Need Advise - Should I Sell my Condo in Downtown Milwaukee?

Question

Hello everyone this is my first post so hopefully I am using this correctly. I appreciate in advance to anyone willing to leave me comments or thoughts.

I should start out by stating my real estate goals are now to invest in SFH or multifamily rentals for more of a long term investment with some return no less than 9-10% . Not very aggressive but get a decent portfolio working for me. So part of this process is to look at property I already own and evaluate if I should sell or hold. If I sell I can use that money for a better investment that may have a bigger return. Which leads me to my question.

I own a small one bedroom 800sf condo in downtown Milwaukee. It was my primary residence for a period of time but have rented it out and lived in various other locations before relocating out of state. The property is rented out fully furnished and rents for 2100 - 2195 per month. I have never had any issues renting it and have no property manager fees and very little maintenance. I have owned the property since 2007 and refinanced in 2011 to rid PMI and switch to a 15 year. The property will be paid off in 2026 I still owe 114K on a 172K loan. The value with the current market is around 250K today if I sell. My issue is with with the loan + Condo fees + Taxes the property currently is a wash and little to no cash flow until paid off.

Summary:

Condo value = 250K

Loan = 172K

Remaining balance = 114K (3.4% - 15Year) payment 1222

Condo Fee = 330

Taxes = 500

Combined monthly cost (All) = 2100

Rent = 2100

Options???:

1.) Sell and use money for other investments

2.) Hold until paid off (Easy to Rent little maintenance)

3.) Refinance or other option to create more cash flow and ROI?

Thank for you help and please feel free to ask more questions if I did not include everything.

Lauren Speidel · Answer

@Josh Martin - If you do decide to move forward with a 1031 Exchange there are a number of requirements that must be met in order to successfully complete a 100% tax deferred transaction. If you have lived in and owned the property for at least 24 months out of 60 you may qualify for the 121 Exclusion. This Exclusion allows you to exclude from gross income up to 250k in capital gains (this is per taxpayer, if you are married it would be 500k) and anything over that amount can be used for a 1031 Exchange. The Exclusion may be prorated based on how long you lived in the property throughout those 60 months and of course, it is important to have held the property for a period of time to show your intent to hold for rental, investment, or use in a trade or business. Combining the 121 Exclusion and 1031 can be a powerful tool. I would recommend that you speak to a reliable Qualified Intermediary who has experience with these transactions and of course you should seek guidance from your tax advisor.If you don't qualify for the 121 Exclusion you can still move forward with a 1031 Exchange if you want to defer the tax and depreciation recapture liability and purchase another investment property. Again, there are a number of requirements to be aware of so it would be wise to not only speak with your CPA but also a Qualified Intermediary.

Josh Martin · Answer

So you're the guy taking all my login names!!!Thanks again everyone I will post what a decide to do.

Joshua Martin · Answer

Dude, @Josh Martin, sell or don't sell, but cool name.

Michael Henry · Answer

@Josh Martin the condo market is back in downtown Milwaukee. You should be able to sell the condo and 1031 the profits into a new investment.

Josh Martin · Answer

Thanks for the information and thoughts. I moved out two years ago and I will check with my tax guy to find out about the capital gains. As for now it does not do much for me until its paid off or sold if I stick with my current strategy. I will throw in a 30 boat with this unit as well :)

Shawn Ackerman · Answer

@Josh Martin Welcome to BP. I think the answer to your question is quite simple. It appears that your strategy has changed since you purchase the property. Thus if this property no longer fits your new strategy then you have to let it go. Now if you are able to proceed with your strategy of purchasing long term investments with a min cap of 9-10% without the sell, then I'd say leave well enough alone. However if you need some capital then dump this puppy and go after what you truly want. I'm a strictly cash flow guy so this property would have been sold a long time ago. 10 years....What sort of cap ex is covered in the condo fees? Just considering your expense to replace items that were in the unit when you purchased it. Best of luck to you!

Bryan Caprioli · Answer

How long ago was it your primary residence? Talk to your accountant, but I believe if you lived there 2 out of the last 5 years you can sell it tax free (other than typical sales fees). Once it becomes an investment property, they will hit you up for capital gains tax when you sell! Cash flow is nice, but tax free gain could be much nicer. Then take that money and invest in another ca ah flow property would be my suggestion.