Residential Property Management/Sell or Rent Out Condo?
I am currently in process of buying a new home (in escrow). My family and have been living in a 2 bed/2 bath condo in a desirable suburb of L.A. and it was well past time for us to upgrade to bigger quarters. I've been going back and forth endlessly as to what we should do with the condo - sell it or rent it out. I'm sure it's a question you've pondered many times and it's one that doesn't seem to have a clear answer.
A few particulars: We bought our condo in 2004 for $200K - a good price at the time. We watched for the next few years as prices in our complex creeped up to the mid-$350K range and we were feeling pretty good about ourselves, but then the bust happened. Almost overnight our complex was full of foreclosures and similar units to ours were selling for around $150K. Prices have now creeped back up and I figure we could sell for $270K today. We owe $157K on it so we'd cash out around $90K after selling costs. There's a big part of me that thinks $90K would look awfully nice in my stock portfolio, but there's another big part of me that thinks property values will only continue to increase and I'd come out way ahead if I held onto the condo for a couple more years. I've looked into fair market rent in my area and I could get enough to cover my PITI, but just barely. In fact if I hire a property manager (which I will almost certainly do if I rent) my net cash flow will probably be a break-even, and I'll show a small loss (around $1500/year) on my IRS Schedule E after deducting depreciation, interest, etc.
I know it's a daunting question with many twists and turns, but I'm curious to see what a real estate professional like you would think. The ones I've talked to of course are more interested in encouraging me to sell because the want the listing.
I look forward to hearing your thoughts.
I don't like condos as investments unless they're in an area where they are in extremely high demand, such as a luxury high-rise in Manhattan or beach-front on Maui.
I usually recommend that condos be sold unless the cash flow beats any other investment available, which they seldom do. Condos are the first type of property to lose value when markets weaken and the last type to rebound in value when markets recover. They are at the mercy of the HOA and neighbors regarding common area maintenance and overall quality of life in the facility. Any gross positive cash flow is usually eaten up by management and HOA fees.
If you can use the tax loss, confirm the benefit with your tax guy and get your cash out of the condo before its value falls again.