To Sell or Rent? My first real estate dilemma

[Alessandro Grandjacquet]

Hello - this is my first post on this forum and I am hoping for some advice for a newcomer.

In 2016 I purchased my first piece of real estate, a condo in Clearwater, FL for $222k.

In early 2018 I relocated to LA for work and was able to rent this condo on short notice to a Tenant for a 3 year term. Two weeks ago I received notice from him that he would be returning home to Japan and breaking his lease at the end of September with 6 months left on the term. I was able to negotiate a 4 month term fee.

My question is do I sell this home (estimated current value of $255-260k with around $160k left that I owe on the mortgage) or do I look to re-rent the property to another tenant. Estimated rent would be $2,100-$2,300/month.

A few things to consider:

1. The HVAC on the unit, although still functioning, is a ticking time bomb and will need to be replaced ASAP ($5-6k cost). Everything else in the unit is less than 4 years old.

2. I am not sure if it matters in this context, but I rented this unit furnished in 2018 and would do so again if I was to re-rent.

3. My wife and I are in the process of leaving LA for upstate NY (where we are from) before moving overseas to Europe for the next few years in December. The conservative part of my brain tells me to get rid of this property as it is one less thing to worry about with all these other things going on.

Basically, I am contemplating whether it is worth holding on to this property with hopes it's value increases like it has over the past 2-3 years or if I sell it for cash flow to put to better use in other real estate ventures. I am interested in trying my first BRRRR but any other tips/ideas for where I can get started would also be highly appreciated!

Thank you!

Alex

[Joe Facenda]

Your time line is very interesting.  No one has mentioned taxes.

Remember if you have lived there 2 out of the last 5 years, there are no capital gains.  As of today, it looks like you have. 

Now, granted there may not be a lot of gain with the numbers you have and you still may have recaptured depreciation but it is worth thinking about.

Check with a tax professional to review whatever I am writing.  I'm just a Realtor, not a CPA.  However, I can give you the questions to ask the professionals.

So, if you rent another cycle, you will likely lose that option.  Now, you can sell and hold the funds for another investment(s) down the road without the time constraints of a 1031 exchange.

I have a large network of investor oriented Realtors throughout the country so I have a bit of handle on various markets.  My guess is that you might be able to buy 2 doors in upstate NY for the amount of your one door in FL.  If not in upstate NY, certainly in other market like Fayetteville NC, Kansas City or others.  If you are not buying NY does it matter whether you have a rental in FL, KS or NC?  All would have the same logistics.

Anyway, the way I look at whether the cash flow is "good" is to compare it to an opportunity to purchase a similar quality home in another market with the same appreciation potential.  There are markets with high appreciation and low cash flow like mine in Northern Virginia and there are other with great cash flow but less potential for appreciation.  You need to decide where on that continuum you want to be.

Last point, just because you own something doesn't mean you should keep it.  

I do lots of estate work helping heirs decide what to do with inherited property.  Some say they want to keep it as a rental.  If it is for emotional reasons, that is fine.  But if it is for financial reasons, I ask them if someone gave them $550,000 (our average price point) to invest in real estate, would they buy their parent's home?  Would that be a smart investment?  Often they say no and realize, just because you own it doesn't mean you need to keep it.  Put your money to work in a way that best matches your goals. 

Hope that helps