $450 cash flow heavy. Just the quick 10% rule, if you have loan at 157k and it is not renting for $1570 per month it is probable not a great investment.

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Jacob Sampson

Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes

10y

I didn't read any of the other posts so if I'm restating the same advice, I apologize.

First off, what you should do depends a lot on what your goals are.

That being said here is my quick and dirty analysis.

Based on the info you have given, long term you will cash flow about $100 to $150 a month. It's nice that there is actual cash flow there but your margins are pretty slim. Any increase in HOA or other special assessments could destroy that.

Keep in mind, cash flow is NOT rent - mortgage - HOA. Cash flow is rent - mortgage - HOA - vacancy & maintenance. I use 30% as my v&m number but on a condo where the exterior is taken care of you might be ok to be at 20%.

So in my estimation, you are ok now but with those slim margins there is a lot of uncertainty, long term. And not a ton of upside growth to off-set that long term uncertainty.

It's probably a sell for me.

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To Sell, or Not To Sell - That is the Question

To Sell, or Not To Sell - That is the Question

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