Condo in Atlanta - Should I sell or keep it?

Question

I bought a 2 bed 2 bath condo in a prime area in Midtown Atlanta back in 2016. I paid 260k and owe 230k on the mortgage. It rents for $2300 a month and my monthly mortgage payment plus HOA feels total about $1750. If I consider cap ex and repair reserves, I'm pretty much breaking even every month (and arguably losing a little depending on how much one thinks should be budgeted for repairs/vacancy).  I've had $400 in repairs over the past 2.5 years and the same tenant has lived there the entire time. She pays at 8am on the first of every month. It's been one of my best investments thus far as I've had to put very little time, energy and money into it. A similar unit in my building sold for $345,000 a couple of months ago. Why am I telling you this? My tenant emailed me today and said she wants to purchase in the area but wants to offer to buy my condo first. She assured me she would make it "worth my while."  She will be early terminating if I do not sell it to her. My feelings are that this is one of the few condo associations in this area that allows rentals and I'm grandfathered in. They are in the process of changing the convenants and R&Rs but that won't impact me as the new rental restrictions are only for those that buy going forward. It's also in an ideal location, safe building and highly desirable. I want to hold onto it. However, I could stand at making around ~100k assuming I could sell it for about 350. With that money (combined with my savings), I can enter the multifamily arena which is something I've been wanting to get into.  I would love the opinion of others...should I hang onto it and have the mortgage paid down by tenants or should I sell it for a premium now and invest in multifamily? What would YOU do?

Josh Hooper · Answer

Do you have any other investment properties? Where do you see yourself in 5-7 years? Do you envision wanting to own this property as an investment at that time? I only ask because you mention multifamily. Is your goal to get into multifamily?

Does the $2300 per month include taxes, insurance, and HOA?

Here is a little math of one way to look at it...

You owe $230k and could sell for $350k. That leaves you with equity of $120k.

You are cash flowing $2300 minus $1,750 or $550 per month. That is $6,600 per year.

That is a Return on Equity of 5.5%.

Let's say you sell the home for $350k. After fees of 6% (or $21k) and paying off the mortgage of $230k, you are left with $99k.

Now you could re-deploy this $99k into a new investment. This new investment would need to bring you a return of 6.7% to get your same return on equity. That is certainly an achievable hurdle rate.

Honestly, if it were me, I would likely hold onto the condo for a lot of the reasons you mention, but I could see a case being made if you were really looking to potentially start your multifamily business.

Happy to talk further and even give you an opinion on price if you are really considering selling.

Michael Ehmann · Answer

While condos have their downsides, one of the nice things IMO is that you can budget a little less for CAPEX (assuming your HOA covers pretty much everything outside of your interior walls).

If you're interested in deploying the cash tied up, have you thought about a HELOC vs. selling?

I feel like a big factor is what the future would look like if your tenant moves out. Is $2300 a pretty fair market value? If it's undervalued then you could raise it to increase cash flow or keep it a little lower to let supply/demand work its magic and keep your expected vacancy lower. But if $2300 if maybe on the higher end, I'd be more likely to sell.

And at the end of the day, it all comes down to what your tenant is willing to pay for it. If she comes in guns blazing at $375-400K, then I say take the money and run.

Jeff Kehl · Answer

@Aundrea Newbern I bought a foreclosed Condo in Decatur in 2016 for my daughter to live in. My plan was to rent it out afterwards. Even though I had read through the original covenants, I missed the fact that they'd later done an amendment to restrict rentals and I wasn't grandfathered in so I ended up having to sell it about a year later. I payed $80k, we rehabbed it and then I sold it for $130k a year later.

That is the beauty of condos in hot areas and if you're in Midtown you're much better positioned but you've really got to ask yourself how much additional appreciation you're going to get in this cycle. Also, it seems like to me that there is now a new high-rise apartment building on every place that used to be a parking lot in Midtown 3 years ago. Hasn't that caused some softening in rents there?

Not trying to talk you into selling necessarily, a condo you can rent in that area is a valuable commodity and likely will do great over the long-term. I'm just not sure over the next few years how it will do.

Have you looked into doing AIRBNB with it? I bet you could make quite a lot with it that way if you're allowed and willing to do the work.

All that said, I agree with the posts above that said to basically calculate out your ROI on it and compare that to what you could get with another proposed investment. It's tough to find an apartment building deal out there right now with a decent risk-adjusted return. If you do want to try that though I think a credit line on the condo is a good idea to get out some of your dead equity. That's also tax free unlike a sale where you're paying tax unless you 1031.

Keivan Darius · Answer

@Aundrea Newbern GA is almost getting close to it's second phase of the hypersupply cycle. Based on that both strategy should work. The price for your property more than likely will keep going up for the next 3 years + you should be able to increase rent by 3% per year.   I suggest taking $50k to $60K (refi) out and investing it passively in a 40 to 100+ unit apartment complex.  In some other states that are not in Hypersupply cycle you can get 10% or more AVG COC with potential 20% IRR.  However I sold all my SNF investments and now doing both passive and active investment in larger MF. The returns are much higher and it's much easier to manage. For my passive investments I do 0 work, I'll just get my (9.x%-11.x%) coc every quarter.

Aundrea Newbern · Answer

@Josh Hooper I own 9 properties right now with 14 doors. This is the only condo I own. I have a couple of multifamilies and the rest are single family homes. I'm playing the long game and not looking or needing to cash out any properties right now.

@Greg Kurzner The numbers and my gut feeling are telling me to hang onto it!

@Brian Mcmenamin I own several single families and all are doing well. None are in quite as lucrative of an area as this condo so I'm really leaning towards hanging onto it.

Thank you all for the advice and words of wisdom!

Brian Mcmenamin · Answer

@Aundrea Newbern Sell it. Take the money and invest in single families in Atlanta. I sold one of my condos because it wasn't cash flowing. I took the $65K and bought a single family because it cash flowed. Refinanced and got all my money back out. I'm not a big fan of condos, but its a personal preference. If you can make $100K on the deal, go for it. Youll make the right choice either way. Good luck.

Greg Kurzner · Answer

I agree with Josh.  Being grandfathered in condo communities that are tightening restrictions means you likely will be able to push rent in the coming years as demand for rentals meets with less supply.  Yes you can get potentially a better return on the equity if you re-deploy into another investment but we represent several institutional investors and their cap rates are in the 5.5 to 7 range.  Properties at the 7+ range is becoming difficult to find in volume so sticking with a property that is performing well and that has upside given the grandfather feature, I would hold on to it.  MHO.

Greg Kurzner

Condo in Atlanta - Should I sell or keep it?

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