Sell Or Rent? Which Is Worthier?
We have a condo in which we lived as a primary residence for 3.5 years until February 2002. We rented it out for a year since 8/02, and tenants moved out this 8/03. We know we can take tax exemption on the gain (about 20Kwith a sales price of 135K) if we sell it now, but we will lose extra monthly incoming cash flow (around 1300). Based on the economy condition in Dallas-Fort Worth, we are not sure if we should sell it or keep renting it out. If we rent it out again, we may lose the tax exemption on the gain when selling it in the future. What will you do if you were in my shoes? Thanks for your opinions
The biggest question is what are you going to do with the gains if you DO sell?????? So you've got $20,000 to invest. Where are you going to put it? Another Rental? If that's the case, might as well hold on to the one you've got. Stock market? No leverage, far from calculated risk.
It is ALL about Return on Investment in this game. It makes no sense to give up a 20% ROI investment for a 10% ROI investment. Answer that question and you'll know the answer to your question.
dwthesis,
How much of your $1300 monthly rent do you have left over after all expenses and mortgage payment?
How much money out of your own pocket do you have invested in this property? Include downpayment, closing costs, financing costs, and capital improvements.
I once asked a millionaire if he made his money buying low and selling high. He said he bought and never sold.
Mike
[addsig]
if you decided to keep renting, you could always to a 1031 exchange which would helpwith the capital gains issue.
DaveT,
$1300 is actually a breakeven number for me after I pay for property tax and HOA fees. That is why I am considering to sell it, especially the RE market is not as strong as before. I owe $100,000 on this property right now so I should gain $20K after deducting all closing and agent costs. That gain is not taxable...Well, that goes back to my original question: sell or rent?
It seems that all of you think it is better to rent it out instead of selling it.
If it's only breaking even, sell it, take the $20K and invest in something that'll actually give you something positive in return at the end of each month. No point in holding on to something that is not producing a positive cash flow. Make sense?
Problems with the buy and never sell theory in your case is (1) Your condo in Dallas which is experiencing an extremely soft rental market in some places and (2) Your condo doesn't generate positive cash flow (3) Your condo is not going to appreciate the same way a house may and with the expansion from dallas out toward Plano, Frisco, etc. you may not be able to sell it for what you can now in the future. I respect the opinion of others on the board and generally I follow buy/hold philosophy but I also don't think one size always fits all. My two cents.
Quote:$1300 is actually a breakeven number for me after I pay for property tax and HOA fees. That is why I am considering to sell it, especially the RE market is not as strong as before. I owe $100,000 on this property right now so I should gain $20K after deducting all closing and agent costs. That gain is not taxable...Well, that goes back to my original question: sell or rent?
It seems that all of you think it is better to rent it out instead of selling it.
It appears that the window on your capital gain exclusion closes in February 2005. The property, when rented at $1300, gives you a breakeven cash flow.
Would you rent the property for another year if you could still sell it before Feb 2005? What if you could get your tenant to give you $2500 up front for the privilege of buying your propery without a realtor and guaranteeing a $25K profit?
If the answer to both these questions is yes, then consider selling on a one-year lease option. Collect $2500 non-refundable option consideration now. Collect $1300 monthly rent, and another $1300 security deposit. Lock in your sale price to give you your $25K profit. To facilitate the sale, consider offering to sell on a contract for deed with at least 10% down, and carry back financing (at 2% above your current rate) on the balance for 24 months.
If you can make the "sale" happen before February 2005, you preserve your capital gains exclusion. Selling on the installment method will give you a little cash flow on your interest rate spread.
Thank you all for your good advices!
DaveT, I think your idea is very smart!
I've never done contract for deed before so I don't know what procedures I have to go through. Would you mind providing me with more specific steps? Do I need a RE lawyer to draft the contract for deed or Is there a standard format that I can adopt?
Thank you all again for your kind assistance!
Three reactions
1. Where I live condos are climbing faster than houses and serious peole predict that this is a national trend.
2. I have done well by buying and never selling. This merely requires that you be in an area that is appreciating rather than depreciating.
3. A RE atty is cheap and a mistake is expensive.