Vacant Condo — sell or keep???

Question

I’ve been pondering whether or not to hold onto a condo that I’ve had since 2008. It was my first home which I converted to a rental in 2010. It cash flows ~$450/mo. when it’s not vacant. But that’s the issue I’ve run into — it takes about a month to secure a new tenant once one moves out. So the question is should I hold onto it or sell and use the equity to purchase another small multi-family). I’ve moved in that direction w/ recent purchases because of the fact that if one tenant moves out, rent from the other units offset that.

Here are the numbers if that helps. I should mention too that I’m managing it long-distance.

Purchase price in 2008: $145K

Current value ~$170K

Equity ~$45K

Monthly cash flow when rented ~$450

Here are the numbers if that helps. I should mention too that I’m managing it long-distance.

Purchase price in 2008: $145K

Current value ~$170K

Equity ~$45K

Monthly cash flow when rented ~$450

Rachel De Villava · Answer

@Mariana Vonder Born Thanks — those are great points about condos not being a great for appreciation.  The property is in North Bergen, NJ right across the river from Manhattan. Regarding equity — the good thing is I basically have $0 in this property since I took advantage of the first time homebuyer credit back in ‘08 and used an FHA loan. So the $45k is the all-in number factoring in current value. Yes, I should definitely think about getting a property manager and I need to factor that into my numbers.

Dan Schoenbaechler · Answer

Hi Rachel, I'm an agent in the Hudson County area and own a 2-family in the Racetrack section of North Bergen.  I lived there for 2 years while house-hacking that property and still own it today.  The decision to hold or sell really comes down to if you think you have a better return laying somewhere else.  I too am multi-family only (mostly out-of-state syndications) so we achieve better cashflow and less risk of vacancy.  My North Bergen property was just a perfect house-hacking opportunity at the time we got it.As far as dealing with this property... the sales & rental markets in Hudson County has taken a hit this past year due to Covid.  Everyone started running to the suburbs for "more space"... so that's something to consider if selling.  As far as renting, have you been using a Realtor?  In the Hudson market, it's typical for agents to only charge the tenants for any fees while doing all the paperwork and screenings for the landlord.  You definitely don't need the additional cost of a property manager, especially since you're already in a condo building which typically has a management company you can call for the little fixes.  As long as you have access to some trades (electrician, plumber, etc) or can call the property management company for any fixes, then managing a condo is the easiest type of asset to manage long-distance.What time of year does the lease typically turn over?  Winter months?  If it's turning over anytime between October-March, then you might want to consider next tenant doing a slightly longer term to get them turning over in the peak season (March-Sept) where you'll likely find more tenants in the market.  So if your next tenant is starting Feb. 1st... maybe offer to do a 14 month lease so you can then market for the next tenant on April 1st the following year.Happy to help if you need any other info!

Mariana Vonder Born · Answer

Unfortunately, condos appreciate slower and when the market tanks, they drop off the quickest. How much cash do you have in the property (down payment + rehab)? Where is the property located? If you're self-managing, it may be an option to look into a property manager to help w quicker renter turnover. As well, do you offer a range of leases? 12, 14, 18, & 24 months? The longer leases would mitigate a higher vacancy loss. Does the equity stated include the current value post the purchase price or is that 45k in addition to the 2008 and current price?

Jason Lee · Answer

The entry level condo sales market in Hudson County is quite strong right now. Lots of first time/entry buyers looking since the last week of December. Since you're at the lowest price point condo you should be able to sell pretty quickly.

Median sales price for condos/townhouses in North Bergen in November was up 17.6% YOY. That's based only 12 sales so take it for what you will. Percent of list price received increased .7% to 97.7% which I think is a pretty good indicator of where the market is. Inventory is up 12% and months of supply is up 36%. Most expect both of those to rise so I would sell sooner rather than later.

Michael K. · Answer

@Rachel De Villava

And your equity in the property is what you owe on in subtracted from what it's worth today. So it must be higher than 45k? No?

Michael K. · Answer

@Rachel De Villava

Condos don't tend to cashflow very well. After taxes, HOA, insurance, vacancies and repairs you're probably making less than 450 a month, if you can cash flow at all.

Whether or not to keep it relys on your particular circumstances and what you want to do long term. Do you need the money in the condo to help fund your next purchase?

Rachel De Villava · Answer

@Natalie Schanne Yes, very good point — the vacancies are definitely eating into my overall profit. I’ll take a closer look at what the return is after factoring in $0 rent months. Thanks.

Rachel De Villava · Answer

@Dan Schoenbaechler Thanks. That was my thought process as well regarding self-managing. Yes, I was afraid that was the case with Hudson County property values. That is making me lean towards holding onto it for a while til things begin to normalize. When people start going back into the office (presumably in NYC) hopefully we’ll get some interest from buyers that may want a convenient commute. Thanks for all the insight.

Natalie Schanne · Answer

@Rachel De Villava - if you don’t intend to move back to New Jersey anytime, I recommend you consider selling while prices are relatively high because inventory is low.

You have a good record of true costs and your true profit over 10 years. Is your annual profit including tenant turnover costs (1 month fee, 1-2 months vacant, any turnover/repainting costs) - how long do they stay on average? How much in turnover costs do you have on average outside of security deposit reimbursements?

Are you happy with your return on equity? What does it look like if you cash out refi it to pull out money? I’m guessing it wouldn’t be much cash in your pocket. I’m guessing you’re closer to breakeven or losing after your fees if your tenants would change every year. What feels right to you?

Lamont Chen · Answer

@Rachel De Villava

Calculate if the equity from selling the condo will yield you more return vs keep it and having to manage it yourself or a PM (8-10%).

Condos also do not appreciate as much as single or small multi-family homes so that is something to potentially consider as well.

Vacant Condo — sell or keep???

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