Sell or Rent My Condo? In-depth Analysis

[Adam Conrad]

Hi there,

So I've been on the fence about how to assess my 3-5 year plan for my current condo that I live in.

I purchased 2 years ago a condo unit that was undervalued for the area (South Boston, near the beach, extremely up-and-coming area in this city) based on $/sqft. I put 10% down with a 4.25% 30 yr. I refinanced this year down and timed the market perfectly: 3.37% 30 yr fixed, erasing PMI because my property appreciated 29% in this time (avg. 12.43% YoY). I know the property has appreciated this much because the refinancing company paid for an assessor who gave me a very thorough property valuation which I believe to be accurate based on comps in the area.

In about 3-4 years I will be on the market again to purchase a single family home, but I'm not sure whether to sell or rent out. Here's the analysis I've done:

Reasons to sell:

• Incredible ROI already ($200k+) just on market appreciation alone
• Market appreciation unsustainable (12+% YoY is wild, and Boston is now more expensive than pre-2008 Bubble prices)
• In a few years, further appreciation could allow me to be debt-free (this condo could likely pay for a single family home in the burbs with no debt, with all of my extra income going into a REIT or passive index fund rather than another property)

Reasons to keep and rent out indefinitely (20+ years):

• If I put it on the market right today, based on confident, conservative comps for rent, as well as my real-world expenses that I know would stay consistent (i.e. I know my mortgage, HOA, repairs, and 15 years of cap-ex is already built into our HOA since I am the treasurer) I could get a Cash-on-Cash ROI of 7.7% even with having a property manager. The S&P 500 did 6.9% in the last 10 years, so it's a wiser play assuming rents don't go down, which they haven't in Boston for a long time (excluding luxury and ultra-luxury condos, which there are too many of right now, and my place is not a luxury condo). Additionally, if rents go up 5-10% like they have been for the last 5 years, that CROI% only increases with every passing year!
• Aside from a sustainable, above-average CROI, the appreciation is still remarkable, and has already appreciated enough in 2.5 years to combat any market corrections. For example, the market corrected 38.5% in 2008 on average. My property has already appreciated 29%. Assuming we hit another bubble of similar magnitude, I'm likely to lose little to nothing, even in the wake of a correction and that it never corrects back (which seems supremely unlikely in such an urban hub like Boston). And if the market corrects and then recovers, which may happen multiple times if I decide to keep this over the course of the next few decades, it will still likely net in appreciation due to the market I've invested in.

My gut is telling my that a buy-and-hold strategy for my condo is the right move. I will still have enough money to purchase a second property as my primary residence in 3-4 years, but I do have some paranoia about the solvency of this unsustainable rocketship that is the Boston real estate market appreciation. Thoughts? This is my first property so I am curious to know if there are any flaws in my analysis or logic.