Should I sell my condo for cash to invest elsewhere?

Question

I have a rental condo that was my primary residence until last year. I'm just beginning my real estate investing journey and looking to purchase a multi-family to live in when my wife and I move to Detroit in a few months, or purchase a single family that we will turn into a rental in a couple of years. We have cash to make that happen, but it would deplete those reserves. I'm wondering if it makes sense to sell the condo or hang on to it, when the goal is to have rental properties anyway.

Rent covers the mortgage (which is a 20-year) and all other monthly expenses. I have about $90K equity in it. It's a pretty durable property with very little maintenance but with monthly association dues that will undoubtedly increase with time.

My wife and I would like to eventually own 5 - 10 rental properties. So, should I keep one I have, or get out and use the money elsewhere? What other questions do I need to ask?

Joe P. · Answer

Can you get into investing without selling the condo? Sounds like the condo is break-even, so do you anticipate it ever cash flowing? What's appreciation like?

You could also HELOC the condo, depending on numbers, and use it to fund other projects, then cash-out refi and pay back the HELOC.

Options abound...I'd state your real estate investing goal out loud, and then see if the condo helps you reach the goal or not. If the goal is straight appreciation and its in a great location, then maybe you keep it. If you want your investments to pay you every month, then a condo with no cash flow won't do anything for you.

Hans Suljic · Answer

I think renting out the condo and getting some skin in the game would be a great start to your investment journey. Even if it doesn't cash flow that good I'd just have it build equity, get some exposure to being a landlord, and keep studying/learning about investment properties. Once you figure out if this is the path you want to take you can take the necessary steps to move forward. Best of luck! @Jenny Erickson

Hans Suljic · Answer

Many of the landlords I know started out with buying condos to rent out because there are less barriers to entry and less work when you take into consideration the HOA takes care of the building but over time as there portfolio's increase the condos are the first thing they sell. HOA fee's can really eat up your profit and even dealing with them can be a pain (I recently changed the door knob to my gf's condo to a smart lock and she got a letter saying if she doesn't change it back she will be fined since they want all the doorknobs in the building hall way to look the same or something along those lines.)(-_-) Also condo's/townhomes just don't appreciate in value as much as Single and Multi-families do which is important if you are trying to be a buy and hold investor. I think equity you have in it can definitely go far in a city like Detroit especially if you wanna reach that 5-10 rental property mark.

Jenny Erickson · Answer

@Drew Sygit - thanks for the thoughts. Not sure about a HELOC yet...but that raises another question that will reveal my beginner status, perhaps. What is the difference between a HELOC and just refinancing? Wouldn't a straight refinance give me similar benefits, like extra cash on hand and more cash flow? I have held off on refinancing because I haven't decided how long to keep the condo yet.

And @Alyssa Strom - thank you for the advice on holding off on selling while the downtown St. Paul market has cooled. The condo is downtown and I hear you on waiting for the market to heat up a bit. I really appreciate your point of view and expertise as a realtor in Saint Paul!

@Jake Drappi - Detroit is where we're moving for my wife's job and, as beginners, we'd like to invest where we will be living for a while, even with the challenges that seem to come with Detroit. We'll see...

John Sharpe · Answer

I'm in a very similar situation. My rental condo has average returns and very little appreciation, but a stable trustworthy tenant in place. I decided to keep it and go ahead to purchase my next investment property while holding onto it, for now.

Alyssa Strom · Answer

@Jenny Erickson Is it in downtown St. Paul, MN? If so, I'd hang on to it for the next year. The condo market has cooled a bit so selling right now may not get you the best price.

Jake Drappi · Answer

why Detroit

Drew Sygit · Answer

See if you can get a HELOC against it now, before you move. The HELOC can be used to invest or just give you access to some of the equity in the condo for emergencies.

Talk to a few local agents where the condo is and get a feel for where they see the market going - both for rents and market value. If you sell now and miss out on appreciation on both, you may be kicking yourself later.

Where are you moving to in metro Detroit?

Jenny Erickson · Answer

Thanks @ Joe P. Options do abound! The condo has minimal cash flow right now but it's in a great location and it seems to be a desirable place--big loft in downtown Saint Paul, close to stadiums, hospital, etc. Thinking that since it cash flows a little right now ($100 a month or so), I could hang onto it and see what happens with the downtown markets.

We can get into investing now and I'm leaning towards the idea of hanging onto it, investing in something else, and reassessing the condo in a year.

Jenny Erickson · Answer

Thanks for the feedback, both of you. It seems like there are a lot of ways to think about this decision, but I appreciate the perspective. Good point about finding out if we enjoy the investor life... Anyway, I'm new to this community and I appreciate you dropping a line!

Should I sell my condo for cash to invest elsewhere?

Should I sell my condo for cash to invest elsewhere?

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