Sell or keep condo?

[PGYTooMany]

First time poster here.

I am in the last year(s) of cardiology fellowship in an inexpensive Midwestern city. When I started fellowship, I purchased a 2 bedroom/2 bathroom condo for $120,000 with 20% downpayment. The reasoning at that time was if I rented during fellowship, I would have rented within walking distance to the hospital, but at a premium given the neighborhood around the hospital is twice as expensive as rest of the city. For example, rent for a modern, 1 bedroom apartment can run up to $1800-2000/month). Long story short, I ended up purchasing said condo in an adjacent neighborhood at aforementioned price and currently pay $950 for mortgage, escrow, and HOA. I sit on the condo board and am about to jack up my HOA by 4%, but will still pay <$1000/month.

I have an unknown number of years left in fellowship (yay academia). Fortunately, I have an adequate emergency fund, have maxed out all 401k/403b since beginning of fellowship, backdoor Roth, HSA, etc, and have an investment account going. I do have $200k in student loans refinanced at 2.75% when I realized I won't qualify for PSLF (not for a lack of effort though). My mortgage is currently at 4.375%. I haven't refinanced because I thought I would move away after fellowship. Now, I don't know.

So, should I refinance my mortgage now with intention to rent out my condo or sell? I know I am asking what I should do 1-1.5 years from now, but since the interest rates are going to go up in early 2022, refinancing now seems the prudent option if it makes financial sense to keep my condo. The neighborhood is appreciating in value (Zillow estimate for my condo is at $145,000 currently and a lot of other luxury apartments are actively being built) and I realistically don't foresee problems with finding tenants as my neighborhood is very residential for grad students/young professionals conveniently located between the medical and undergraduate campuses and easily accessible via public transportation. Similar 1 bedroom apartments are going for $800-1000 so I imagine I can charge $1200-$1400 for my condo, targeting roommates who could split the costs.

I pass the general 1% and 45% rules. Property taxes are ~$2000/year. I've spent <$2000 on my condo in the past 3.5 years, replacing a washing machine. All other appliances are in good order. I will likely need do some cleaning and re-painting if I rent it out, so I will assume I need to set aside $10,000 doing that.

My question is 2-fold: A) Is it worth keeping condo and renting it out and B) at what rent does it make financial sense to do so?

Appreciate all the feedback.

[jfoxcpacfp]

I don’t like to look at this from a strictly financial perspective. First, I think you need to step back and examine your goals and priorities.

If you had no condo, would this be the right time and place for you to buy the same condo, same terms, current value, etc. for purpose of having a rental property? This may be one of the rare times the answer is yes, I don’t know. But the answer is “no” for most people. If it is “no” for you, then you need to sell. If it is “yes”, then keep and evaluate rent, refi, etc. But don’t be swept up in the mania of doctors getting into rental property at this time. Again, it is not right for as many people as are going with the flow because that’s what all the other doctors are doing.

Welcome to the forum!

[ENT Doc]

Unknown years left in fellowship? That's the bigger question I have. The answer to your less concerning question is do not refinance and plan to sell.

[IlliniGopher]

It's such a small amount. Offloading it to remove the hassle when done with fellowship is what I would do. You're gonna be moving way bigger chip stacks when you're done with fellowship and this will be inconsequential. It will be more about the hassle than anything.

[TXDoc21]

I agree with ENT doc … unknown years remaining of fellowship? I’ve never heard of that.

If doesn’t sound like this would be a bad rental property if you were planning to stay in the area. But as illinigopher said I would sell and take the money. It’s just not that much money to justify the hassle of being a remote landlord.

[ObgynMD]

Forgive me if I’m reading in between the lines incorrectly, but sounds like it *could* be possible you will not be able to complete your fellowship?

If so, stop thinking about the condo!!

Pour your energy into finishing your fellowship, getting a full paying cardiology fellowship job. And then the condo will be chump change.

[PGYTooMany]

Unknown years left in fellowship? That's the bigger question I have. The answer to your less concerning question is do not refinance and plan to sell.

Sorry for the confusion. I have 1.5 years of fellowship left. Clinically, I have fulfilled all my requirements but am currently on a research grant which is paying my salary. The "unknown years" of fellowship refers to the nebulous transition between trainee, instructorship, and faculty position at an academic medical center, which in my boat can last anywhere between 2-5 years (aka a salary well below median for my specialty).

So the general advice is to sell. Is there anyone who would recommend keeping it? Regardless of this condo, I will be able to afford a 20% down payment on a new house ($600-800k) when I become an attending as I have been aggressively saving the past couple of years.

[pit.alumni]

I am a big believer in owning residential real estate as an investment and I have done well with it over the years. With that said often condos do not perform the way single family and multi family do. There are exceptions in popular high priced areas but the condo fees which are ever increasing are often a drag on both performance and appreciation. If your carrying costs are $1000/month I'd target a minimum rent of $1500/month but even with that you may find you are just breaking even when you consider vacancies, repairs etc.....If you use a property manager they will probably charge 10% of the monthly rent. If you refinance you will shave a little off your monthly payment, but it would probably take at least a few years to recoup it. It's hard to give advice on the forum without knowing all the particulars. But from the information you shared I'd agree with the consensus not to refinance or plan on holding. If you truly want to own investment properties, you can probably do better.

[StonesBonesIceCreamCones]

I had a similar situation when I finished residency. I ended up renting it for 3 years then sold (to avoid cap gains tax).

All-in-all, I'm not sure I'd do it again. I liked the idea of saying that I owned rental property. I liked having extra renal income each year (my cost was $1200/mo and I charged $2600/mo). I liked being able to deduct a bunch of stuff in TurboTax.

The biggest pain for me was maintenance. I was fortunate to have my father-in-law nearby as a very handy person, who could address the simpler tenant issues. I did not use a property manager and found it pretty stressful to try to handle my clinical duties while also troubleshooting urgent / bigger condo problems. Trying to search for a water heater service person is not a great way to spend time in between cases / patients in the office. It only happened 3-4 times over 3 years but I really hated it.

For me, because my condo appreciated from about $180k to $280k it became apparent that unless I re-financed it wasn't going to be an efficient use of capital. So I just sold it. I don't really miss it. Now that I have had 4.5 years of attending salary I don't really miss the cash flow either.

I do agree with pit alumni that the HOA fee is a drag

My advice is to just do a gut check - do you really think this is the optimal financial decision or do you just like the idea of being a landlord? No matter what you choose, it'll probably be fine, but perhaps a bit more of a pain in the neck if you're renting it out and unexpected things come about.