To Rent or to Sell - Atlanta Loft

[Patrick Young]

Hi All,

I purchased a loft along the belt line in Atlanta in May 2018 for $315,000. I put $165k down and currently owe $115k on the loan @ 4.75%. I will be leaving Atlanta with my fiance for 2 years while she completes her fellowship. We *may* move back to Atlanta so I'd like to at least rent it for those two years in case we move back. If we don't move back, or choose to not live there, I'd consider renting it out indefinitely.

I've estimated my cash on cash return to be about 4-6% depending on the rent I can command on the property ($1800-$2100) and about a $500-$800 monthly cash flow.

I did a 35 year projection (3% price increase across the board for all costs) and at the end only end up with about 1.5 million in profit while a mutual fund @ 7% after tax would return almost double that amount.

My question is that after those 2 years it seems like I would be much better off selling the property and investing that money elsewhere to earn a higher return in the market (7-10%). Do I just have too much dead money (and cannot rent it for the premium I need) in it to earn a solid return?

What are the pros and cons and why would someone choose to accept a lower rate of return when their money will yield more elsewhere?

[Jingru Sui]

Patrick, Do you have rental restriction on your property?

[Jingru Sui]

I guess it's personal preference. Your property seems pretty stable and will "guarantee" some level of return and low maintenance if rent to right people. Different people have different risk tolerant level. in the foreseeable future property close to beltline will still go up in value. Hopefully!

[Patrick Young]

Cannot STR it but will be able to rent yearly.

[Jason Clarke]

Hi Patrick.  Interesting question.  I think your decision should prinarily be based on your goals, priorities and circumstances.and which route gets you there.  If goal is to maximize your net worth, then on the surface mutual funds seems like the better bet.  If building passive income is primary goal, keeping property may be better, but still not as good as you may be able to get in a different propert or using high dividend paying stocks.  Do circumstances allow for you to have enough time to own & manage a real estate property vs the passivity that comes with index fund investing?  These are the things I'd consider. 

Just so I make sure, are you factoring appreciation on property, 35 years of rent and corresponding rent increases and properly accounting for ALL expected expenses throughout the years (e.g. vacancy, maintenance and capex)?  

[Patrick Young]

I did not factor in vacancy - which I should do. Here are the numbers I used.