Continue to rent or sell apartment in LoHi?

Question

Loved all the insight I have read on this site.  Would appreciate any guidance anyone would have.  I have a 1B/1.5 bath 1,000 sq ft apartment in the heart of LoHi with spectacular city views that I either need to rent or sell in the next month.  Purchased for 300K, identical apartment next door to me sold in Aug 2018 for 450K.  I currently rent it for $200 over mortgage/ HOA fees.  I fear that the price of a one bedroom apartment (one parking space) in Lohi cannot go much higher and we have a massive inventory of apartments being built downtown these days.  I wonder if I should just take the sale money and hold it for a couple years and invest in a property in the mountains (or Denver) once the market slows.  I appreciate any insight.

Tally Lawing · Answer

Don’t forget to measure potential tax obligations as well if this was ever your primary residence.    A 1031 exchange may be way to go, but can be delicate as far as timing.  do you have to finalize the sale by December for this reason?  Remember, marketing this time of year can be funny, so keep that in mind if you need to hustle.   As far as waiting for the market to slow,  your next purchase will only become more expensive overtime as home prices and interest rates rise.   We have only a few examples in history where price is actually went “down”. The upward trends may appear to be slowing, but home prices typically do not “decrease” without some sort of direct cause. Also, selling your home this time of year may not be the best time to capitalize on max profits. If you can, sell early spring when more buyers are stirring!   As far as new 1-bedrooms coming to market,  most of these are luxury units and luxury price point. However, the builder developers are incentivizing new units rentals with things like free first months rent, etc. It’s turning into who’s got the best amenities in each building.   If your location is prime, the buyer/renter demand is still there regardless of other new options coming to market.  I say cash out refi, rent, and put your proceeds towards another rental!    You can pick up some fantastic units on the East side of Denver that cash flow and appreciate well, and can be purchased very affordably compared to the city.

Matt M. · Answer

I've been looking to move money into a short term mountain rental as well. Where are you looking?

I'd sell it after the first of the year, but as everyone else said, make sure you look at the tax hit.

Tiffany Zayatz · Answer

Also, I lost money in the 2008 drop so am realizing I’m affected by that time and have less faith in the market these days.

Rodolfo Canon · Answer

Remember that the net positive cash flow is good, but the asset value appreciation is where the real wealth-building opportunity lies.

As others have said, the answer your dilemma is not clear. It all depends upon your needs.

As these new builds arrive in LoHi, your property value will be pulled upward. The market rents you will be able to charge will also appreciate.

What is it that you need?

If your concern is just about the future demand and prices, I would recommend that you hold tight and ride the wave. If you need to cash out, selling now is not optimum. February, March, April is when sellers achieve the highest prices.

If your concerns are not to pay capital gains taxes, do a 1031 Exchange. If you plan on continuing to invest and have a long-term perspective, then creating an Opportunity Fund and investing in an Opportunity Zone property might be a better solution.

What is it that you want or need?

Tiffany Zayatz · Answer

Thanks James. I’m wanting to ultimately invest in a rental in the mountains. I’m still undecided but this information is incredibly helpful in forming an educated decision.

James Carlson · Answer

@Tiffany Zayatz

Interesting response above. A lot of factors to consider:

• As @Tally Lawing said, Denver home prices don't typically go down unless under direct attack. Since 1975, prices have only dropped twice -- once in the mid-80s when the oil-centric Denver market was hit by the drop in oil prices; and a second time in the aftermath of the 2007-08 financial crisis.
• Now is a tricky time to sell. We've seen out-of-the-norm price drops and and the winter months can be tough.
• Seems like there is a softening of rental prices coming. Check out the winter 2018 Fannie Mae report on multi-units in Denver (i.e.: apartment rentals). It said they expect demand for apartment rentals to ease in the next 12-18 months as all the new builds come online. But here's the part I took away: "Longer term, Denver's strong demographic trends bode well for absorption of any oversupply." What does this tell me? If you can wait out any flattening of rental prices, then you'll be fine long-term.
• What does this tell me? If you can wait out any flattening of rental prices, then you'll be fine long-term.

• What does this tell me? If you can wait out any flattening of rental prices, then you'll be fine long-term.

But again, this is all about goals. Do you need that money to buy a new place? If so, you can do a HELOC or a cash-out refi. That will only get you somewhere between 75-90% of the equity. If you need all of it, you can sell and do a 1031 exchange into a new rental so that you don't get hit with capital gains taxes.

I wish you luck!

Tiffany Zayatz · Answer

Thanks Tally. I should have known you would provide some excellent insight!

Continue to rent or sell apartment in LoHi?

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