Investment property: To keep or sell?

Real Estate
#1

Hey everyone, second day here and second post. This one I’ve gone back and forth on many times and I don’t believe there is a clear answer in my mind.

The situation: I bought a condo in San Jose, CA at age 25 with the plan of staying there for the foreseeable future. Fast forward just one year and I was moving to Texas and trying to offload the condo at a loss. Ended up not finding a buyer and keeping it for the past 6 months as an investment property with a tenant, looking to reassess after their lease ends.

Where I’m at today: After all ownership costs (mortgage, taxes, interest, management fee, HOA) I’m paying about $1,200 a month to cover the difference between rental income and the costs to keep the condo. About $650 of that is going towards the principle so that helps, and I know some other costs are tax deductible as a rental property.

The question: I don’t really want to keep the condo, but am willing to do so if it makes financial sense. Trying to decide between banking on Bay Area real estate historical prices and hoping that it will appreciate enough for me to make a nice chunk in the long run, while also hoping for rent rates increase over time so that I’m paying less out of pocket to keep it. On the other side of the coin is that I don’t really want to keep it and am essentially allocating $15K a year just to keep the thing in the mean time while banking on hypothetical future growth. So, to keep or sell?

Thanks!

#2

What can you sell it for today? If you had that money in cash, would you go and buy this condo? I bet not.

Sell it. If it’s not cash flow positive, the numbers aren’t good as an investment property. It’s not local, so it’s going to be a pain in the ass. You don’t want it. You’re basically speculating on the future of a single city real estate market and burning hundreds of dollars a month to do so.

This isn’t even a close call in my mind. I’d sell that property today. Don’t throw good money after bad.

If you want to be in the real estate investment business, get out of this terrible investment, and buy a much better one in Texas. I’m sure you can find one that’s cash flow positive, rents will go up, mortgage will go down, appreciation will happen all without burning $15K/year on a long distance management project.

2 Likes
#3

Thanks Jeremy! You’ve pretty much validated what I’ve been thinking, even though my mom keeps swearing by the “historical appreciation of silicon valley real estate”.

My one issue is that my tenant was supposed to move out by July 1 and I was going to list. Due to COVID he says he is unable to move, but at the very least is still able to pay rent for the time being (with COVID laws I can’t evict him anyway). Looks like it’ll be 4 more months and then he’ll move out. When his lease ends it will be November which is historically a bad time to list your home.

So do I say screw it and sell it for what I can (and with interest rates likely staying low there should still be interest) or hold onto it until next spring or summer when the market typically heats back up?

Appreciate any insight!