To Hold or To Sell - Southern Oregon

[Lisa Zak]

Hi..

This is my first post! :) - I'm still living in the condo I bought foreclosed in 2015 and now have $150k in equity. I can't currently rent my place out due to HOA ratio / rental rules..but can rent out a room that would almost cover my mortgage which I plan to do. However I'm at the same time I'm also considering selling to cash out the equity, pay off some debt and reinvest the majority of it in the one bedroom condo....the owner said she may carry the loan @4.5% (if she doesn't carry then I wouldn't sell). The same rental ratio's apply to both condo's...the 1bedrm would sell for around $200k.

Thanks for your feedback :) - Lisa

[Cory Carlson]

The answer to this question lies in the mathematics. Hard to advise what to do with your "capital/equity" without knowing where are you today. This means running current scenarios, refinance, sell/exchange/reinvest and comparing all the strategies. The 4 major return metrics would come into play and be compared. 

1) Pre-tax cashflow

2) After-tax cashflow (after effective tax rate, depreciation and interest expense deductions)

3) After-tax cashflow + Pay down (same as #2 but adds principle pay down)

4) Total Return (After-tax cashflow + Principle Pay Down + Appreciation-X%)

Simply put the strategy here could be to keep your space, reposition yourself (refinance) and see if there is enough capital to do something else with. You can keep the condo as your "principle residence" to avoid the HOA headaches. Second strategy would to quantify your net proceeds from sale and if you could find something else that fits your needs but is a better "investment". What i say when advising and consulting on these types of situations are to draw the line in the sand somewhere between utility and investment. Its impossible to quantify both but they can be taken into account if the vision is to eventually turn the next acquisition into a buy/hold rental.