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Should I sell my rental property?

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  • Should I sell my rental property?

    I own a condo in dc from residency time which I’ve been renting out. Suddenly my tenants are moving out and I’m scrambling to find new ones bc DC has weird laws where tenants can pay month to month after the first year.
    I’m actually losing some money on the place bc mortgage is like 2100$, property manager 230$, condo fee 565$ and my rent is only 2835$(can go up to 2875$ but anything above that the property manager says will be hard to rent out this time of year.) that’s not even including taxes.
    He’s saying it may not rent for 60 days and so I’d lose like 6000$. Now I realize this may repeat again after new tenants stay there for a year.
    I kept the condo instead of selling bc I’ve only had it for 3.5 years and wanted to follow the 5 year rule to not lose money on the purchase.
    Can anyone see any compelling reason to keep the place? Or should I try to sell it?

  • #2
    Bummer because I'm generally in favor of keeping rental properties for the appreciation, diversification and tax advantages even if they are only just breaking even and covering expenses but it sounds like this one needs to go. Condos can difficult to rent and or sell in my experience although this time of year may work to your advantage if listing for sale. Good luck.

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    • Phoenixdown99
      Phoenixdown99 commented
      Editing a comment
      I could buy a different place, but not sure if the costs of selling and buying a new place justify it or not
      I am currently renting an apartment for myself

  • #3
    Originally posted by StateOfMyHead View Post
    Bummer because I'm generally in favor of keeping rental properties for the appreciation, diversification and tax advantages even if they are only just breaking even and covering expenses but it sounds like this one needs to go. Condos can difficult to rent and or sell in my experience although this time of year may work to your advantage if listing for sale. Good luck.
    I dont even worry if its not "breaking even" per se. You still get appreciation, inflation, etc....over the long run and acquire an asset at a fraction of the cost. People make too much of making money instantly, even worse with these rules of thumb that are near mythical (1%, etc..).

    Comment


    • Phoenixdown99
      Phoenixdown99 commented
      Editing a comment
      yes my real estate agent friend says it is better to hold onto it for depreciation tax benefits and appreciation. But I am very confused about how to calculate whether it is worth it
      Also I am renting the apartment I am currently living in. Not sure if that makes a difference.

  • #4
    The first question you should ask yourself is if you want to be a landlord. If the answer is no then you sell it. If the answer is yes, then you can run the numbers to see if it's worth it.

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    • #5
      I don’t care about whether I am a landlord bc my property manager does everything...I wouldn’t do it without him for sure

      Comment


      • #6
        The 5-yr rule is only a general guideline to use before buying real estate. It doesn't apply after the money is sunk into the property. If you would buy the property all over again today, keep it. If you wouldn't, then you know what you need to do.
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        Comment


        • Phoenixdown99
          Phoenixdown99 commented
          Editing a comment
          I bought it to live in. I would not have bought it as an investment to rent it out. Is that what you mean?
          However, now that I did buy it, not sure it is worth the cost of selling and buying a new place to justify changing to a different investment.

      • #7
        I do not agree that you are losing money. 1- The portion of your mortgage payment that is principal is coming back to you ultimately. 2- The property generally appreciates over time, you do not seem to be factoring this in. 3- You are paying a lower tax rate due to mortgage interest and real estate tax depreciation that is allowing you to keep more of your annual pay. Remember you will have a depreciation tax bill when you sell.

        Does your mortgage include escrow for property taxes and insurance?,,,if not that needs to be factored in your profitability assessment and help you decide.

        If you did keep it, the situation would look very different to you once the mortgage is paid off. There will be good and bad times with any investment. When the markets corrected 50%, many freaked out. It's how objective you can be about it that makes all the difference in outcome. Those that sold at market lows made a big mistake. Those that purchased have a big windfall. Likewise those that purchased real estate in the real estate market low are sitting on a big windfall now. those who paid too much for a property will struggle.

        I think in your case the decision to hold on or sell is personal. It is not crazy profitable obviously, and you seem to be concerned about cash flow. If you are concerned enough, okay to sell, just factor in realtor fees. www.biggerpockets.com and www.landlordology.com can be good places to enhance your understanding of real estate.

        Also, do you really need a property manager for just one property? I know you said you wouldn't do it otherwise. Sounds like being a landlord may not be your thing.

        Your accountant should be able to give you the clarity as to how much you're actually benefitting by keeping it versus selling for an alternative investment with the money, or debt pay-down if you have other debts.

        Good luck!

        Comment


        • Phoenixdown99
          Phoenixdown99 commented
          Editing a comment
          1 - the principal is only about 700$ a month bc it is a 30 year mortgage, but true, it is something
          2 - it did not appreciate much, maybe 30 k in 4 years
          3 - lower tax rate only on the rental income...basically paying off the principal slowly .... wont have depreciation bill if i sell b/c I have a K1 from a real estate crowdfund that would offset it.

          My mortgage takes care of property taxes
          Yes, I need a property manager. Not my thing.
          I have no other debts. I would either buy a property to live in (I am currently renting but didnt buy because not sure I would stay in it too long), buy a different investment property, or put the $ in a CD and wait till I buy a place I want to live in for a long time.... I guess?

      • #8
        Just one other factor: DC has very landlord unfriendly laws, especially for evictions. I have a few rental properties and am generally encouraging about direct ownership, but I would not seek to be a landlord in DC. Do you meet the requirements to avoid capital gains on the sale? If so, just me, but I’d probably sell this one, then specifically consider whether land-lording was right for you before embarking on the next ownership experience.
        Last edited by Larry Ragman; 01-04-2020, 03:34 PM.

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        • Phoenixdown99
          Phoenixdown99 commented
          Editing a comment
          yes it does. I am avoiding capital gains if I sell b/c it did not appreciate much (maybe 30k if lucky) and I have a K1 loss from a real estate crowdfund to offset the depreciation that was taken. I bought it to live in, not landlord...not sure I want to landlord at all

      • #9
        Maybe look for a tenant who will commit to a minimum 2 year or 3 year lease? Then you will have less months empty, as empty months lead to a major hit to your bottom line profitability.

        Also, when you rent to a new tenant, you could consider a clause in the lease requiring 60 or 90 days notice of a decision to vacate.

        We own multiple rental properties. With a bit of close attention to the small details, we have very little vacancy. We accomplish that by favoring long term tenants, long term leases, and advance notification clauses of a decision to vacate. When there is advance notice of a decision to vacate, we have time to show the property and to have a new tenant lined up to move in, in advance. We also own upper middle market level properties where units rent in the range of around 5k/month, so our tenants tend to be highly compensated professionals. We self manage with the help of the staff of a business we own, and we also have a thick "rolodex" of service personnel whenever there is a need for a repair.

        Everything in real estate is local. Our properties attract people seeking top level schools for their children, so we also have our leases set to expire in the summer months. If we are ever forced to lease in the winter, we offer below market rent for the early months to rent rapidly (7 months at 4700 is way better than 2 months vacant followed by 5 months at 5k) and then we align the new lease term to end in the summer months. Our market is so seasonal. A family ready property listed at 5k in the summer months may go to multiple bids and a rent of 5.5k as families looking for the school district and location compete for limited inventory. The same property listed in November will need to be discounted to say $4700 to rent quicker with an increase to 5k in July.

        Comment


        • Phoenixdown99
          Phoenixdown99 commented
          Editing a comment
          Cannot find such a tenant due to DC law, it always goes month to month after one year.

      • #10
        I have real estate in Northern Virginia. I wouldn't be in a rush to own real estate in the District.

        Right now you have a great opportunity to see if your property manager is worth his 10% cut. Can the property manager find you a decent new tenant in 30 days or less? If so, the property manager might be worth that sizable cut of your rental income.

        Comment


        • Phoenixdown99
          Phoenixdown99 commented
          Editing a comment
          even if he does I am not sure this investment is worth it. It did not appreciate well, and net negative each month. However it is stable in a down market apparently.

      • #11
        Hasn't your condo appreciated a lot? My sister owns a place in DC which has appreciated some 15% according to it's z-estimate in the past 3-4 years. I would look at the decision backwards. If you sold your condo and had a little bit of money left over, would you go re-invest in another condo in Washington DC to become a long distance landlord. If you would, you should obviously keep your place and continue paying down the mortgage. If you wouldn't, you should probably just sell the place because that is essentially what you are doing by holding onto it. I will also mention that I would think that real estate prices to continue to rise in the DC/norther Virginia area due to the new Amazon headquarters, but not sure if that is already baked into the prices of housing there. I don't know anything about the dc real estate market, but I would think that the market will always be strong there due to all the lobbying and government money there.

        Comment


        • Phoenixdown99
          Phoenixdown99 commented
          Editing a comment
          It did not appreciate much, maybe 30K in 4 years. The thing is it is in a very stable area, that won't go down in a down market (I think...at least according to the realtor)

      • #12
        Well, I on the other hand own a property that has not appreciated at all in 11 years. Very stagnant market. It almost pays for itself each month but over the past 10 years has been a loser. Problem is I have tried selling it once but never got a good offer of even what I paid for it. And never refinanced it when I should have due to a controlling bully ex husband who never wanted to for reasons of keeping me broke I am sure. He’s gone now and the mortgage is less than 100k but interest rate is 5.5.
        I just want to finally cut my losses and move on as this market ain’t moving.

        OP, in a market like DC, I would keep it. Long term it will most likely be good for you. I personally would never purchase a condo because of their ridiculous monthly fees. But I am cheap and not great at real estate.

        Comment


        • Phoenixdown99
          Phoenixdown99 commented
          Editing a comment
          Mine did not appreciate a lot, but it is stable in a down market. I have a good interest rate.

      • #13
        >>Phoenixdown99 commented
        Yesterday, 07:17 PM
        I bought it to live in. I would not have bought it as an investment to rent it out. Is that what you mean?
        However, now that I did buy it, not sure it is worth the cost of selling and buying a new place to justify changing to a different investment.<<

        What I meant was - if you wouldn't buy the property all over again today and choose to go into landlord business again, then you should sell. By hanging on to it, you are de facto making that decision.
        Last edited by jfoxcpacfp; 01-15-2020, 11:47 AM. Reason: punctuation
        Financial planning, investment management and CPA services for medical professionals | 270-247-6087

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