Rent out condo or sell at a small loss?

Question

Hello,

So I bought a condo here a year ago when I moved down, and now it looks like I'm most likely going to have to move soon. I think I could rent it out and even if I hire a management company still breakeven or make enough to pay the mortgage/escrow (taxes, insurance, etc.). However, my HOA fee is stupidly high (not low when I bought but raised $110/month since then) and would put me underwater somewhere between 3-500 a month I think. I would be able to afford this as basically a bill on top of my rent whenever I move (because my rent would most likely be cheaper and salary same or higher). In my head, at least half of this loss is basically a savings account since it will go towards my principal. But otherwise, I estimate I need 2-3% appreciation annually to justify taking this hit.

My dilemma is that I still feel like the property will appreciate and I don't really want to be out of the game completely, but also doesn't seem like I'll realistically be able to rent out for a profit right now, even if I did it myself without a manager. It is located in Montrose and it's on the top floor of a mid-rise with views of downtown from the balcony and living room. So I feel that the location is very good and not unlikely to grow further. Think I've thought through most of the logistics but mainly asking this question to see if there's anything I might not be thinking of or see if anyone else here has experienced something similar and what you did?

Thanks!

Justin Winn · Answer

I agree with @Jason Hirko that time value of money is a consideration. One way to do that might be comparing your proforma using the rental tool to what options the cash flow from not carrying the mortgage and maintenance would produce if reinvested somewhere else.

Also, you didn’t mention if this is as a long, medium or short term rental. You could potentially make more with a different strategy and be able to cover your expenses. I hope this was useful.

Axel Norvell · Answer

What interest rate are you locked in at? If it's around 3% as Matthew suggested, that's gold right now. You could run the numbers on an AirBnB, or find a professional to stay long term and see if the rents cashflow.

If rental numbers don't cashflow, you could consider selling your condo as a wrap. You basically keep your 3% interest rate and sell it to someone else at 4-5% interest where they pay you the interest instead of the bank.

Feel free to connect and DM me if you need more ideas or help

Lucika Suarez · Answer

Hi there Matthew,

There are a few questions you may what to consider. Can you manage a single unit yourself? One unit isn't much to manage if you have automated systems and local professionals in place. Being that your association fee increase, did their service or coverage increase? Specifically will they now cover some of the expenses you paid before the increase such as internet, utilities, major damage coverage etc.? Is the increased fee a decrease in your expenses, may be worth it or not. Consider your loan terms will it cost you more now to buy now or was your purchase upside down to begin with? What are the projected rents? Is there a value feature that allows you to charge a bit more for your unit that for Above all, trust your intuition, if you sense you should stay in the game stay and make it work! Hope this helps.

Bob Stevens · Answer

Sell it, you overpaid like everyone else over the last two years, pricing IMO is going to come down . I just two weeks ago moved back to FL, I am renting on the beach as I am not going to pay 350- 400 a sq ft, just crazy. I think it will come down. I see props on the market longer so will see, In mean time I am living in paradise for a year or so.

All the best

Jason Hirko · Answer

@Matthew Allen I'm going make a few assumptions based on what you said - you have a condo you bought with debt over a year ago. You also live there currently. I am going to assume you have a pretty spectacular interest rate on that property compared to today's rates, maybe even sub 3%. With that said, if you are 'losing' $300/mo right now, your DSCR is maybe in the 0.9 range. While not great, you have to look further out. You are right about 2-3% appreciation helping to justify this, but I would strongly encourage you to look at the time value of money on this. You have a monthly mortgage payment that is locked in at likely 2021 dollars. That amount won't change for the next 30 years. So even as inflation creeps (or jumps) up, your payment stays the same. That same inflation will eventually cause your rents to increase as well, but again, not your payment. You've already seen a huge increase in inflation since you got this loan, which hasn't trickled down yet to increases in rents, but it will soon. And over the next 30 years, forget it. You will be much better off keeping that loan as a hedge against inflation. In a few years, your DSCR will be above 1.0, and you'll have a cashflowing rental as your tenants pay you in 2025 dollars, while you still pay the bank in 2021 dollars.

Rent out condo or sell at a small loss?

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