Should I sell my condo or continue renting it out?

June 22, 2015 11:33 AM

My tenant of 6 years is moving out and I cannot decide whether I want to rent it or sell. I’ve tried several online calculators for this type of thing and gotten different recommendations. My condo is in Denver, CO, one of the hottest home and rental markets in the country right now. Rental occupancy rates are at 96% and rents have been increasing at about 10% annually. Home values in the past year have gone up almost 15% in the last year with 6% growth projected next year. Details after the jump.

I owe $120k @ 4.125%
Monthly payment + association fees $1000
Zillow estimates sell $172k
Zillow estimated monthly rental price $1500+
I originally paid $149k
2 bed
2.25 bath
1400 sqft

I believe I can make about $6000 in income annually as a landlord barring any major emergency repairs.

If I sell I could come away with a gain of approximately $20k before taxes. In the hot market I could probably sell it pretty easily myself and avoid realtor commissions.

Either way I am estimating an investment of about $5000 to make it rentable and/or sellable.


Any suggestions on what would be my better option? THX!

posted by Che boludo! to Work & Money (11 answers total)

Do you have a reason to sell? Are you tired of being a landlord? Do you have specific plans for the income (either the rental income, or the profit from the sale)? Does the market show any signs of slowing in the next few years?

If you are satisfied with being a landlord and you have no immediate need for the profit from the sale, there doesn't seem to be a reason to sell.

If being a landlord has been too much of a burden, and your living situation is otherwise set (i.e. you're not sharing a place with someone else and may need your own place again at some point in the future) then by all means sell and move on.
posted by vignettist at 11:44 AM on June 22, 2015 [4 favorites]

Sell. The rapid increase in home prices and rents isn't going to continue for very long. It may be a year or two but this can't continue forever. Also, Denver isn't in the same league as San Francisco or New York -- the hot housing market in Denver is relatively recent and will probably revert back to a rather lukewarm mean.

The only reason not to would be if you are in an area where rents have increased a lot, and home prices haven't. That is true in some parts of the country (especially the midwest). But it sounds like that isn't true for you.
posted by miyabo at 11:47 AM on June 22, 2015

If you had 25k (your equity plus repair costs) and could put it into something that would generate 5k of cash per year (with a potential risk of the principal), would you do it? What are you going to do with the cash? What would you do with the principal if you sold it? What is the actual amount of work you need to do for it?

These are the situations that people look really hard to get themselves into, and how cash is generated. Unless you hate being a landlord, keep it.
posted by bensherman at 11:53 AM on June 22, 2015 [5 favorites]

I would keep it, spending some more time generating equity, then sell later if you want. You have something good generating a solid cash flow in a good market. To me, there's no reason to sell, especially when you don't have that much equity in the property.
posted by Verdandi at 11:57 AM on June 22, 2015 [1 favorite]

Can't speak to the Denver market, but Zillow can be very unreliable. Have a real estate agent give you an estimate.
posted by sageleaf at 1:04 PM on June 22, 2015

Response by poster: My tenant is an agent and she showed me the MLS data comes pretty close to Zillow.
posted by Che boludo! at 1:12 PM on June 22, 2015

Per this morning's radio, here's what you might be able to expect from potential buyers in the current horrorshow that is the Denver metro housing market.

You're probably in a better position to sell than most people, logistics-wise, since you're not currently living there and therefore aren't trying to find a place to buy at the same time. Anyway, if it does make sense for you financially to sell, this has got to be about the easiest time to do it -- you can ask for any ridiculous thing you want and you'll probably get it.
posted by asperity at 1:14 PM on June 22, 2015 [1 favorite]

You're lucky. Many condo associations stipulate that the owner has to live in the property for x-years per y-number of years.

Keep this in mind if you want to sell - some mortgage companies will not give a buyer a mortgage for a condo when the own/lease ratio is at a particular ratio.
posted by Thistledown at 1:20 PM on June 22, 2015

You have about $47k in equity (sale price less mortgage less improvements before sale). If you expect rents and home prices to increase 5% a year, you'll double that equity in five years, and start to be able to pull out a few percentage points a year as rent increases enable you to start to profit on a cash flow basis (you're about break-even now). So figure a 17% return, and more equivalent to like a 22% pre-tax return given the multiple tax advantages you have (deferral of tax on home price appreciation, ability to move back before sale and claim the homeowner capital gains exemption, or even if that doesn't work take a like-kind treatment).

Do you have an investment idea for $47k which will return you 22% pre-tax? My guess is you don't...
posted by MattD at 8:13 PM on June 22, 2015 [1 favorite]

Something to consider is the risk of mortgage rates rising, which could reduce sales prices.
posted by slidell at 10:07 PM on June 22, 2015

I will second Matt's analysis. You have a good investment either way the wind blows via property values. You have a low interest rate if rates rise and enough equity to make the payments muy affordable. Where can you invest the capital if you draw it out (losing capital gains to taxes as you aren't owner occupied) and make a healthy return. The stock market is high and expertise is needed in my opinion to max returns. I would hold it myself. Think long term. It can be an excellent retirement plan. A 30 year mortgage can be paid off in 16 years. Then the net income would be quite high from the property. If you do keep it I would accelerate the mortgage. The best way is double down on principal each month. That is, determine the current balance between principal and interest on your loan and pay exactly twice the principal amount in addition to the interest. Check your loan requirements but I have never heard of this being disallowed. I look at this as an investment in the equity. In the final years of the loan the payment can be quite high. You don't say but Let's assume your HOAs are $200.00 a month. In the last year of the loan the payments would be about $1600.00. You can back off of that amount in any way you want if you still own it. If your loan has 20 years left you would be faced with these higher payments in 10 years. Your income and rents should both be higher in ten years. At that time you would have a pretty nice nest egg.

Something to consider as you make your decision.
posted by Jim_Jam at 10:30 AM on June 23, 2015