Condo – sell or rent out?

[patientlywaiting]

2008 – After 5 years your loss on monthly carrying costs is about 42K. But you still have the 70K loss as well as any additional loss/gain in value over the next 5 years. (I'm guessing another 15% loss or about another 30K).

I think that the key to consider here is in 5 years, you'll STILL HAVE THE $70K LOSS of value + your carrying cost loss. 

[(former)FormerSanDiegan]

Who knows, could be 5 years could 15 years. That is the problem with RE right now. The risk of it being illiquid for long time is too high given the current macro-econ picture.
I agree it could be a very long time. At 12 months supply or more methinks RE is already illiquid. My guess is that those considering selling right now in San Diego will take up to a year to sell their property and will be selling about 15% below what they think today’s market value is.
I would also venture to guess that those closing escrow one year from now will be within 10% of the market bottom in terms of price.
Just my opinion.

[(former)FormerSanDiegan]

Who knows, could be 5 years could 15 years. That is the problem with RE right now. The risk of it being illiquid for long time is too high given the current macro-econ picture.
I agree it could be a very long time. At 12 months supply or more methinks RE is already illiquid. My guess is that those considering selling right now in San Diego will take up to a year to sell their property and will be selling about 15% below what they think today’s market value is.
I would also venture to guess that those closing escrow one year from now will be within 10% of the market bottom in terms of price.
Just my opinion.

[(former)FormerSanDiegan]

Who knows, could be 5 years could 15 years. That is the problem with RE right now. The risk of it being illiquid for long time is too high given the current macro-econ picture.
I agree it could be a very long time. At 12 months supply or more methinks RE is already illiquid. My guess is that those considering selling right now in San Diego will take up to a year to sell their property and will be selling about 15% below what they think today’s market value is.
I would also venture to guess that those closing escrow one year from now will be within 10% of the market bottom in terms of price.
Just my opinion.

[Anonymous]

Re:
“CMRJoe, you said you thought 275K was a good deal for a 1BR condo. As I would like to try to understand what was going on in people’s minds a few years ago, please clarify:
Did you think 275K was a good deal because that’s what 1BR condos are worth, or did you think 275K was a good deal because you would be selling it for 400K in 2 years?”

I thought that was a good deal because of how much everything was. A 2 BR in the same complex was 350k. I never bought it with the idea that it would be worth 400k, I never thought the condo would go down significantly in value though. We were paying 1200 in rent at the time, so we thought if we could buy a place we would be better off long term.

Live and learn

[Anonymous]

Re:
“CMRJoe, you said you thought 275K was a good deal for a 1BR condo. As I would like to try to understand what was going on in people’s minds a few years ago, please clarify:
Did you think 275K was a good deal because that’s what 1BR condos are worth, or did you think 275K was a good deal because you would be selling it for 400K in 2 years?”

I thought that was a good deal because of how much everything was. A 2 BR in the same complex was 350k. I never bought it with the idea that it would be worth 400k, I never thought the condo would go down significantly in value though. We were paying 1200 in rent at the time, so we thought if we could buy a place we would be better off long term.

Live and learn

[Anonymous]

Re:
“CMRJoe, you said you thought 275K was a good deal for a 1BR condo. As I would like to try to understand what was going on in people’s minds a few years ago, please clarify:
Did you think 275K was a good deal because that’s what 1BR condos are worth, or did you think 275K was a good deal because you would be selling it for 400K in 2 years?”

I thought that was a good deal because of how much everything was. A 2 BR in the same complex was 350k. I never bought it with the idea that it would be worth 400k, I never thought the condo would go down significantly in value though. We were paying 1200 in rent at the time, so we thought if we could buy a place we would be better off long term.

Live and learn

[Bloat]

Your “cash out is $1700”?

Is this your total monthly payment.

While not good, holding might not be as bad as you think. You’ve got Principle of almost $400/month and you will write off int, tax, depn, hoa & expenses of close to $2k/mo that will return about $500 to your pocket.

The principle and tax write off are real money bringing your carrying cost to about $1k/month (before the reset). I’d just rent it out and hope to minimize vacancy and upkeep expenses. In 15 years you might be able to brag about it.

[Bloat]

Your “cash out is $1700”?

Is this your total monthly payment.

While not good, holding might not be as bad as you think. You’ve got Principle of almost $400/month and you will write off int, tax, depn, hoa & expenses of close to $2k/mo that will return about $500 to your pocket.

The principle and tax write off are real money bringing your carrying cost to about $1k/month (before the reset). I’d just rent it out and hope to minimize vacancy and upkeep expenses. In 15 years you might be able to brag about it.

[Bloat]

Your “cash out is $1700”?

Is this your total monthly payment.

While not good, holding might not be as bad as you think. You’ve got Principle of almost $400/month and you will write off int, tax, depn, hoa & expenses of close to $2k/mo that will return about $500 to your pocket.

The principle and tax write off are real money bringing your carrying cost to about $1k/month (before the reset). I’d just rent it out and hope to minimize vacancy and upkeep expenses. In 15 years you might be able to brag about it.

[djrobsd]

I feel everyone’s pain on this board. I bought in 2004 at the high, $345,000 for a 2br, 1 bath detached house with no yard (practically a condo, but not quite since it’s a PUD)… And I put about $25,000 in repairs and improvements to the property, and of course another 5k in closing costs… My ARM just reset, and I’ve had the property for sale for 3 months with no offers. It’s been a tough road waiting for someone to come buy my unit (i’m just trying to break even at this point), but I finally decided to cut my losses and rent it out last month for $1650. So, the reset on my mortgage has my payment at almost $3100 w/ property taxes, and so you can easilly see the deficiency between rent and actual monthly payment…

You have to weigh everything out, and I still am. Good credit says a lot. Today I walked into SD County Credit Union, and opened an account, refinanced my car loan, and transferred one of my high rate Visa cards to their lower rate card, all in a matter of over an hour, with no hastle or fuss. In fact, I only had to show my drivers license, and 1 paycheck stub and the deal was done. That’s the beauty of having good credit, you can get stuff done with minimal hastle.

On the other hand, the temptation to walk away from my house is weighing heavily in my head… Good credit versus not having that huge burden, which do you choose?

My suggestion, which actually comes from sdrealtor, is to sit down and make a spreadsheet, and figure out ALL your options and the costs associated with those options. You can bang your head against all the wall all you want, but once you put it all down on paper, it makes it much easier to see what the best thing to do.

Don’t forget to include your tax implications. If you take an $800 a month loss, depending on what tax bracket you’re in, you’re probably looking at $350 less in taxes, so you can subtract that from your costs. This of course, assumes you ALREADY have adjusted your W2 at work to compensate for these expenses, some people claim 0 on their W2 even when they’re paying $3000 in mortgage interest a month and then get a lot back on their taxes, for me, I go the other way, and claim 9 so I can immediately see the money back, that they would have to refund me anyway when I deduct the mortgage interest.

Best wishes in whatever you decide to do, and be sure to share with all of us your story.

[djrobsd]

I feel everyone’s pain on this board. I bought in 2004 at the high, $345,000 for a 2br, 1 bath detached house with no yard (practically a condo, but not quite since it’s a PUD)… And I put about $25,000 in repairs and improvements to the property, and of course another 5k in closing costs… My ARM just reset, and I’ve had the property for sale for 3 months with no offers. It’s been a tough road waiting for someone to come buy my unit (i’m just trying to break even at this point), but I finally decided to cut my losses and rent it out last month for $1650. So, the reset on my mortgage has my payment at almost $3100 w/ property taxes, and so you can easilly see the deficiency between rent and actual monthly payment…

You have to weigh everything out, and I still am. Good credit says a lot. Today I walked into SD County Credit Union, and opened an account, refinanced my car loan, and transferred one of my high rate Visa cards to their lower rate card, all in a matter of over an hour, with no hastle or fuss. In fact, I only had to show my drivers license, and 1 paycheck stub and the deal was done. That’s the beauty of having good credit, you can get stuff done with minimal hastle.

On the other hand, the temptation to walk away from my house is weighing heavily in my head… Good credit versus not having that huge burden, which do you choose?

My suggestion, which actually comes from sdrealtor, is to sit down and make a spreadsheet, and figure out ALL your options and the costs associated with those options. You can bang your head against all the wall all you want, but once you put it all down on paper, it makes it much easier to see what the best thing to do.

Don’t forget to include your tax implications. If you take an $800 a month loss, depending on what tax bracket you’re in, you’re probably looking at $350 less in taxes, so you can subtract that from your costs. This of course, assumes you ALREADY have adjusted your W2 at work to compensate for these expenses, some people claim 0 on their W2 even when they’re paying $3000 in mortgage interest a month and then get a lot back on their taxes, for me, I go the other way, and claim 9 so I can immediately see the money back, that they would have to refund me anyway when I deduct the mortgage interest.

Best wishes in whatever you decide to do, and be sure to share with all of us your story.

[djrobsd]

I feel everyone’s pain on this board. I bought in 2004 at the high, $345,000 for a 2br, 1 bath detached house with no yard (practically a condo, but not quite since it’s a PUD)… And I put about $25,000 in repairs and improvements to the property, and of course another 5k in closing costs… My ARM just reset, and I’ve had the property for sale for 3 months with no offers. It’s been a tough road waiting for someone to come buy my unit (i’m just trying to break even at this point), but I finally decided to cut my losses and rent it out last month for $1650. So, the reset on my mortgage has my payment at almost $3100 w/ property taxes, and so you can easilly see the deficiency between rent and actual monthly payment…

You have to weigh everything out, and I still am. Good credit says a lot. Today I walked into SD County Credit Union, and opened an account, refinanced my car loan, and transferred one of my high rate Visa cards to their lower rate card, all in a matter of over an hour, with no hastle or fuss. In fact, I only had to show my drivers license, and 1 paycheck stub and the deal was done. That’s the beauty of having good credit, you can get stuff done with minimal hastle.

On the other hand, the temptation to walk away from my house is weighing heavily in my head… Good credit versus not having that huge burden, which do you choose?

My suggestion, which actually comes from sdrealtor, is to sit down and make a spreadsheet, and figure out ALL your options and the costs associated with those options. You can bang your head against all the wall all you want, but once you put it all down on paper, it makes it much easier to see what the best thing to do.

Don’t forget to include your tax implications. If you take an $800 a month loss, depending on what tax bracket you’re in, you’re probably looking at $350 less in taxes, so you can subtract that from your costs. This of course, assumes you ALREADY have adjusted your W2 at work to compensate for these expenses, some people claim 0 on their W2 even when they’re paying $3000 in mortgage interest a month and then get a lot back on their taxes, for me, I go the other way, and claim 9 so I can immediately see the money back, that they would have to refund me anyway when I deduct the mortgage interest.

Best wishes in whatever you decide to do, and be sure to share with all of us your story.

[4plexowner]

Bloat – are you saying that 2008 can take his entire $2K/mo loss as a writeoff? ($2K/mo loss * 27%ish tax bracket = $500/mo tax savings?)

I don’t think that is correct

As a rental the condo’s expenses, depreciation and income go onto Schedule E not Schedule A – the benefits from negative income on Schedule E are significantly less than the same deduction on Schedule A – and, as I pointed out in another thread, if you have W-2 income that puts you into AMT territory the tax benefits from losses on Schedule E are reduced even more because the bennies from Sched E are offset by increases in AMT

I’ll say it once again: be VERY conservative when making buy/sell decisions based on expected tax bennies – if the deal really hinges on the tax considerations go to a CPA and work through some real numbers

[4plexowner]

Bloat – are you saying that 2008 can take his entire $2K/mo loss as a writeoff? ($2K/mo loss * 27%ish tax bracket = $500/mo tax savings?)

I don’t think that is correct

As a rental the condo’s expenses, depreciation and income go onto Schedule E not Schedule A – the benefits from negative income on Schedule E are significantly less than the same deduction on Schedule A – and, as I pointed out in another thread, if you have W-2 income that puts you into AMT territory the tax benefits from losses on Schedule E are reduced even more because the bennies from Sched E are offset by increases in AMT

I’ll say it once again: be VERY conservative when making buy/sell decisions based on expected tax bennies – if the deal really hinges on the tax considerations go to a CPA and work through some real numbers

[Author]

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