All Forum Posts by: Hans Olo

Quote from @Richard F.:

Quote from @Hans Olo:

Quote from @Richard F.:

Aloha,

You really need to factor in the actual financial condition of the condo association. What have the regular monthly fees done over the past 10 years? remained the same, or maybe a couple small bumps? You could easily have a major Special Assessment just around the corner which will foul all of your planning. It does not matter how much they actually have in Reserves based on their "balance sheet"; it matters what their Reserve funding plan looks like for the next 30 years.

Annually  you should receive copies of the Annual Budget and the Reserve Funding Plan. Odds are your 2024 Budget and Plan are being prepared right now, and you will see them by early December. Very few Owners OR Board members, actually understand these very important funding plans.

Thanks so much for the reply! Over the past 10 years the HOA fees have increased from roughly $175 per month to the current level of roughly $300, spread accross small increases during the 10 yr period. It's a large development with very many units. There have not been any one-time special assessments dueing this time perios. Any insight based on this additional info?

Thank you!!

Since it has not even doubled in over 10 years, it is not very likely it is keeping up with inflation, let alone any accelerated deterioration that often happens near end of life. How many units total? When was the project completed? What do you observe across the property as a whole? Well manicured, Very Good overall conditions? Or tired appearances, deferred maintenance, and complaints by Residents? You can post a link to the reports I mention if you have some from the last year or two. They are public documents.

Hi, I am gathering some info and will reply back. Thank you!!

Quote from @Cara Sherman:

I’m a huge fan of keeping cash flowing long term rentals. At a $700/mo cash flow you’re getting $8,400/yr, which is the equivalent of having $120k saved in cash that you are drawing from at 7%/yr. You won’t get $120k in clear profits if you sell. Plus you get tax benefits with write offs. But don’t forget to put some money aside for things that come up (new garbage disposal etc) sk your $700/mo should maybe be more like $625. But even at that cash flow, I still would hold. 

Thanks very much for the reply!  These are great points. Now in my scenario, if I did sell, I would use the proceeds to payoff a $70k HELOC that I have on my primary home. Presently paying about $400 per month on that.  What are your thoughts in this scenario? Still more of a benefit keeping as a rental? Thank you!

Quote from @Cara Sherman:

I’m a huge fan of keeping cash flowing long term rentals. At a $700/mo cash flow you’re getting $8,400/yr, which is the equivalent of having $120k saved in cash that you are drawing from at 7%/yr. You won’t get $120k in clear profits if you sell. Plus you get tax benefits with write offs. But don’t forget to put some money aside for things that come up (new garbage disposal etc) sk your $700/mo should maybe be more like $625. But even at that cash flow, I still would hold. 

Quote from @Carlos Ptriawan:

Quote from @Hans Olo:

Greetings all!

Hoping to get some insight from you real estate gurus! My long time tenant is moving out because they bought a home, so I am faced with the decision whether to keep the property and continue as a rental, or to sell it. Here's the facts -- condo unit, 2 bed, 1.5 bath, fully finished basement, end unit with side deck, very close to community pool, playground, basketball court, etc. The unit is in an average quality condo development in an average location in terms of desireability. But alot of rental demand in the area (barely any availability on the market right now). Market value is currently about $230k. Mortgage balance is under $100k with a rate of under 4%. Under years remaining on mortgage.

I'm currently getting only $1600 per month in rent which is far under market rent right now because the tenant has been there for a long time. Current market rents would be $2200. So after mortgage payment, taxes, insurance and condo association fee, I would net about $700 per month at current market rental rates. Renovations needed amount to about $10k-$15k, which will have to be done whether renting or selling. With tenant being there so long, alot of wear and tear, kitchen and bathroom need some updating, etc.

If I sold it for $230k right now, after closing costs/realtor commissions, capital gains tax, cost of the needed renovations, and mortgage payoff, I expect I'd net about $80k. My plan for that $80k would be to payoff or significantly paydown a home equity line of credit on my primary home (balance of about $70k) and do a bit of renovations to my primary home.

Monthly payment for the HELOC on my primary home is about $400, vs the monthly net rental cash flow I'd receive of $700 on the condo rental, so from an overall monthly cash flow perspective, I benefit from keeping as a rental (vs selling condo and paying off the HELOC on primary home).

With inflation being crazy and cash losing value by the day, I understand that real estate is considered to be a good place to store wealth because real estate values rise with inflation generally. But then the risk is that property values crash, making it easier for people to buy homes, meaning market rents will drop too, which could result in me losing the new tenant at lease expiration and then monthly rent on replacement tenant dropping significantly. And of course there's the risk that if the time does come that I wish to sell in the future, values may be down from where they are now.

I'm presently leaning toward keeping as a rental unit due to the additional monthly income, and the fact that the mortgage ends in under 10 yrs will be an even nicer increase to monthly income at that point (and will help eventual retirement!). But of course I see the pros in selling too (and risks of keeping it) as described above.

So overall, these are the things running through my head about it. What do you all think? What would you do in my shoes? Keep as a rental or sell?

Thank you!!

 This one is easy: hold.

The only case for sell is only if you plan to retire or you want to buy another home either for primary or rental.

1. market rent would not go down
2. there's no market crash

 Thanks for the reply! But my thought peocess is that if/when interest rates drop, far more people will be able to afford buying a home, and therefore the presently large tenant base would drop accordingly, therefore causing market rents to drop.  Am I looking at that incorrectly? Thank you!

Quote from @Joseph Dasmerces:

I have sold 2 investment properties and if i had to do it all over again i would have kept them, they all worked out, i was able to still purchase more properties with the sell and money went to good use but looking back i was still able to achieve the same portfolio without selling those 2 properties. 

 Thank you! Yeah, I do worry that I'd regret selling.

Quote from @Eric Gerakos:

Welcome. With all due respect, saying you’re currently getting “far under market rent because the tenant has been there for a long time” shows that you’re not managing your rental like an investor but running a nice charity for your tenant. That’s $7,200 a year you’re missing. Keep your rents at market value. Not raising rents for fear of tenants leaving is a newbie mistake that greatly reduces your profits. Best of luck.

 Thank you for the reply! I don't have much of a defense.... Was more concerned with the prospect of losing the tenant. The more I read and learn though, the more I realize how foolish that was. Will not make that mistake again. Thanks!

Quote from @Theresa Harris:

What is the interest rate on your HELOC?

if the market crashes, people will need a place to live, so it doesn't flow that rents will also drop.  Many people who rent fall into 3 categories: 1) those who don't want to own a home, 2) those who are starting out and saving to buy a home and 3) those who will never be able to afford to buy because they can't save the down payment and can't get a loan.

Run the numbers.  If you did the renos and rented it-how much would you net each month?  If you did the renos and sold it, what would you do with that money and how much would it net you each month?  Then ask yourself if you want a rental, how do you feel about the market and risks?

Thanks so much for the reply! My variable rate on my home HELOC is roughly 7% currently.

Regarding my thinking that market rents would drop if home values drop is because i thought the main reason market rents have increased so significantly over the past year or two is because the surge in home values and surge in interest rates have made it so many people can't afford to buy a home, and therefore more people have to rent, therefore increasing demand/lowering supply and causing rents to surge. Am i thinking about this incorrectly?  

In my main post i commented on projected cash flow from renting vs projected net sale proceeds, and I think I'm leaning towards renting, but trying to get all of your input as you all are far more experienced than me!

Thanks again!

Quote from @Richard F.:

Aloha,

You really need to factor in the actual financial condition of the condo association. What have the regular monthly fees done over the past 10 years? remained the same, or maybe a couple small bumps? You could easily have a major Special Assessment just around the corner which will foul all of your planning. It does not matter how much they actually have in Reserves based on their "balance sheet"; it matters what their Reserve funding plan looks like for the next 30 years.

Annually  you should receive copies of the Annual Budget and the Reserve Funding Plan. Odds are your 2024 Budget and Plan are being prepared right now, and you will see them by early December. Very few Owners OR Board members, actually understand these very important funding plans.

Thanks so much for the reply! Over the past 10 years the HOA fees have increased from roughly $175 per month to the current level of roughly $300, spread accross small increases during the 10 yr period. It's a large development with very many units. There have not been any one-time special assessments dueing this time perios. Any insight based on this additional info?

Thank you!!

Quote from @Bjorn Ahlblad:

@Hans Olo welcome to BP! I'd keep it, normally I hate condos but this one it not on the thirtieth floor of tower F. It even has a basement and a 4% mortgage. So yeah I would not sell.

Thanks so much for the warm welcome and for the reply! Yeah, no units above me or below. It's really more like a townhouse development with the units side by side. That was a primary reason I even considered buying it....Did not want to be above or below anyone else, and the HOA fees were not bad. As a follow-up, would you consider a $600-$700 per month net cash flow a good return on the unit, considering the details? This is my only investment property, and it was originally my home before I moved and started renting it out. I was sort of forced into it being a rental at the time because it was a bad time to sell (values low, not enough equity based on mortgage balance at the time to make any meaningful gain, etc).  So I didn't really know what I was doing and had to get a renter in fast. In hindsight I'm glad I held onto it as value has increased nicely while paying down the mortgage over the years and now excited about getting a good rent,  but i am curious what experienced investors would think of the new expected monthly cash flow. All very interesting stuff! Thanks again!

Greetings all!

Hoping to get some insight from you real estate gurus! My long time tenant is moving out because they bought a home, so I am faced with the decision whether to keep the property and continue as a rental, or to sell it. Here's the facts -- condo unit, 2 bed, 1.5 bath, fully finished basement, end unit with side deck, very close to community pool, playground, basketball court, etc. The unit is in an average quality condo development in an average location in terms of desireability. But alot of rental demand in the area (barely any availability on the market right now). Market value is currently about $230k. Mortgage balance is under $100k with a rate of under 4%. Under years remaining on mortgage.

I'm currently getting only $1600 per month in rent which is far under market rent right now because the tenant has been there for a long time. Current market rents would be $2200. So after mortgage payment, taxes, insurance and condo association fee, I would net about $700 per month at current market rental rates. Renovations needed amount to about $10k-$15k, which will have to be done whether renting or selling. With tenant being there so long, alot of wear and tear, kitchen and bathroom need some updating, etc.

If I sold it for $230k right now, after closing costs/realtor commissions, capital gains tax, cost of the needed renovations, and mortgage payoff, I expect I'd net about $80k. My plan for that $80k would be to payoff or significantly paydown a home equity line of credit on my primary home (balance of about $70k) and do a bit of renovations to my primary home.

Monthly payment for the HELOC on my primary home is about $400, vs the monthly net rental cash flow I'd receive of $700 on the condo rental, so from an overall monthly cash flow perspective, I benefit from keeping as a rental (vs selling condo and paying off the HELOC on primary home).

With inflation being crazy and cash losing value by the day, I understand that real estate is considered to be a good place to store wealth because real estate values rise with inflation generally. But then the risk is that property values crash, making it easier for people to buy homes, meaning market rents will drop too, which could result in me losing the new tenant at lease expiration and then monthly rent on replacement tenant dropping significantly. And of course there's the risk that if the time does come that I wish to sell in the future, values may be down from where they are now.

I'm presently leaning toward keeping as a rental unit due to the additional monthly income, and the fact that the mortgage ends in under 10 yrs will be an even nicer increase to monthly income at that point (and will help eventual retirement!). But of course I see the pros in selling too (and risks of keeping it) as described above.

So overall, these are the things running through my head about it. What do you all think? What would you do in my shoes? Keep as a rental or sell?

Thank you!!