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Bought Condo for Residency, Now need to plan to either sell or rent out.

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  • Bought Condo for Residency, Now need to plan to either sell or rent out.

    Started residency in 2015, and 2 years into a 4 year residency. Bought a Condo for ~190k with physician's loan with no PMI with 10% down with parental assistance. Underestimated closing costs. Paid down ~13k from principal currently on 5/1 ARM @ 4.30%, mainly tackled my student loans these last 2 years. Student loans went from 160k down to 108k with REPAYE. Got some benefits with Condo ownership with taxes. Currently monthly payment is 1220/mo with 265 HOA/mo. Luckily rented a room out for 725/mo. EM in Michigan.

    Plan to move to another state after completion of residency. (TX) Been reading the blog and listening to the podcast much after I had already made the mistake of purchasing my condo during residency. Now the question is whether to rent when I move and sell it and move the equity to student loans vs new house wherever I move? If I sell in 2 years, looking at current comparables, I might break even on the sale @ 200k.

    Maxed Roth IRA contributions for wife and I since starting residency and plan to continue when I start moonlighting these last 2 years of residency and applying all extra money to my student loans. Also contributed 403b to obtain employer match (6% + 4.5%).

    Some other financial mistakes, bought a new car for 31k, down payment 10k.


  • #2
    If you can break even or come close, I would sell in a heartbeat.

    How much per month do you think you could rent it out for? That probably would answer your question right there. If you're barely breaking even renting it out with management fees (since there's no way you could do it long distance from Texas), then why would you keep it?

    Sell it, learn your lesson, and move on.


    • #3
      Rent probably would run around 1500-1700/mo. May break even with mortgage payment. Guess getting rid of it as soon as I move makes sense. I guess getting rid of it would decrease HA of out of state management. The other positive of owning and having consistent payments, was that it helped dramatically raise my credit score 100+ pts from low 600s to upper 700s now.


      • #4
        Get rid of it if your moving away from the area.  Just be grateful you didn't buy in the bubble of the mid 2000's.  Can you sell that car, downgrade and have lower monthly payments?  Your losses are already built in on the depreciation whether you realize it or not.  Just like the home, take the hit, learn from it, and move on.  Good job on the loans BTW.


        • #5
          Get out and consider whatever you lose tuition you paid for financial planning school.

          Not trying to be snarky. So many of my med school classmates did the same thing since "you always make money on real estate."

          I graduated in... 2008.


          • #6
            The only way I would recommend keeping it is if you would buy it all over again for rental property, because that's what you w/b effectively doing by not selling. If you hold on to try to get a bump in price and then sell, you're practicing market timing on real estate, which is not a good idea (not to mention the hassle of being a long-distance landlord).

            Buying the condo isn't the worst mistake in the world. You're doing a good job on your finances.
            My passion is protecting clients and others from predatory and ignorant advisors 270-247-6087 for CPA clients (we are Flat Fee for both CPA & Fee-Only Financial Planning)
            Johanna Fox, CPA, CFP is affiliated with Wrenne Financial for financial planning clients


            • #7
              Unless you ever plan to come back to the place of residency, just sell it and move on.

              Live like a resident for the first few years of attending. Rent a place for at least 2 years. I would keep the car and pay off the loan, unless it is a super low rate. Then pay the student loans.


              • #8
                Being a long-distance landlord is not necessarily a hassle, but it will cost you 8-10% of monthly rent, if you want a property management agency to do it for you. Have in mind that your property taxes will be higher once you convert it to a rental property and that most likely you will not be breaking even. It will cost you to rent out that place for some time. Seems like selling is the right thing to do.

                We got a condo in MI for $125K in 2011. It could be the same city as yours (one with the Big House), since price and rent sound about right. We moved to a different state because of my wife's residency, but we've been renting out the condo and we have a property management agency taking care of it (finding tenants, repairs, etc.) for 8% of a monthly rent. Rents went up during the last year for about 10-15%. The University creates demand so we shouldn't have a problem renting it out. Our condo generates some profit and I expect it to be higher as rent goes up.


                • #9
                  I was in the same position when I finished residency in 2006. I could have sold for ~$175k or more. I decided to find renters instead. They paid the mortgage for eight years, but I finally sold it in 2014 for $145k. I had good renters, but still had some of those headaches. Wish I would have sold when I had the chance.


                  • #10
                    You're gonna be an ER doc so you will have a good idea of your hourly earnings. All told, with the amount of time you'll spend on the place you'll be lucky to break even. You've hit it big as a doctor, no sense spreading yourself thin to MAYBE net a few hundred a month. Your time would be better spent working an extra shift.


                    • #11
                      I am in stark opposition to everyone who posted above.  I also bought a house as a resident (intern year, in 2012), on a physicians loan, gave zero down, paid a fantastic low price on the home, my mortgage plus HOA fees came out to about 1275/mo, had a roommate all 3 years who gave me 800/mo for the 2nd bed and 2nd bath, then when I moved for fellowship on the east coast, I rented it out to an attending physician for 1800/mo for past 2 yrs.  I recently just rented it out to a couple who signed a 2 yr lease for 1800/mo, and refinanced the mortgage to a 15 yr mortgage.  I've done all of this remotely.  I "manage" the properties myself.  I used craigslist to find renters.  Have not paid a management company a penny to do any of this.  I am getting about 10k a year in equity from my renters, and the most work that was involved was communicating with potential tenants for a few days over phone/e-mail before finding one to sign.  The house will be paid off in 15 yrs (currently is worth 250k), and I'll make 1500/mo cash on it every month after that if I keep renting.  I am well aware that luck has played a big role in all of this, but is the greatest investment I have ever made so far.


                      • #12
                        With real estate, the answer is always, "It depends."  These investments can turn out great or can go bust.

                        My best, $55k down payment on a townhouse, positive cash flow from day 1, held for 2 decades, market value now $950k, $5000/mo gross rent, mortgage balance only $70k.

                        Worst is a friend who bought at the top of the market and sold on the way down, big losses.

                        In an area with limited land, a growing population and great job growth with higher salaries, your chances for success are good if you have a positive cash flowing property held for a longer time period and the reserves to handle that blown boiler when disaster strikes.

                        In an area with space for new construction and limited growth, success is harder to come by unless you have properties that cash flow like crazy.



                        • #13
                          At first for me, calculating for wife, I and the dog to stay in a 2 bdrm apartment would have cost 1500 x 48 months = 72k thrown to rent. Usually cost of 1100 sqft apartment near my 15 min from my hospital. Then I thought maybe buying, getting a slightly large place, and subleasing a room out would help me get slightly ahead instead of throwing away 72k in rent.

                          I thought with Mortgage and HOA, much bigger space 1800sqft with attached 2 car garage @ ~1450/mo (with all insurances and taxes) then subtract 725 sublease rent, we'd pay about 700-800 a month for a much more upgraded place as far away from Detroit as possible for safety. I build equity, can harvest some tax benefits and don't worry about ice scraping off the car since we would have an attached garage unlike an apartment that would charge even more for unattached garage/covered parking in Michigan winter.

                          Those were my initial thoughts before I read the WCI and purchased if anyone is curious. Now I know I hate Condo HOA prices 250+/mo. Rates are better for single family homes.

                          The location ended up working since my wife decided to stop working and go back to graduate school, so we are equal distance from my hospital and her university.


                          • #14
                            I would sell if you can break even. Being an out of state landlord is not on my list of activities I consider fun.


                            • #15
                              Let me know if I have the numbers right:

                              - Your mortgage (1220) + HOA (265) = $1485.

                              - Rent is going to run 1500-1700.

                              Assuming I have that correct, you're likely going to be running cash flow negative. I'm factoring in maintenance, vacancy, and possibly property management. That also doesn't factor in the large capital expense assessment you might get from the HOA when they want to fix the roof or plumbing in the building. That's also with a 5/1 arm which you'll probably have a little difficulty refinancing unless you put in a little more cash in to make sure the equity is at least 15%. If you don't end up refinancing, that interest rate will jump considering the environment we're in and the numbers will look even worse.

                              I'm the biggest fan of rental real estate for long term wealth creation, but in this case I think you could take whatever equity you have in the place and find a better investment (in real estate, of course).