Keep or Sell NYC Condo?

Question

I am 68 years old and retired. I own 2 Condos in NYC. Both offer a positive cash flow. Due to current conditions, the rental market now is extremely competitive. One of my tenants is leaving. I have a few choices. I can rent the apartment with a loss of $400/month (I would still have a positive net income). Or, I can sell the apartment (maybe), for approx $600,000. After closing costs I figure I would net about $540,000 which I could invest with my stock portfolio. I paid $550,000 for the property about 5 years ago so I would be losing $10,000 on the sale of the property. I am looking for the least amount of risk and the least amount of headache at this point in my life. My question: Do I hold on to the apartment with the hopes that the NYC Market turns around, or sell it now? I should mention that there is no mortgage on either property. Any advice would be greatly appreciated. Thank you

Justin Thorpe · Answer

@Howard GormanI would hold if you can. What we are seeing is likely the “darkest before the dawn” moment for big city RE. I think prices and rents will bottom out now or in the next 60 days and post vaccines rental demand will likely surge. I would never bet against NYC. I am selectively looking to snap up some units this year in NYC and SF RE. Already own in both markets.

Lien Vuong · Answer

The NYC is swollen with units such as yours where landlords are not getting the rent that they’re looking for from yesteryear so you would not only be losing money after selling it but it would be tougher to sell because of influx of that inventory. Without knowing your entire financial picture, it does seem that you’re capable to sustain it as you do not have a debt and are still able to take the depreciation, deduction, vacancies, in your taxes so it’s still alleviating some of your tax liabilities. The other side of that is the tumultuous stock market today, you’re in a less predictable market having entered after you loss some money with the sale of your condo. If long term hold is your goal and having that annuity and diversification is important to you, my advice would be to hold onto the unit for the time being. If you’re eager to enter the stock market you can also get a line of credit from your home to use those funds to buy into the market. Hope that helps!

Jon Kelly · Answer

@Howard Gorman if least amount of risk and headache are your main objectives it seems like selling would be the best option. However, as NYC reopens and most people return to work after the summer, I wouldn't be shocked if your $600k condo appreciates 5-10% over the next year.

Alexander Szikla · Answer

Why not refinance and buy some more while NYC is on sale! Personally, I am very bullish on New York and NYC itself. Sure it suffered due to COVID, but you want to buy when there is distress. I think all the folks who moved away are already getting bored and already coming back. Plus, the vaccine is getting rolled out which will curb the spread tremendously. Now is the time to buy. Cap rates came all the way down to 3% (or below!) during the "boom" times but COVID has loosened everything up and now 5% can be had in Manhattan, 6%-7% in Brooklyn and even 8% in the Bronx. Nationwide rates hit a low of 2.7% - so there has really never been a better time "spread" wise. Long term, I think NYC will come back as it always has time and time again. I am also a great believer in investing when there is distress and deploying capital when you can. If you are looking for yield in the short run, Manhattan may not be for you. However, it is certainly the most attractive it has been in years from a cash flow perspective. If you are seeking out asset accumulation and equity appreciation over the long term then there are certainly fortunes to be made. And there is still plenty of cash flow opportunities in the outer boroughs if you buy right!

Andrew Freed · Answer

@Howard Gorman - This is a tough scenario. Given the issues caused by COVID, I can empathize. I too own a condo in an expensive market (Boston) and my rents have decreased significantly since COVID. I thankfully am still cash flowing but dropped my rents by 20% to get a good tenant. Have you considered renting it out via an Airbnb? There are tons of property managers these days that specialize in this strategy. Even with higher management fees, it could totally be worth it since it'll be mostly hands off and cash flow higher than a traditional rental. I would explore this option to see if you can have this property cash flow while you ride out the COVID effect. I am sure once everyone is vaccinated and things go back to normal, these expensive markets will appreciate once more.

Jason Lee · Answer

@Tina Lee Curious where your apartment is located? Rents are increasing because there are too many qualified tenants. Vacancy rate is just above 1%. Every apartment I list gets multiple qualified applications offering over the asking price. I wish I had more apartments to rent out.

Tina Lee · Answer

new york's rent is increasing but i find hard to find qualified tenant

Account Closed · Answer

@Howard GormanHold all day def hold

Brandon Cohen · Answer

@Howard Gorman depending on what neighborhood they’re in it may be a great time to sell it, if that’s what you prefer. From my experience, the rental market activity is increasing across all budgets (I have listings from $4500-$30k) and we’re actively showing all of them. There are still low offers and concessions being made, but activity is way up. Hopefully that continues. The sales market appears to be in fire in some price points and neighborhoods. I just yesterday repped the seller in a 7 way bidding war (2 bed condo in BK) and accepted an offer on a near $1m Manhattan coop.

Jason Lee · Answer

The rental market is slowly improving. We've had a record number of new lease signings each week for several weeks but rents are still down quite a bit and vacancy is still high (although it's trending down). If we remain at this same pace of new lease signings we could approach "normal" vacancy before the end of the year. That's probably not likely though and so I don't see how rents can completely recover.The sales market is hot right now. We had the 7th straight week of over 300 contracts signed in Manhattan which is amazing and we had the 7th straight week of over 30 or more contract signed over $4M (41) which is the longest streak going back as far to 2006 which is as far back as this data was tracked. Prices seem to be holding but I don't see how we're going to have appreciation anytime in the near future. Prices were softening pre-covid and the fundamentals for any appreciation have only gotten worse since.