Request opinions and direction on whether to sell or rent out my condo

[Jose Lucina]

Hi BP friends,

I am having some problems trying to identify whether to sell or keep my condo and would appreciate your expert help. I originally planned for keeping this condo as a college fund or downpayment house for my daughter. However, I am unsure if this will be possible and financially responsible in my circumstance.

Condo Description-; 2 bedroom, 1 bath, 2 parking spaces in an area that is in demand, an area that does not have capacity for any new developments or construction (cannot expand), is within 12 miles of three military bases, and in close proximity to a college campus. Easily rentable.

Sell Option:

Current Loan Balance- $355k

Sell- $540k

Expected Earnings (- excrow, costs, and realtor fees) = $145k.

Rent Option:

Current monthly payment (including maintenance fee, insurance) - $1150/month.

Rental expected (based off other spots in my building) - $2150/month

Cashflow expected: $700-750/month

Complicator : My loan is not a mortgage; it is a simple interest loan at 2.25% which expires in 3 years. After that, the rate would change to whatever the market rate is or I would need to refinance the property. I calculated a refinance at 7% interest + maintenance fee + insurance that my monthly payment would then turn to $2800. Which is more than I could charge for rent in this unit at this complex.

Pending forecast for inflation and for the market in three years, would I be stupid in trying to hold this property as a rental for three years and then selling it? After all expenses and fixed debts (with our new inflated home purchase) my wife and I only put away $1000 a month.  Would it be better for us to sell this condo and hold the money to reinvest somewhere else?

Thank you for your help and suggestion. I'm really stuck in the grey on this one. 

[Edward Stephens]

@Jose Lucina thanks for the question.  It might be helpful to look at this from a worst case scenario and then make up your mind. 

What happens if the real estate prices comes down in 3 years, you've held onto the property and you need to refinance it? And interet rates went up...they're not 7% anymore, they're 9%. (No one knows where rates will be in 3 years, just taking a wild guess).  Also, you've rented it to three years to someone who abused the property and so it's not in good condition anymore.  Your cashflow of $750/mo x 36 months = $27,000 is a drop in the bucket to the money you could lose if rates go up and the market dips and a tenant has a field day in your property.  

If you're as risk averse as you seem in your post, I'd sell it and move to the next property.  

P.S. - An additional risk factor with condos is the prospect of them becoming non-warrantable due things like a pending lawsuit against the association, or a high % of rentals in the building.  This makes financing tougher for prospective buyers and results in a loss in value.  If you have questions bout this, DM and we can have a call about it.  Also, what happens if there is an assessment?  What happens if the condo fees are raised? Those things can not only eat away your cashflow while you're renting it, but could scare off buyers if you're going to sell it to someone.

Good luck, message me if you'd like to discuss further by DM or phone.