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Selling vs renting apartment

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  • Selling vs renting apartment

    Hi everyone,

    New poster here and quite novice to the world of real estate - forgive any dumb questions I ask, a lot of this is like drinking from a firehose of information for me and I'm still wrapping my head around it.

    I am a first year attending in a medicine subspecialty. I bought a condo 4 years ago during my fellowship in a major mid-Atlantic city and am now trying to decide whether to sell or keep as a rental property. My wife and I plan to stay on in the same city but this apartment is too small for our needs. The apartment is in a great area, walking distance to the large hospital and university system where I work as well as the downtown area. My main motivation for potentially keeping the property would be as an investment property, as the neighborhood is excellent and will continue to be based on location.

    Some info on the apartment:

    Bought with a physician's loan (0% down) in 2018

    Sale price: 355k in 2018, owe 265k currently (plus balance of ~68k on a HELOC)
    Potential sale price today: 380-390k
    FRM @4% until 2025
    Monthly payments including mortgage, HELOC, tax/insurance ~$2100 ($472 going towards mortgage principal per month currently)
    HOA fee: $280/mo
    1bed/1 Ba, garage parking, 950 sq ft.
    Potential upcoming improvements: updating bathroom (bathtub, vanity)

    Potential rent: $2200-$2400/month, not including utilities, internet, etc.
    Desirable area; occupancy rate should be very good

    1) With monthly bills/fees of $2380, and projected rent that barely covers that or potentially would fall short, does it make sense to keep this as a rental property despite potentially negative cashflow at least the first few years, since the apartment is in such a good area?
    2) My understanding is that while I can't deduct the (possible) negative cashflow from my taxes on an annual basis, I could 'bank' each year's losses and deduct them from any capital gains when I sell the apartment one day - true?
    3) My understanding is also that if I were to sell the apartment (and have lived in it for 2 of the last 5, ie it's my primary residence), I could shelter to $250k of capital gains from taxes when I do sell -- right? So if I were to sell it within 3 years of moving out, this tax benefit would likely trump anything I get from #2?

    Any thoughts welcome - thanks so much.

  • #2
    Welcome! I’m generally leery of condos so may not have the best advice with that bias. It wouldn’t offer an impressive return which isn’t a deal breaker for me since you already own it with a great neighborhood, easy rentability etc however the current seller’s market offers many attractive reasons to sell especially in a condo situation where in the future there could be multiple identical units offered and with the high monthly fees should it be vacant or when listed.
    I would probably sell, mostly to take advantage of sellers market and homeowners tax credit unless having a rental property is among your goals.


    • #3
      There’s some red flags in this post. Doesn’t sound like you’re 100% sure on your plans for work/live, if you bought 0 down but have paid down 90k in principle and then on top of that have a 70k heloc, that math seems weird. A 1bd/ba should be big enough while you solidify finances/living plans. I would keep the condo and live in it until then, definitely wouldn’t rent on those numbers, and wouldn’t sell with those numbers either + what would you do if you sell?