To sell or not sell a "mistake"

[Amy Jo Holweger]

My fiance and I bought a condo about a year ago because we wanted to stop renting. The only thing we could afford in our area, Everett, WA, was a condo in a less desirable area of town. It's large, almost 1400 sf for a 3 bedroom condo built in 2001 (so it has the blonde cabinets) in a gated community that is kept up well. We bought it for $210k with 10% down. It hasn't appreciated much, maybe $10k. We pay about $1100 in mortgage and... here's the kicker... $500 in HOAs. Our realtor estimates we could maybe get $10k out if we sold and we put $20k in, and of course because of interest we haven't paid much into equity this last year.

We bought the condo before we started thinking about being real estate investors, and were planning to stay for at least 5 years and then buy a SFH. Now, it seems that the condo was a bad idea because of the HOAs, and we want to get out. What we want to do is house hack, but we don't want to lose money on this condo, even though we don't want to live in it anymore (neighbors, the neighborhood - very industrial near Boeing, and they took away our ability to have a grill, but I suppose that's neither here nor there).

Now, we could either stay here, rent it, or sell it. The problem is that we are paying $1600 total expenses for the property (WSG is included in the HOA). I would like to rent it possibly, to keep from losing money on it and maybe generate some cash flow, but I'm not sure it's possible with the HOAs. I looked at what similar apartments are selling for (I've tried hunting for what other condos in my complex rent for with little success), and the range is pretty large, anywhere from $1700-2300. We have lesser finishes, but if we refaced the cabinets (since it's cheaper than replacing, and more durable than painting) and swapped the countertops (laminate) we could likely demand more rent, especially since it's a top-floor unit with vaulted ceilings, a huge master, and no shared walls.

So, do we upgrade and rent? Upgrade and sell? No upgrades and rent? No upgrades and sell? We are also scratching our heads about how to really find out what we could rent it for, and if we can only rent it for $1800, is $200 enough cash flow (self-managed) that it would be worth keeping the property?

Thank you!

[Mike Dymski]

Profits from real estate come from cash flow, appreciation, and principal reduction. Cash flow is only one component. Determine your estimated IRR and compare that with investment alternatives.

Your cash flow will not be $200...it will be negative after insurance, management fees, repairs, turnover, cap ex.  Management fees should be calculated whether you self-manage or not...you deserve to get paid for that work separately from the return on the investment.  Plus, stuff happens...move, marriage, divorce, kids, can't management, don't want to manage...and you want the property to support your life decisions.

We psychologically inflate the value of things that we already own over items we don't own...it's called the endowment effect.  Let it goooooo, let it gooooo, can't hold you back any mooooore!