Should I lease my condo, or sell it outright?

December 27, 2005 1:59 PM

I'm moving to New York City, and I need help deciding what to do with my condo. Should I lease it? Sell it?

First, the specifics: I own a 1,826 square foot unit on the 13th floor of a lakefront highrise on the east side of Milwaukee. Two bedroom, two bath, terrace, stainless steel appliances. Shortly after moving in, I commissioned a local artist to paint the space, and a custom desk was built for my home office by a local design firm. The finished product was profiled in "M Magazine."

I love my home, but I love my girlfriend more, so it's time to move on. One of the few remaining details (and certainly the biggest) to be worked out is: what should I do with my condo, lease or sell?

LeasingI've discussed the issue at length with my financial advisor (a.k.a. "Dad") and his recommendation is to hold on to the property, for the following reasons:

• I would still own property, and therefore benefit from the appreciation of the unit. It's lakefront property in a great neighborhood.
• I could move sooner if I didn't have to deal with all of the closing details.
• I could lease the unit furnished, giving me one less thing to worry about.
• I have a safety net, in case things didn't work out. I have every confidence that I will be happy with my new life in New York, but who knows. It's a factor to consider.

The cons:

• The market for leasing a property like mine would be very small, if it exists at all. In order to cover my mortgage, property taxes, and condo association fees, I would need to collect somewhere around $3,000/month in rent. I imagine I'd be leasing to a corporate executive living in Milwaukee on a temporary basis.
• I have absolutely no idea where to begin. If I chose to sell my property, I could hire a real estate agent, or buy a book and list the property myself. I have no idea how to proceed with leasing the property. When I look through craigslist or the real estate section of the Sunday paper, I see no properties leasing in this price range.

SellingThe benefits to selling the property outright:

• I wouldn't pay taxes on the capital gains if I sold the property as a residence. If I decide to sell after leasing it for a few years, it's an investment property, so my tax liability is considerably higher.
• I have fewer long-term headaches. I won't have to worry about finding another tenant when the current one chooses not to renew their lease.
• My course of action is clear. As I said, the process of selling a home is farily straightforward.

Help!So, I guess I have two questions:

• Have I missed any pros or cons? Am I considering all the right issues?
• If I opt to lease my unit, how do I get things started?

posted by dansays to Work & Money (8 answers total)

Cons:

• Tenants may (and you're better off assuming will) trash my beautiful home which I seem to be quite proud of, and that would be a big headache for me.
• If I can't find a tenant, I'm on the hook for the full mortgage amount each month
• Even if I can find somebody to rent it, they may go months without paying me. And it may take months to evict the deadbeats
• If there is a problem like a clogged toilet, I am responsible for finding a way to get it fixed.

It could work out well for you, but there are a lot of headaches to being a landlord that you should consider before going down that road.
posted by willnot at 2:08 PM on December 27, 2005

Have you considered finding one of those agencies that finds short/medium-term acommodation for execs and so forth? No names come to mind, and I know they usually tend to own their properties, but it might be worth looking at.
posted by dirtynumbangelboy at 2:16 PM on December 27, 2005

you might want to look into working with a property mgmt firm if you decide to lease it - more overhead, less headaches. and the girlfriend in question is pretty fabulous. you're a lucky man!
posted by judith at 2:19 PM on December 27, 2005

If I decide to sell after leasing it for a few years, it's an investment property, so my tax liability is considerably higher.

I believe the test is that you have lived in it 2 out of the last 5 years, so you have several years to come to a decision about it on this point.

If you rent it you should probably find an agency that handles such things. They have their own set of headaches - a notable percentage and slow-pay - but you sound like you don't feel up to the hassle yourself. A good one is worth the cost.
posted by phearlez at 2:21 PM on December 27, 2005

I was about to say what phearlez said, but to explain further: you can rent/lease the place for three years before you're on the hook for any taxes. I was kicked out of a rental unit a few years ago because the owner was about to hit that three year mark and had to get it sold so he wouldn't have to pay on the gains.
posted by mathowie at 3:28 PM on December 27, 2005

I think if you're going to rent it out you would definitely need someone local to manage it. Otherwise, what are you going to do from NYC when the tenants complain that the heat doesn't work or the toilet is clogged? So you would probably have to call up some "property management" companies and see if they'd be willing to take on that role.

Also, I know it would be easier to rent it furnished, but as you said the market for that is very small. I think you would have a lot better chance of renting it if it was unfurnished, but of course you could always try to advertise it as furnished first. You could always just put all the stuff in storage there, rather than moving it, which should be relatively inexpensive (all things considered.)

It seems to me like renting it would be much better than selling for all the reasons you've already mentioned. But I don't know anything about the tax ramifications.
posted by Rhomboid at 4:37 PM on December 27, 2005

Absolutely use a management company. Do not try to take care of the property from New York. I've just regained possession of a rental house I own in Maryland and have been stunned to see what kind of damage gets done to a place over the course of a few years. Having someone there to inspect and oversee things will help minimize that.

I also rented this house partially furnished and just have to say that you should not expect any of the furniture to make it through the rental in decent shape, even if you (as I did) take great care to choose renters that seem responsible and careful.

You can't possibly know what they'll do in the condo, and if they're renting it, they will not treat it like a hotel room-- they will treat it like their home.
posted by yellowcandy at 12:41 AM on December 28, 2005

A good place to start, if you're considering renting, is this page from Nolo Press, on "landlords & property management."

One question to consider: how easy would it be to buy a comparable property in Milwaukee, if you do sell now? If there are a bunch of similar units, and there is reasonable turnover, then selling now and buying back a unit later is essentially going to cost you roughly 6 to 8 percent for real estate and transaction fees and taxes. On the other hand, if you think you'd really have a problem finding something you'd really love, should you move back, then that is an argument to hold onto the property for a year or two to see how NYC goes.

Also, don't assume that you'll get a lot of appreciation in value in the property if you keep it. You may, but it's also possible that a recession or sharp increase in mortgage (interest) rates or other factor could result in prices stalling out, if not actually dropping. And even if prices remain as is, you'd essentially be losing the income from the equity that you'd get from selling the condo.
posted by WestCoaster at 12:09 PM on December 29, 2005